As filed with the Securities and Exchange Commission on September 12, 1999
REGISTRATION NO. 333-59829
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SWISSRAY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
NEW YORK [3841]
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Number)
16-0950197
(I.R.S. Employer Identification Number)
SWISSRAY INTERNATIONAL, INC.
320 WEST 77TH STREET, SUITE 1A
NEW YORK, NEW YORK 10024
UNITED STATES: (917) 441-7841
SWITZERLAND: 011-4141-914-1200
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
RUEDI G. LAUPPER,
CHAIRMAN OF THE BOARD AND PRESIDENT
SWISSRAY INTERNATIONAL, INC.
320 WEST 77TH STREET, SUITE 1A
NEW YORK, NEW YORK 10024
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
GARY B. WOLFF, ESQ.
GARY B. WOLFF, P.C.
747 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 644-6446
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
discretion of the converting shareholders after the effective date of the
Registration Statement.
* In accordance with Rule 429 of the General Rules and Regulations under
the Securities Act of 1933 this Registration Statement and the Prospectus which
is a part thereof relates, in part, and combines with an earlier
Registration Statement under Registration No. 333-50069 declared effective May
12, 1998.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE (4)
<TABLE>
<CAPTION>
Proposed
Maximum Proposed
Amount to Offering Maximum
Title of Each Class of be Price Aggregate Amount of
Securities to be Registered Per Share Offering Registration
Registered (1) (2)(3) Price(1)(2) Fee
- -------------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.01 par
value per share) 11,310,942 $2.593 $29,329,273 $8,652.14 (4)(5)
</TABLE>
(1) Includes (a) 2,437,740 shares for previously issued restrictive shares
pursuant to Convertible Debentures referred to under Registration Nos.
333-50069, and 333-59829 (b)6,558,153 shares which are reserved for
issuance pursuant to currently issued and outstanding Convertible
Debentures which will be offered for resale by certain Selling Holders
under this Registration Statement, (c) 2,079,972 shares which were
subsequently automatically converted into convertible debentures upon
non-payment on their respective due dates and which shares may be
offered for resale by certain then Selling Holders under this
Registration Statement, (d) 85,077 shares being registered pursuant
to certain "piggy-back" registration rights granted to an otherwise
unaffiliated lender pursuant to terms of a promissory note (see
"Description of Capital Stock-Promissory Note") and (e) 150,000 shares
being registered which underlie certain outstanding Warrants (unrelated
to aforementioned convertible debentures and/or promissory notes). Also
registered hereunder (and included in the 11,310,942 shares) are shares
of Common Stock of the Registrant referred to above are (i)those shares
issuable in exchange for interest earned under Convertible Debentures
with interest calculated through respective mandatory conversion dates
and (ii) such additional shares as may be issued under anti-dilution
provisions contained in the aforesaid Convertible Debentures and
related Registration Rights Agreements. Such additional shares do not
and will not include any shares as may otherwise be required to be
issued as a result of adjustments to the conversion price, stock
dividends, stock splits or similar transactions as Registrant is not
relying upon Rule 416 with respect thereto.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933. In
accordance with Rule 457(c) of Regulation C, the estimated price for
the Securities was based on the average of the high and low reported
prices on the Electronic Over-the-Counter Bulletin Board on August 24,
1999 an average of $2.578.
(3) The number of shares referred to throughout this Registration Statement
unless otherwise specifically indicated gives retroactive effect to a 1
for 10 reverse stock split effective as of October 1, 1998.
(4) The number of securities being carried forward and the amount of the
filing fee associated with such securities that was previously paid
under earlier Registration No. 333-50069 was 1,477,008 shares of
Common Stock, $.01 par value, for which the registration fee of
$2,859.40 was paid. This information is provided in accordance with
Rule 429(b) of the 1933 Act and the number of securities being carried
forward and the amount of the filing fee associated with such
securities that was previously paid under earlier Registration No.333-
50069 was an additional 1,967,900 and under Registration No. 333-59829,
10,532,503 shares and 85,077 shares pursuant to piggy-back registration
rights for which the registration fee of $1,545.08 was paid.
<PAGE>
(5) Includes (a) 2,437,740 shares which are reserved for issuance pursuant
to currently issued and outstanding convertible debentures which will
be offered for resale by certain Selling Holders under Registration
Nos. 333-50069 and 333-59829 and (b) an additional aggregate of
9,027,700 shares as indicated in footnote 1(b) through (e) inclusive.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K.
<TABLE>
<CAPTION>
Registration Statement Item and Heading Prospectus Caption
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Cover Page of Registration
Front Cover Page of the Prospectus Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside
Prospectus Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk
Earnings to Fixed Charges Factors; The Company
4. Use of Proceeds Prospectus Summary; Use
of Proceeds
5. Determination of Offering Price Outside Front Cover Page
of Prospectus
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Selling Holders and Plan
of Distribution
8. Plan of Distribution Outside Front Cover Page
of Prospectus; Selling
Holders and Plan of
Distribution
9. Description of Securities to be Registered Description of Capital Stock
10. Interests of Named Experts and Counsel Legal Matters; Independent
Auditors
11. Information with Respect to Registrant
(a) (1) Description of Business Prospectus Summary;
Management's Discussion and
Analysis of Financial Condition
and Results of Opertions;
Business; The Company
<PAGE>
Registration Statement Item and Heading Prospectus Caption
(2) Description of Property Business -- Description of Property
(3) Legal Proceedings Business -- Legal Proceedings
(4) Control of Registrant Not Applicable
(5) Nature of Trading Market Risk Factors; Selling
Holders and Plan of
Distribution
(6) Exchange Controls and Other Limitations Risk Factors; Description
Affecting Security Holders of Capital Stock
(7) Taxation Risk Factors
(8) Selected Financial Data Prospectus Summary;
Selected Consolidated
Financial Data
(9) Management's Discussion and Analysis of Management's Discussion
Financial Condition and Results of and Analysis of Financial
Operations Condition and Results of
Operations
(10) Directors and Officers of Registrant Management
(11) Compensation of Directors and Officers Management
(12) Options to Purchase Securities from Management
Registrant or Subsidiaries
(13) Interest of Management in Certain Certain Transactions
Transactions
(b) Financial Statements Financial Statements
12. Disclosure of Commission Position on Indemnification Information Not Required
for Securities Act Liabilities In Prospectus
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
DATED SEPTEMBER 12, 1999
PROSPECTUS
SWISSRAY INTERNATIONAL, INC.
11,310,942 Shares of Common Stock
This prospectus ("Prospectus") relates to the offer and sale of up to
11,310,942 shares of common stock, $.01 par value per share (the "Common
Stock"), of Swissray International, Inc., a New York corporation ("Swissray
International, Inc." or the "Registrant"), which shares consist of (i) up to
6,558,153 shares of Common Stock which are issuable to certain persons (the
"Selling Holders") upon conversion of convertible debentures, issued in nine (9)
separate financings from June 1998 through August 1999, (the "Convertible
Debentures") and which shares are being registered hereby pursuant to
Registration Rights Agreements between the Registrant and the Selling Holders
named in this Prospectus under Registration No. 333-59829, (ii) up to 2,079,972
additional shares of Common Stock heretofore issued as restrictive shares to
certain Selling Holders upon conversion of convertible debentures issued
in March 1998, and August 1998 (the "Convertible Debentures") and which
additional shares are being registered hereby pursuant to Registration Rights
Agreements between the Registrant and the Selling Holders named in a Prospectus
under Registration Nos. 333-50069, and 333-59829 (iii) 2,143,516 shares which
are reserved for issuance pursuant to four separate promissory note
financings which were subsequently automatically converted into convertible
debentures upon non-payment on their respective due dates which shares may
be offered for resale by certain then Selling Holders under this Registration
Statement, (iv) 85,077 shares being registered pursuant to certain "piggy-back"
registration rights granted to an otherwise unaffiliated lender pursuant to
terms of a promissory note (see "Description of Capital Stock - Promissory
Note") and (v)150,000 Shares being registered which underlie certain outstanding
Warrants (unrelated to aforementioned convertible debentures and/or promissory
notes). The up to 11,310,942 shares of Common Stock offered hereby are herein
referred to as the "Securities." For further and more specific information
identifying when each of the debentures referred to herein were issued and
itemizing the number of shares being registered for each of such debentures,
reference is made to risk factor entitled "Significant Number of Shares
Issued..".
The number of shares being registered hereunder (exclusive of an
aggregate of 2,079,972 restrictive shares already issued as indicated in (ii)
and (iv) of preceding paragraph) when added to the 14,541,537 shares of common
stock currently issued and outstanding would increase total issued and
outstanding shares to 23,329,663 and would represent 38% of all outstanding
shares of common stock. The registration of such a large percentage of total
outstanding securities may have a material adverse effect on the market price of
the Company's common stock. Those shares being registered hereunder in
accordance with aforementioned convertible debentures are to be issued in
accordance with private placements and reliance upon exemption afforded under
Regulation D and Section 4(6). The Company's common stock is currently listed
for trading on the Electronic Over-the Counter Bulletin Board ("OTC") and the
closing bid price on August 24, 1999 was $2.593. See also "Market Price and
Dividend Policy" hereinafter and in particular footnote 1 thereto.
<PAGE>
The Securities may be offered and sold from time to time by the Selling
Holders named herein (or in Registration No. 333-50069 hereinafter "Selling
Holders" unless otherwise indicated or the Stockholder whose shares are being
registered pursuant to aforesaid piggy-back rights) or by their transferees,
pledgees, donees or their successors pursuant to the Prospectus. The Securities
may be sold by the Selling Holders from time to time directly to purchasers or
through agents, underwriters or dealers who may receive compensation in the form
of discounts, concessions or commissions from the Selling Holders or the
purchasers of the Securities for whom such agents, underwriters or dealers may
act. See "Selling Holders and Plan of Distribution." If required, the names of
any such agents or underwriters involved in the sale of the Securities and the
applicable agent's commission, dealer's purchase price or underwriter's
discount, if any, will be set forth in an accompanying supplement to this
Prospectus. The Registrant will not receive any of the proceeds from the sale of
the Securities by the Selling Holders.
The Selling Holders will receive all of the net proceeds from the sale
of the Securities and will pay all underwriting discounts and selling
commissions, if any, applicable to any such sale. The Registrant is responsible
for payment of all other expenses incident to the offer and sale of the
Securities. The Selling Holders and any broker-dealers, agents or underwriters
that participate in the distribution of the Securities may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Act"), and any profit on the sale of the Securities by the Selling Holders and
any commissions received by any such underwriters may be deemed to be
underwriting commissions or discounts under the Act. See "Selling Holders and
Plan of Distribution" for a description of indemnification arrangements.
All references herein to the "Company" refer to Swissray International,
Inc. and its subsidiaries. The executive offices of the Company are located at
Swissray International, Inc., 320 West 77th Street, Suite 1A, New York, New
York 10024. The telephone number is 917-441-7841 and the fax number is
917-441-7842. The address in Switzerland is Turbistrasse 25-27, CH-6280
Hochdorf, Switzerland and the telephone number in Switzerland is
011-4141-914-1200.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE
AND INVOLVE A HIGH DEGREE OF RISK. ACCORDINGLY, PROSPECTIVE INVESTORS
SHOULD BE PREPARED TO SUSTAIN THE LOSS OF THEIR ENTIRE INVESTMENT.
- 2 -
<PAGE>
The Registrant has not taken any action to register or qualify the
Securities for offer and sale under the securities or "blue sky" laws of any
state of the United States. However, pursuant to the Registration Rights
Agreements among the Registrant and the Selling Holders (the "Registration
Rights Agreements"), the Registrant will use reasonable efforts to (i) register
and qualify the Securities covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the investors who
hold a majority ^ interest of the Securities being offered reasonably request
and in which significant volumes of shares of Common Stock are traded, (ii)
prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until the earliest (the "Registration Period") of (A) the date that is two
years after the Closing Date, (B) the date when the Selling Holders may sell all
Securities under Rule 144 or (C) the date the Selling Holders no longer own any
of the Securities; (iii) take such other actions as may be necessary to maintain
such registrations and qualification in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Securities for sale in such jurisdictions; provided,
however, that the Registrant shall not be required in connection therewith or as
a condition thereto to (A) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify, (B) subject itself to general
taxation in any such jurisdiction, (C) file a general consent to service of
process in any such jurisdiction, (D) provide any undertakings that cause more
than nominal expense or burden to the Registrant or (E) make any change in its
articles of incorporation or by-laws or any then existing contracts, which in
each case the Board of Directors of the Registrant determines to be contrary to
the best interests of the Registrant and its stockholders. Unless and until such
times as offers and sales of the Securities by Selling Holders are registered or
qualified under applicable state securities or "blue sky" laws, or are otherwise
entitled to an exemption therefrom, initial resales by Selling Holders will be
materially restricted. Selling Holders are advised to consult with their
respective legal counsel prior to offering or selling any of their Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS __, 1999.
AVAILABLE INFORMATION
The Registrant is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of this material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office at 450 Fifth Street, NW., Washington, D.C. 20549. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission, such as the Registrant. The address of such
site is http:\\www.sec.gov.
- 3 -
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial information incorporated by reference herein
or appearing elsewhere in this Prospectus.
THE COMPANY
The Registrant was incorporated under the laws of the State of New York
on January 2, 1968 under the name CGS Units Incorporated. On June 15, 1994, the
Registrant merged with Direct Marketing Services, Inc. and changed its name to
DMS Industries, Inc. In May of 1995 the Registrant discontinued the operations
then being conducted by DMS Industries, Inc. and acquired all of the outstanding
securities of SR Medical AG, a Swiss corporation engaged in the business of
manufacturing and selling X-ray equipment, components and accessories. On June
5, 1995 the Registrant changed its name to Swissray International, Inc. The
Registrant's operations are being conducted principally through its wholly owned
subsidiaries, Swissray Medical AG ( formerly known as SR Medical Holding AG
and SR Medical AG) a Swiss corporation and its wholly owned subsidiary Swissray
(Deutschland) Rontgentechnik GmbH (formerly known as SR Medical GmbH), a German
limited liability company as well as through the Company's other wholly owned
subsidiaries, Swissray America, Inc., a Delaware corporation,Swissray Healthcare
,Inc., a Delaware corporation and Swissray Information Solutions,Inc. a Delaware
corporation.
Swissray Media AG (formerly SR Medical Holding AG and SR Medical AG
until renamed in June 1999 and February 1998) acquired all assets and
liabilities, effective July 1998, of its wholly owned subsidiaries,SR Medical AG
(known as Teleray AG until renamed in February 1998), a Swiss corporation
and Telray Research and Development AG, a Swiss corporation. Swissray Medical AG
also absorbed all assets and liabilities of the Company's other wholly owned
subsidiary SR Management AG (formerly SR Finance AG), a swiss corporation.
Effective as of July 1, 1999 Swissray Medical Systems, Inc., a
Delaware corporation (formerly Swissray America Corporation) and Empower Inc.
a New York corporation, have been merged into Swissray America Inc., a
Delaware corporation. Unless otherwise specifically indicated, all references
hereinafter to the "Company" refer to the Registrant and its subsidiaries.
The Company is active in the markets for diagnostic imaging devices for
the health care industry. The Company's products include a full range of
conventional X-ray equipment for all diagnostic purposes other than mammography
and dentistry, a direct digital multi-functional X-ray system - the ddR-Multi
System (formerly known as the AddOn-Multi-System) and the SwissVision(TM) line
of DICOM 3.0 compatible postprocessing workstations operating on a Windows NT
platform for the processing of digital image data. In addition, the Company is
in the business of selling components and accessories for X-ray equipment
manufactured by third parties and providing services related to imaging systems.
The Company is also offering products, consulting and services related to
viewing, archiving, networking and transmitting of digital X-ray images.
The services offered by the Company include the installation and
after-sales servicing of imaging equipment sold by the Company, consulting
services and application training of radiographers. In the United States, the
Company offers information and informatics solutions consulting services to
hospital imaging departments and imaging centers, maintenance management and
after sales-services of products manufactured by the Company and third parties
(multi-vendor, multi-modality services).
The Company and its predecessors have been in the business of
manufacturing and selling X-ray equipment in Switzerland and Germany since 1988.
Beginning in 1991, the Company's predecessors began to expand into other markets
in Europe, the Middle East and Asia. In 1992, the Company entered into a first
Original Equipment Manufacturing ("OEM") Agreement with Philips Medical Systems
GmbH ("Philips Medical Systems") providing for the manufacturing by the Company
of a Multi-Radiography System ("MRS"). Simultaneously, the Company developed the
first SwissVision(TM) image post-processing system, which was able to convert
analog images obtained in fluoroscopy into digital information. In 1993, the
Company won the innovation award of the Chamber of Commerce of Central
Switzerland for this post-processing system. Beginning in 1993, the Company
began the development of direct digital X-ray technology for medical diagnostic
purposes.
- 4 -
<PAGE>
On April 1, 1997, the Company acquired Empower, Inc., a New York
corporation ("Empower") which since incorporation in 1985, had been engaged in
distributing and servicing diagnostic X-ray equipment and accessories in the New
York/New Jersey/Connecticut area. Certain details with respect to such
acquisition were reported in a Form 8-K and Form 8-K/A1 with date of report of
April 1, 1997. In February 1998 the Company entered into a letter of intent with
E.M. Parker Co., Inc., a Massachusetts corporation ("Parker") with respect to
the sale of Empower's film and x-ray accessories business. Thereafter, the
Company and its wholly owned subsidiary, Empower, Inc. ("Empower")entered into
an Asset Purchase Agreement with Parker pursuant to which the Company and
Empower sold and Parker purchased substantially all of the assets of Empower
(excluding certain excluded assets as defined in the Agreement) in consideration
of: (i) the assumption by Parker of certain liabilities of Empower; (ii) the
cash purchase price of $250,000.00; and (iii) the payment by Parker of
approximately $376,000 to a banking institution in satisfaction of certain
outstanding indebtedness of Empower. Empower has been merged into Swissray
America, Inc. effective July 1, 1999. The Company is currently engaged in
litigation with the former CEO of Empower. For information regarding such
litigation reference is made to "Business - Legal Proceedings".
On October 17, 1997, the Company acquired substantially all of the
assets of Service Support Group LLC ("SSG"), located in Gig Harbor, Washington.
SSG has been in the business of selling diagnostic imaging equipment and
providing services related thereto in the markets on the West Coast of the
United States since it was formed on October 16, 1996. SSG's operations are
currently being conducted through the following wholly owned Company
subsidiaries: Swissray Healthcare, Inc., and Swissray Information Solutions,
Inc. The Company was recently engaged in litigation with three individuals who
formerly owned SSG. For information regarding such litigation and subsequent
settlement terms with respect thereto, reference is made to "Business - Legal
Proceedings".
The following organizational chart graphically indicates the Company,
its wholly owned subsidiaries and certain additional information regarding each
of such firms including principal locations.
<TABLE>
<CAPTION>
Organization Chart
-----------------------------
|SWISSRAY International, Inc.|
| New York |
| USA |
----------------------------
|
--------------------------------------------------------|----------------------------------------
| | | | |
| | | | |
<S> <C> <C> <C> <C>
-------------------- -------------------- -------------------- ---------------------- -------------
|Swissray Healthcare,| |Swissray Information| |Swissray Medical AG| |Swissray Rontgentechnik| | Swissray |
| Inc. | | Solutions Inc. | | Hochdorf | | (Deutschland) GmbH | |America, Inc.|
| Delaware, USA | | Delaware, USA | | Switzerland | | Wiesbaden, Germany | | USA |
-------------------- -------------------- ------------------- ---------------------- -------------
</TABLE>
- 5 -
<PAGE>
THE OFFERING
Common Stock Offered(1) Up to 11,310,942 shares of Common Stock.
Common Stock Outstanding
Before the Offering(2)(3) 14,541,537
Common Stock Outstanding
After the Offering(4) 23,329,663
Use of Proceeds The Registrant will not receive any of the
proceeds from the sale of any of the
Securities.
Risk Factors The Securities offered hereby
involve a high degree of risk. See "Risk
Factors" commencing on page 8 hereof.
Electronic Over-the-Counter
Bulletin Board Symbol SRMI
(1) Includes an aggregate of up to 6,558,153 shares of Common Stock reserved
for issuance upon the conversion of the Convertible Debentures. See
"Selling Holders and Plan of Distribution" and "Description of Capital
Stock." Also includes an aggregate of 2,437,740 additional shares of
Common Stock heretofore issued as restrictive shares upon conversion of
Convertible Debentures issued in March 1998, and August 1998 which latter
shares relate to Registration Nos. 333-50069 and 333-59829 in accordance
with Rule 429 (b) of the 1933 Act. Also being registered hereunder in
accordance with certain "piggyback" registration rights are 85,077
restrictive shares heretofore issued pursuant to terms of a convertible
promissory note, 150,000 shares underlying certain outstanding Warrants
(unrelated to convertible debentures) and 2,079,972 shares which
are reserved for issuance pursuant to four separate promissory note
offerings which were subsequently automatically converted into convertible
debentures upon non-payment on their repective due dates. Regarding such
former promissory notes see Description of Capital Stock - Promissory Notes
Subsequently Converted Into Debentures - December 1998, March 2, 1999,
March 26, 1999 and July 9, 1999.
(2) Does not include (i) those shares referred to in footnote 1 above, (ii)
161,000 shares of Common Stock which may be issued upon the exercise of
outstanding options under the Registrant's 1996 Non-Statutory Stock Option
Plan (the "1996 Plan"), and (iii) 200,000 shares of Common Stock
reserved for issuance upon the exercise of options available for future
grant under the under the 1997 Non-Statutory Stock Option Plan (the "1997
Plan").
(3) As of the close of business on August 24, 1999 there were 14,541,537 shares
issued and outstanding held by 674 stockholders of the Registrant's Common
Stock.
(4) While the Common Stock registered hereunder is being offered on a delayed
or continuous basis pursuant to Rule 415 under the Act, the Registrant
has quantified the number of shares that would be outstanding if debentures
were converted as of August 24, 1999 (while taking into account interest
earned through date of mandatory conversion).
- 6 -
<PAGE>
Summary Financial Data
The summary information below represents financial information of the
Registrant for the fiscal years ended June 30, 1999, June 30, 1998, and June 30,
1997 which information was derived from the audited consolidated financial
statements of the Registrant.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1999 1998 1997*
--------- --------- ---------
(In Thousands Except Per Share Data)
Statement of Operations Data:
<S> <C> <C> <C>
Net Sales $ 17,296 $ 22,893 $ 13,151
Cost of goods sold 13,529 18,082 8,445
--------- --------- ---------
Gross profit 3,767 4,811 4,706
Selling, general and administrative expenses 15,581 18,748 17,450
--------- --------- ---------
Operating loss (11,814) (13,937) (12,744)
Other expenses (income) (40) 281 (319)
Interest expense 4,639 8,590 762
--------- --------- ---------
Loss from continuing operations, before (16,413) (22,808) (13,187)
income taxes and extraordinary item
Income tax provision (benefit) -- -- 110
--------- --------- ---------
Loss from continuing operations before
extraordinary item $(16,413) $(22,808) $(13,297)
======== ========= ========
Loss per share from contunuing operations $ (2.52) $ (8.48) $ (8.41)
======== ========= =========
</TABLE>
* Restated
Pro-Forma As adjusted
June 30, June 30, June 30,
1999 1999 (1) 1999 (2)
Balance Sheet Data: ________ _________ ________
<TABLE>
<S> <C> <C> <C>
Total assets 23,761 24,861 24,761
Long term liabilities 15,751 16,899 195
Total liabilities 31,516 30,844 13,389
Common stock subject to put 1,820 1,820 1,820
Total stockholders' equity (7,755) (7,803) 9,552
</TABLE>
(1) Includes July 1999 financing of $1,100,000 and conversion to debenture in
August 1999.
(2) Adjusted to reflect conversion of convertible debentures and accrued
interest thereon, since such debentures contain a mandatory conversion
feature whereby any unconverted balance is automatically converted on the
last date of debenture.
- 7 -
<PAGE>
RISK FACTORS
Investors should carefully consider the factors set forth below as well
as the other information set forth in this Prospectus before purchasing the
Securities.
History of Increasing Losses; Profitability Uncertain
As of June 30, 1995 the Registrant had accumulated losses on a
consolidated basis of approximately $6,000,000. A substantial part of such
losses resulted from activities unrelated to the Company's present operations.
Since June 30, 1995 and for the four fiscal years commencing July 1, 1995 and
concluding June 30, 1999, the Company incurred additional net losses aggregating
$61,700,405 ($17,246,028 of which was attributable to year ended June 30, 1999
as compared to $22,503,109 which was attributable to year end June 30, 1998).
Such additional losses primarily resulted from the significant expenses
associated with the development of the Company's products, primarily its direct
digital X-ray system, the ddR-Multi-System, the building of the Company's
organization and market position as well as the costs of amortization of
debenture issuance costs and beneficial conversion feature (as well as the
absence of a significant increase in sales - during fiscal year ended June 30,
1998 - as a result of the delay in the market introduction of certain of the
Company's products, which delays were for the purpose of assuring product
quality prior to introduction to the industry). The likelihood of the success
of the Company must be considered in light of the problems, expenses,
difficulties, complications and past delays encountered in connection with the
development of any 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 further successful introduction of the ddR-Multi-System, further market
acceptance of new product introductions in the future and competition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Products," "-- Research and Development" and "--
Competition."
Need for Continued Market Acceptance of the ddR-Multi-System
The Company's future performance will depend to a substantial degree
upon the continued market introduction and acceptance of the ddR-Multi-System.
The Company's marketing efforts to date have generated considerable awareness
about the ddR-Multi-System among radiologists. From October 1997 through June
30, 1999, the Company sold twelve ddR-Multi-Systems in the United States and
Europe. During the first two months of its current fiscal year the Company has
already contracted sales of 10 ddR-Multi-Systems which represents a 25% increase
in sales of such Systems over the entire preceding fiscal year (when eight
Systems were sold). The extent of, and rate at which, the market introduction,
acceptance and penetration can be achieved by the ddR-Multi-System are functions
of many variables, including, but not limited to, obtaining the necessary
governmental approvals (see "Government Regulation" hereinafter), price,
effectiveness, acceptance by potential customers and manufacturing, training
capacity and marketing and sales efforts. There can be no assurance that the
ddR-Multi-System will achieve or maintain acceptance in its target markets
although management is pleased with the degree of industry acceptance to date
(especially reception and feedback received at RSNA convention in Chicago in
December 1998, ECR convention in Vienna in March 1999 and the Computer
convention (SCAR) held in Houston, Texas in May 1999. Similar risks may confront
other products developed by the Company in the future. See "Business --Products"
and "-- Regulatory Matters."
- 8 -
<PAGE>
Reliance on a Single Product
The Company has concentrated its efforts primarily on the development
of the ddR-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 ddR-Multi-System will be successfully commercialized
notwithstanding its recent successful introduction both within and without the
United States (as heretofore and hereinafter indicated) and the fact that more
Systems (10) have been sold during the first two months of the Company's current
fiscal year than were sold for the entire preceding fiscal year. There can be
no assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more commercially attractive than
the ddR-Multi-System. See "Business -- Products" and "-- Competition."
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.
There can be no assurance that any additional source of financing at
reasonable terms or otherwise (be it debt and/or equity financing) will be
available to the Company in the future (notwithstanding availability of such
financings as recently as August 1999) or that absent such financing the Company
will have sufficient cash flow to maintain operations in the manner
contemplated. See also risk factor directly below regarding shares issued since
May of 1995 as a result of debt or equity financing.
Significant Number of Shares Issued as a Result of Equity and Debt Financings
Pursuant to Regulation S and Regulation D
From May 1995 through August 24, 1999 the Company has engaged in a
significant number of equity (Regulation S) financings and debt (Regulation D)
financings. Appearing directly below is a chart indicating the number of shares
issued as a result of such finanicngs.
- 9 -
<PAGE>
<TABLE>
<CAPTION>
Type of Date of Closing Discount Number Of Proceeds Outstanding
Financing Financing Bid Price From Market Shares Issued(3) Received Balance
<S> <C> <C> <C> <C> <C> <C>
Reg S- Off-Shore May 20, 1995 (4) 2,000,000 $4,000,000 $ -0-
Reg S- Off-Shore Dec. 10, 1995 (4) 1,000,000 $4,500,000 $ -0-
Reg S- Convertible Sept. 11, 1996 $4.125 1,872,707 $3,800,000 $ -0-
Reg S- Convertible Jan. 10, 1997 $3.00 2,395,709 $3,500,000 $ -0-
Reg S- Off-Shore Mar. 5, 1997 $2.6875 1,000,000 $2,000,000 $ -0-
Reg S- Prom. Note Apr. 28, 1997 $1.96875 800,000 $2,000,000 $ -0-
Reg S- Convertible May 15, 1997 $2.40625 -- $2,000,000 $ -0-
Reg S- Convertible June 15, 1997 $3.0625 -- $2,000,000 $ -0-
Reg S- Convertible July 31, 1997 $2.750 4,077,878 $4,262,500 $ -0-(includes May and June 1997)(5)
Reg D- Convertible Aug. 19, 1997 $2.6875 20% 3,643,053 $5,000,000 $1,850,000 rolled over
Reg D- Convertible Nov. 26, 1997 $1.84375 25% 4,397,081 $2,158,285 $ -0-
Reg D- Convertible Dec. 11, 1997 $1.375 25% 7,735,099 $3,690,000 $ -0-
Reg D- Convertible Mar. 16, 1998 $1.00 20% 7,075,138 $5,500,000 $ -0-
Reg D- Convertible June 15, 1998 $.578 20% (1) $2,000,000 $2,000,000
Reg D- Convertible Aug. 31, 1998 $.281 18% (1) $6,143,849 $5,629,421
Reg D- Convertible Oct. 6, 1998 $.188 18% (1) $2,940,000 $2,940,000
Reg D- Convertible May 13, 1999 $.500 18% (1)(2) $1,080,000 $1,119,600
Reg D- Convertible Jan. 29, 1999 $.375 18% (1) $1,170,000 $1,170,000
Reg D- Convertible May 31, 1999 $.437 18% (1)(2) $1,110,000 $1,132,200
Reg D- Convertible May 14, 1999 $2.875 20% (1) $ 500,000 $ 500,000
Reg D- Convertible May 21, 1999 $3.00 20% (1) $ 200,000 $ 200,000
Reg D- Convertible June 9, 1999 $2.625 20% (1) $ 150,000 $ 150,000
Reg D- Convertible June 24, 1999 $.59375 18% (1)(2) $ 550,000 $ 561,000
Reg D- Convertible Aug. 23, 1999 $3.750 20% (1)(2) $1,100,000 $1,148,400
</TABLE>
(1) Utilizing the August 24, 1999 bid price for the Company's common stock
($2.593) and assuming indicated discount from market, if all convertible
debentures were converted the number of shares required to be issued (inclusive
of such shares as may be issued for interest earned) would amount to 8,638,126
shares. However, since (as indicated in preceding risk factor) the debenture
agreements do not contain any "floor" provisions, the number of shares as may
actually be issued in the future may significantly increase if there is a
further significant decline in the bid price of the Company's common stock.
(2) Such shares as may be issued result from conversion of promissory notes
into debentures when notes were not paid at or before their respective due dates
Outstanding balance amounts indicated include interest earned on promissory
notes as of due date, which due date then became date of convertible debenture
issuance. See also "Description of Capital Stock - Convertible Promissory Notes
Subsequently Converted Into Debentures - December 1998, March 2, 1999, March 26,
1999 and July 9, 1999".
(3) In accordance with the terms of the debentures and related agreements,
2,437,740 of these shares have been issued with restrictive legends and are
included in the number of shares being registered pursuant to this Registration
Statement.
(4) Date precedes initial NASDAQ listing when securities traded in "pink
sheets". While prices are not currently available some were determined in arms-
length negotiations at the time of such financings.
(5) The July 31, 1997 transaction represents a renegotiated replacement,
inclusive of interest, of those prior two transactions which occurred on May 15,
1997 and June 15, 1997 ($2,000,000 each).
(6) In each instance where a Regulation D financing was concluded the
Registrant was required to file a Form D with the SEC indicating to what extent,
if any, net proceeds were utilized as and for payments to "officers, directors
and affiliates" of the Registrant as opposed to "payment to others". Each of the
Forms D indicate that net proceeds received were entirely allocated as "payments
to others" and with a substantial majority of such funds being allocated to
working capital.
These persons and/or firms owning convertible debentures may profit
from "shorting" (selling without ownership of underlying shares) the
Registrant's common stock by covering such short positions with registered
shares of Company common stock received upon debenture conversion.
- 10 -
<PAGE>
Dilution; Effect of Outstanding Convertible Debentures on Certain Shares
The Registrant has outstanding convertible debentures and options to
purchase Common Stock at prices that are below the per share price to purchasers
of the Registrant's Common Stock in the market. The discount from market,
dependent upon the specific convertible debenture, ranges from 18% to 20% except
for one instance where the discount from market was 25% on a $145,969 debenture
(since entirely converted into shares of Company common stock). The exercise of
such convertible debentures or options would have a dilutive effect on the
investment of a holder of the Registrant's Common Stock.As of August 24, 1999 if
all of the principal balance and interest earned on outstanding unconverted
convertible debentures and warrants were converted (based on calculation
contained in this Registration Statement) the Registrant would be required to
issue 8,788,126 shares of its common stock thereby increasing total outstanding
from 14,541,537 to 23,329,663 and reducing percentage of all current
stockholders from 100% to 62%. Historically the Company has met (and intends to
continue to meet) its convertible debenture obligations through issuance of
stock as opposed to cash payments (i.e., interest earned from issuance of
debenture to date of conversion has been paid in stock).
As and when conversion occurs regarding outstanding convertible
debentures referred to herein (and in prior risk factor entitled "Significant
Number of Shares Issued..") a number of new significant holders of Company
common stock will necessarily exist.
The market price of the Registrant's Common Stock may also be adversely
affected by sales of substantial amounts of Common Stock in the public market,
including sales of Common Stock under Rule 144 or after the expiration of any
other applicable holding period (by contract and/or statute). The sale of such
stock could also adversely affect the ability of the Registrant to sell Common
Stock for its own account. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management -- Compensation of
Directors and Executive Officers," "Selling Holders and Plan of Distribution"
and "Description of Capital Stock."
Issuance of Significant Percentage of Securities Pursuant to Consulting Agree-
ment With Corresponding Dilution to Current Stockholders
In March 1999 the Registrant issued an aggregate of 3,800,000 shares of
restrictive common stock pursuant to two separate consulting agreements and in
lieu of cash payment. At the time of such issuance these shares represented
approximately 32% of all outstanding shares and currently represent
approximately 26% of all outstanding securities. Accordingly, upon issuance of
such 3,800,000 shares, current stockholders percentage of ownership (100%)
decreased (by 32%) to 68% of all then issued and outstanding shares. The
Registrant has no current plans to continue this practice. For further
information regarding terms and conditions relating to such consulting
agreements, reference is herewith made to "Business - Recent Developments".
- 11 -
<PAGE>
Significant Portion of Company Assets Are Intangible Assets
As of June 30, 1999, and for the year then ended, the Company's
licensing agreement, patents and goodwill (aggregating approximately $4,900,000)
are all intangibles and account for approximately 21% of all Company assets.
Amortization of such intangibles amounts to approximately $821,000 or
approximately 5.3% of total operating expenses. The Company evaluates the
recoverability of unamortized intangible assets based upon expectations of
nondiscounted cash flows and operating income. Impairments, if any, would be
recognized in operating results if a permanent diminution in value were to
occur.
Reliance on Large Customers
In the past, the Company has made a significant amount of sales to a
few large customers. Historically, the identity of the Company's largest
customers and the volumes purchased by them has varied. The loss of one of the
Company's current two largest customers who accounted for 54% of Company sales
during fiscal year ended June 30, 1999 (as compared to the second largest
customer who only accounted for 1% of Company sales during fiscal year ended
June 30, 1999) or a reduction of the volume purchased by such customer 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 considers the
relationship with its largest customers to be satisfactory. The Company expects
that as sales of its ddR-Multi-System continues to increase, the Company's
revenue will be less dependent on one or a few large customers. See Note 19 to
the Consolidated Financial Statements of June 30, 1999, 1998 and 1997 and
"Business -- Sales and Marketing."
Risk of Currency Fluctuations
The Company is subject to risks and uncertainties resulting from
changes in currency exchange rates. Future currency fluctuations, to the extent
not adequately hedged, could have an adverse effect on the Company's business,
financial condition and results of operations. On occasion, the Company enters
into currency forward contracts as a hedge against anticipated foreign currency
exposures and not for speculation 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 U.S. dollars. For a discussion of these risks, see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Effect of Currency on Results of Operations."
No Registration Under "Blue Sky" Laws
The Registrant has not taken any action to register or qualify the
Securities for offer and sale under the securities or "blue sky" laws of any
state of the United States. However, pursuant to the Registration Rights
Agreements, the Registrant will use reasonable efforts to (i) register and
qualify the Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the investors who hold a
majority interest of the Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times until the earliest
(the "Registration Period") of (A) the date that is two years after the Closing
Date (B) the date when the Selling Holders may sell all Securities under Rule
144 or (C) the date the Selling Holders no longer own any of the Securities;
(iii) take such other actions as may be necessary to maintain such registrations
and qualification in effect at all times during the Registration Period and (iv)
take all other actions reasonably necessary or advisable to qualify the
Securities for sale in such jurisdictions; provided, however, that the
Registrant shall not be required in connection therewith or as a condition
thereto to (A) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify, (B) subject itself to general taxation in any
such jurisdiction, (C) file a general consent to service of process in any such
jurisdiction, (D) provide any undertakings that cause more than nominal expense
or burden to the Registrant or (E) make any change in its articles of
incorporation or by-laws or any then existing contracts, which in each case the
Board of Directors of the Registrant determines to be contrary to the best
interests of the Registrant and its stockholders. Unless and until such times as
offers and sales of the Securities by Selling Holders are registered or
qualified under applicable state securities or "blue sky" laws, or are otherwise
entitled to an exemption therefrom, initial resales by Selling Holders will be
materially restricted. Selling Holders are advised to consult with their
respective legal counsel prior to offering or selling any of their Securities.
- 12 -
<PAGE>
Risks Associated With International Operations
The Company does business in numerous countries, including the United
States, Switzerland and Germany. Revenues from international operations outside
the United States amounted to approximately 76.7% of total sales for the fiscal
year ended June 30, 1999. In addition to the currency risks discussed above, the
Company's international operations are subject to the risk of new and different
legal and regulatory requirements in local jurisdictions, tariffs and trade
barriers, potential difficulties in staffing and managing local operations,
credit risk of local customers and distributors, potential inability to obtain
regulatory approvals, different requirements as to product standards, potential
difficulties in protecting intellectual property, risk of nationalization of
private enterprises, potential imposition of restrictions on investments or
transfer of funds, potentially adverse tax consequences, including imposition or
increase of withholding and other taxes on remittances and other payments by
subsidiaries, and local economic, political and social conditions, including the
possibility of hyper-inflationary conditions, in certain countries. Any adverse
change in any of these conditions could have a material adverse effect on the
Company's business or financial condition. See "-- Risk of Currency
Fluctuations," "-- Government Regulation," "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Taxes," "-- Effect of Currency
on Results of Operations" and "Business -- Regulatory Matters."
The Company previously reported an order backlog for its digital x-ray
equipment as of June 30, 1997 of $30,000,000; $29,000,000 of which relates to a
contract with a purchaser located in South Korea. No portion of this $29,000,000
purchase order has been filled due to economic problems in South Korea and
beyond the Company's control. See also "Business - Backlog".
Highly Competitive Market, Rapid and Significant Technological Change
The highly competitive markets in which the Company operates are
characterized by rapid and significant technological change, evolving industry
standards and new product introductions. The Company competes with numerous
competitors, many of which are well-established in the Company's markets. Most
competitors are divisions of larger companies with potentially greater financial
and other resources than the Company.
The Company's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price and performance characteristics. Although the Company believes
that it has certain technological and other advantages over its competitors,
realizing and maintaining these advantages will require continued investment by
the Company in research and development, sales and marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be successful in maintaining such advantages. If the Company's products or
technologies become non-competitive or obsolete, it will have a material adverse
effect on the Company. See "Business -- Competition."
Dependence on Patents and Proprietary Technology
The Company has patented certain aspects of its proprietary technology
in certain markets and has filed patent applications for its direct digital
technology in key markets, including the United States. The European patent as
well as the U.S. patent for the Add-On Bucky have been granted and expire
January 2015. The duration of other patents range from 2000 to 2016. However,
there can be no assurance that other applications will be granted. There can be
no assurance that the Company's issued patents or other patents issued in the
future will afford protection from material infringement or that such patents
will not be challenged. The Company also relies on trade secrets and
proprietary and licensed know-how, which it protects, in part, through
confidentiality agreements with employees, consultants and other parties.
There can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the Company's trade
secrets will not otherwise become known to, or independently developed by,
competitors.
There also can be no assurance that the Company's technology will not
infringe upon the patents of others. In the event that any such infringement
claim is successful, there can be no assurance that the Company would be able to
negotiate with the patent holder for a license, in which case the Company could
be prevented from practicing the subject matter claimed by such patent. In
addition, there can be no assurance that the Company would be able to redesign
its products to avoid infringement. The inability of the Company to practice the
subject matter of patents claimed by others or to redesign its products to avoid
infringement could have a material adverse effect on the Company.
- 13 -
<PAGE>
The Company obtained a non-exclusive license for a term of two years
ending July 24, 1999(recently extended to July 31, 2000) to use certain software
for its line of SwissVision(TM) postprocessing systems. There can be no
assurance that this license will not be granted to a competitor of the Company.
See "Business -- Intellectual Property."
Government Regulation
General
The Company's services, products and manufacturing activities are
subject to extensive and rigorous government regulation, including the
provisions of the Federal Food, Drug and Cosmetic Act. Commercial distribution
in certain foreign countries is also subject to government regulations. The
process of obtaining required regulatory approvals can be lengthy, expensive and
uncertain. Moreover, regulatory approvals, if granted, may include significant
limitations on the indicated uses for which a product may be marketed.
The Food and Drug Administration (the "FDA") actively enforces
regulations prohibiting marketing without compliance with the pre-market
approval provisions of medical devices. A Section 510(k) application is required
in order to market a new or modified medical device. If specifically required
by the FDA, a pre-market approval may be necessary. The FDA review process
typically requires extended proceedings pertaining to the safety and efficacy
of new products, which may delay or hinder a product's timely entry into the
marketplace.
On November 21, 1997, the AddOn Bucky(R), the direct digital detector
of the ddR-Multi-System received FDA approval. The Company also submitted the
ddR-Multi-System for Section 510(k) approval with the FDA and such approval was
obtained on December 18, 1997 so that the ddR-Multi-System may be marketed in
the United States.
The FDA also regulates the content of advertising and marketing
materials relating to medical devices. There can be no assurance that the
Company's advertising and marketing materials regarding its products are and
will be in compliance with such regulations. The Company is also subject to
other federal, state, local and foreign laws, regulations and recommendations
relating to safe working conditions, laboratory and manufacturing practices.
Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspensions of approvals, seizures or recalls of products,
operating restrictions and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could affect the timing of,
or prevent the Company from obtaining, future regulatory approvals. The effect
of government regulation may be to delay for a considerable period of time or to
prevent the marketing and full commercialization of future products or services
that the Company may develop and/or to impose costly requirements on the
Company. There can also be no assurance that additional regulations will not be
adopted or current regulations amended in such a manner as will materially
adversely affect the Company. See "-- Risks Associated With International
Operations," "Business -- Markets" and "-- Regulatory Matters."
The Company is in compliance with the following regulations:
Section 510(K) notification, 21CFR 892.1680, Reg. K973710
Quality Assurance QSR 21 CFR Part 820 and Part 820.72 (inspection)
General Labeling Provisions and 21 CFR Part 801.4, 801.5 and 801.6
ISO 9001/EN 46001 and Appendix II
BAG CH (Ministry of Health CH)
EWG 93/42
ENTELA (USA), UL/CSA (USA), CSA/UL (Canada)
Sales to Health Care Industry
The Company's products are used exclusively in the health care
industry, which is highly regulated. The health care industry in certain markets
for the Company's products, including the United States, has experienced
significant pressure to reduce costs, which has led in some jurisdictions to
substantial reorganizations and consolidations of health care providers or
- 14 -
<PAGE>
payors. Cost reduction efforts by the Company's customers may adversely affect
the potential markets for the Company's products and services. It is also
possible that legislation could be adopted in any of these jurisdictions which
could increase such pressures or which could otherwise result in a modification
of the private or public health care system or both or impose limitations on the
ability of the Company to market its products in any such jurisdiction. Any such
event or condition could have an adverse impact on the Company's business,
financial condition or results of operations. See "Business -- Markets."
Reliance on Key Management
The Company's business is highly dependent on the principal members of
its management, marketing, research and development and technical staffs, and
the loss of their services might impede the achievement of the Company's
business objectives. In addition, the Company's future success will depend in
part upon its ability to retain highly qualified management, scientific,
technical and marketing personnel. There can be no assurance that the Company
will be successful in retaining such qualified personnel or hiring additional
qualified personnel. Losses of key personnel could have a material adverse
effect on the Company's business. The Company has no key man life insurance
policies with respect to any of its senior executives. See "Business -- Research
and Development" and "Management -- Directors and Executive Officers of the
Company."
Limited Manufacturing History with Respect to ddR-Multi-System
The Company has limited experience with the manufacture and assembly of
the ddR-Multi-System in the volumes that will be necessary for the Company to
generate significant revenues from the sale of the ddR-Multi-System. The Company
may encounter difficulties in scaling up its production or in hiring and
training additional personnel to manufacture the ddR-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. See "Business - Products".
Dependence on Sole Source Suppliers
The Company has only single sources for certain essential components of
the ddR-Multi-System. Interruptions in the supply of such components might
result in production delays, each of which could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"-- Reliance on A Single Product". To date no material interruptions have
occured.
The percentage of Company revenues derived from products which included
components then only currently available from a single source supplier amounts
to 13.6% as of June 30, 1999. The agreement with the single source supplier
of certain camera electronics will be terminated December 31, 1999. The Company
has 160 CCD cameras in stock which can be used for the next 40 ddR-Systems.
The Company is currently in negotiations with three different comparable
source suppliers and does not expect any material business interruptions to
occur regarding CCD camera availability in a timely manner nor does it
anticipate that change of supplier will have any affect upon quality of its
ddR-Systems. The agreement with the single source supplier of optics expires
in July 2002 and subject to renegotiations. This agreement may not be
terminated by either party without cause.
Inability to Currently Determine Number of Shares Which May be Issued Upon
Debenture Conversion; Potential For New Significant Stockholders and Potential
Significant Percentage Dilution to Existing Stockholders Which Would Result From
Significant Increase in Outstanding Shares
Any additional convertible debenture financings will result in
additional dilution to present Company shareholders by reducing their percentage
of interest in the Company. In the past the Company has issued (and currently
intends to issue when, as and if necessary) debt convertible into common stock
without any limits on the amount that can be converted over any specific period
of time. Since such conversion occurs at a negotiated discount from market
price, such conversion can have a negative impact upon trading price of the
Company's common stock. Further, since there is no "floor" in the debt
- 15 -
<PAGE>
convertibles (i.e., no bid price below which debentures may not be converted)
there is no specific limit on the number of shares that may be issued upon
conversion since such number of shares is dependent upon common share price at
of conversion. Additionally, debenture conversion may result in a larger number
of new significant stockholders to the Company.
Potential Recalls and Product Liability
Any of the Company's products may be subject to recall for unforeseen
reasons. The medical device industry has been characterized by significant
malpractice litigation. As a result, the Company faces a risk of exposure to
product liability, errors and omissions or other claims in the event that the
use of its X-ray equipment, components, accessories or related services or other
future potential products is alleged to have resulted in a false diagnosis and
there can be no assurance that the Company will avoid significant liability.
There also can be no assurance that the Company will be able to retain its
current insurance coverage or that 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.
As of the date hereof, the Company continues to maintain what it considers to be
adequate product liability insurance so as to enable it to be compensated for
certain losses incurred as a result of product recalls and product liability
claims (but remains "at risk" if and to the extent that awarded damages exceed
coverage).
Limited Public Market; Liquidity; Possible Volatility of Stock Price
The Common Stock was quoted on the Nasdaq SmallCap Market System under
the symbol "SRMI" until its delisting on October 26, 1998 and is currently
quoted on the Electronic Over-the-Counter Bulletin Board under the same symbol.
There can be no assurance that an established public market for the Common Stock
can be established and/or 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.
Delisting Due To Non-Compliance With Certain NASDAQ Standards
The Nasdaq Stock Market recently adopted certain changes to the
standards for issuers with securities listed on Nasdaq. One of the changes
included increasing the quantitative maintenance requirements for continued
listing in the Nasdaq SmallCap Market, on which the Company's Common Stock was
then listed and traded under the symbol SRMI until October 26, 1998 delisting.
In order to maintain continued listing on Nasdaq the Company's Common Stock was
required to maintain a closing bid price at least equal to $1.00 per share. On
October 26, 1998 NASDAQ determined to delist Company's securities from The
NASDAQ Stock Market effective with the close of business October 26, 1998. The
advise (accompanying the delisting letter) indicated in pertinent part that (a)
the bid price of Company's common stock had fallen below $1.00 per share on
October 26, 1998 despite the Company having demonstrated ".. a closing bid price
in excess of $1.00 for a period of 17 consecutive trading days" and (b) the
Company's 15 day extension within which to timely file its Form 10-K for fiscal
year ended June 30, 1998 had expired October 15, 1998 and, accordingly, "the
Registrant is now deficient in filing its 10-K for the fiscal year ended June
30, 1998".
The NASDAQ Listing and Hearing and Review Council("Council") may,on its
own motion, determine to review any NASDAQ Listing Qualifications Panel
("Panel") decision within 45 calendar days after issuance of a written decision.
The Council, by letter dated December 9, 1998, and on its own initiative, called
for review of the above referenced Panel's decision. The Council may affirm,
modify, reverse, dismiss, or remand the decision to the Panel. The Registrant
may also request the Council to review its decision and such request must be
made within 15 days of the date of this decision. The institution of a review,
whether by way of any request, or on the initiative of the Council, does not
operate as a stay of NASDAQ's October 26, 1998 delisting decision.
- 16 -
<PAGE>
The Company formally requested a review of NASDAQ's decision in a
timely manner and such request was confirmed by NASDAQ on November 16, 1998
wherein NASDAQ indicated that the Company had until January 15, 1999 for its
submission of any additional information it may deem pertinent for purposes of
Review Council's consideration. The Company understands that the Review Panel is
prepared to and will consider any and all additional information supplied to it
by the Company that did not exist at the time of delisting and, accordingly, the
Company provided certain new and significant information (in a timely manner)
for NASDAQ's consideration; such information primarily consisting of the fact
that current bid price for common stock met NASDAQ standards and that the
Company was current with respect to its Exchange Act reporting requirements and
was accompanied by various literature describing the Company's products and
business prospects.
On April 1, 1999 the Council issued a Decision whereby it
reversed and remanded the decision of the NASDAQ Panel with instructions,
having found that the Company was not provided with adequate notice and
opportunity to respond to all of the basis upon which the Panel apparently
determined to delist the Company's securities.
The Council's instructions directs NASDAQ staff and Panel to determine
whether the Company complies with all continued listing requirements for the
Nasdaq SmallCap Market and demonstrates the ability to maintain compliance with
these requirements in the long term. Such Council's decision directs the staff
to conclude its review and provide its findings to the Panel within 45 days from
April 1, 1999. The decision further states that "If, at the time of the staff's
review, the staff finds that the Company meets all of the requirements for
continued listing on The Nasdaq SmallCap Market, demonstrates the ability to
maintain compliance with these requirements in the long term, and there are no
new adverse developments, the Panel should relist the Company on the SmallCap
Market. If, however, the staff finds that the Company does not meet all of the
continued listing requirements or does not demonstrate the ability to maintain
compliance with these requirements for the long term, the Panel must notify the
Company of which requirement(s) it fails to satisfy." (providing the Company
with 15 days to respond).
As of August 24, 1999 no final determination has been made regarding
the issues referred to above.
No Dividends and None Anticipated
The Company has not paid any dividends upon its common stock since its
inception and by reason of its present financial condition and contemplated
financing requirements does not anticipate paying any dividends in the
foreseeable future but rather intends to retain earnings, if any, in order to
finance its further growth and development.
Environmental Matters
The Company is subject to various environmental laws and regulations in
the jurisdiction in which it operates. Although the Company believes that it is
in substantial compliance with applicable environmental requirements and the
Company to date has not incurred material expenditures in connection with
environmental matters, it is possible that the Company could become subject to
additional or changing environmental laws or liabilities in the future that
could result in an adverse effect on the Company's financial condition or
results of operations. See "-- Environmental Matters" and "Business --
Environmental Matters."
- 17 -
<PAGE>
Year 2000 Issue
Many currently installed computer systems and software products are
coded to accept only two-digit entries to represent years in the date code
field. Computer systems are products that do not accept four-digit year entries
and will need to be upgraded or replaced to accept four-digit entries to
distinguish years beginning with 2000 from prior years. Management is now
compliant with the Year 2000 requirements and believes that its management
information system with the Year 2000 requirements on a timely basis at a
minimal cost. The Company currently does not anticipate that it will experience
any material disruption to its operations as a result of the failure of its
management information system to be Year 2000 compliant. There can be no
assurance, however, that computer systems operated by third parties, including
customers vendors, credit card transactions processors and financial
institutions, with which the Company's management information system interface
will continue to properly interface with the Company's system and will otherwise
be compliant on a timely basis with year 2000 requirements. For relevant
material (information and non-information technology) delivered by third parties
the Company received written assurances that their year 2000 compliance's is
under control. Any failure of the Company's management information
system or the systems of third parties to timely achieve Year 2000 compliance
could have a material adverse effect on the Company's business, financial
condition, and operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THE COMPANY
The Registrant was incorporated under the laws of the State of New York
on January 2, 1968 under the name CGS Units Incorporated. On June 15, 1994, the
Registrant merged with Direct Marketing Services, Inc. and changed its name to
DMS Industries, Inc. In May of 1995 the Registrant discontinued the operations
then being conducted by DMS Industries, Inc. and acquired all of the outstanding
securities of SR Medical AG, a Swiss corporation engaged in the business of
manufacturing and selling X-ray equipment, components and accessories. On June
5, 1995 the Registrant changed its name to Swissray International, Inc. The
Registrant's operations are being conducted principally through its wholly owned
subsidiaries, Swissray Medical AG (formerly known as SR Medical Holding AG
and SR Medical AG) a Swiss corporation and its wholly owned subsidiary Swissray
(Deutschland) Rontgentechnik GmbH (formerly known as SR Medical GmbH), a German
limited liability company as well as through the Company's other wholly owned
subsidiaries, Swissray America, Inc., a Delaware corporation, Swissray
Healthcare, Inc., a Delaware corporation and Swissray Information Solutions, a
Delaware corporation.
Swissray Media AG (formerly SR Medical Holding AG and SR Medical AG until
renamed in June 1999 and February 1998) acquired all assets and liabilities,
effective July 1998, of its wholly owned subsidiaries, SR Medical AG (known as
Teleray AG until renamed in February 1998), a Swiss corporation and
Telray Research and Development AG, a Swiss corporation. Swissray Medical AG
also absorbed all assets and liabilities of the Company's other wholly owned
subsidiary SR Management AG (formerly SR Finance AG), a swiss corporation.
Effective as of July 1, 1999 Swissray Medical Systems, Inc., a
Delaware corporation (formerly Swissray America Corporation) and Empower Inc.
a New York corporation, have been merged into Swissray America Inc., a
Delaware corporation. Unless otherwise specifically indicated, all
references hereinafter to the "Company" refer to the Registrant and its
subsidiaries.
- 18 -
<PAGE>
The Company and its predecessors have been in the business of
manufacturing and selling X-ray equipment in Switzerland and Germany since 1988.
Beginning in 1991, the Company's predecessors began to expand into other markets
in Europe, the Middle East and Asia. In 1992, SR Medical AG entered into a first
Original Equipment Manufacturing ("OEM") Agreement with Philips Medical Systems
GmbH ("Philips Medical Systems") providing for the manufacturing of a
multi-radiography system ("MRS"). In 1996, this agreement was replaced with a
new OEM Agreement ("Philips OEM Agreement") which provides for the manufacturing
of the Bucky Diagnost TS bucky table in addition to the MRS System.
Simultaneously, the Company developed the first SwissVision(TM) post-processing
system which was able to convert analog images obtained in fluoroscopy into
digital information. Beginning in 1993, the Company began the development of
direct digital X-ray technology for medical diagnostic purposes.
On November 6, 1996, the Company formed Swissray Corporation (which has
since been renamed Swissray Medical Systems, Inc.), a Delaware corporation
located in Azusa, California, as the Company's principal authorizing division in
the United States.
On April 1, 1997, the Company acquired Empower, Inc., a New York
corporation ("Empower") which since incorporation in 1985, had been engaged in
distributing and servicing diagnostic X-ray equipment and accessories in the New
York/New Jersey/Connecticut area. Certain details with respect to such
acquisition were reported in a Form 8-K and Form 8-K/A1 with date of report of
April 1, 1997. In February 1998 the Company entered into a letter of intent with
E.M. Parker Co., Inc., a Massachusetts corporation ("Parker") with respect to
the sale of Empower's film and x-ray accessories business. Thereafter, the
Company and its wholly owned subsidiary, Empower, Inc. ("Empower") entered into
an Asset Purchase Agreement with Parker pursuant to which the Company and
Empower sold and Parker purchased substantially all of the assets of Empower
(excluding certain excluded assets as defined in the Agreement) in consideration
of: (i) the assumption by Parker of certain liabilities of Empower; (ii) the
cash purchase price of $250,000; and (iii) the payment by Parker of
approximately $376,000 to a banking institution in satisfaction of certain
outstanding indebtedness of Empower. Empower remains a wholly owned (but
currently inactive) subsidiary of the Company. Empower has been merged into
Swissray America, Inc. effective July 1, 1999. The Company is currently
engaged in litigation with the former CEO of Empower. For information regarding
such litigation reference is made to "Business - Legal Proceedings".
Both the original purchase and subsequent sale referred to in the
preceding paragraph were contracted on an arms-length basis. The sale of
Empower's assets less than one year after acquisition of Empower related
primarily to the sale of film, chemical and certain servicing of conventional
x-ray equipment since these areas no longer constituted the Company's "core"
business which revolves around its ddR-Multi-System and filmless digital
technology. The original purchase of Empower was for $120,000 (in stock) and the
subsequent sale referred to resulted in a gain of $55,000. Counsel
representing the Company with respect to this transaction determined that such
transaction was not material, did not require stockholder approval and advised
management which acted upon reliance of such legal advice.
During the fiscal year ended June 30, 1997, the Company created a new
Information Solution Division known as Swissray Information Solutions, Inc.
which is engaged in services related to Picture Archiving and Communications
Systems ("PACS") as well as consulting activities. This division is located in
Gig Harbor, Washington and headed by Michael J. Baker, who has more than 20
years experience in radiology, most recently as head of Lockheed Martin's
Medical Imaging Systems division.
On October 17, 1997, the Company acquired substantially all of the
assets of Service Support Group LLC ("SSG") located in Gig Harbor, Washington
(in an arms-length transaction) principally in exchange for the payment of
approximately $622,000 in cash and issuance of 33,333 shares of its Common
Stock in equal thirds to each of SSG's then owners based upon certain
warranties and representations made by them. Counsel representing the
Company with respect to this transaction determined that such transaction was
not material, did not require stockholder approval and advised management which
acted upon reliance of such legal advice. Pursuant to the terms of the Asset
Purchase Agreement and related Registration Rights Agreement both dated
October 17, 1997 (Exhibits 10.9 and 10.10 hereto), the holders of such Company
shares were then given the right, commencing June 30, 1998 and terminating
April 16, 1999, to require the Company to purchase any or all of such shares at
$45.00 per share.Since its formation on October 16, 1996, SSG has been in the
business of selling diagnostic imaging equipment and providing services
related thereto in the markets on the West Coast of the United States.
Issues involving the aforesaid Company shares and a number of
- 19 -
<PAGE>
other related matters became the subject of dispute and litigation. See "Legal
Proceeding". The three former SSG owners relationship with the Company (and
certain Company subsidiaries with whom such persons held positions as officers,
to wit: Swissray Medical Systems, Inc. and Swissray Healthcare, Inc.) was
terminated on July 20, 1998. As a result of such termination Ueli Laupper has
been appointed Chief Executive Officer of both Swissray Medical Systems, Inc.
and Swissray Healthcare, Inc. (with Michael J. Baker being appointed Deputy
Chief Executive Officer of both subsidiaries). See "Prospectus Summary",
"Business -- Research and Development."
USE OF PROCEEDS
The Registrant will not receive any of the proceeds from the sale of
the Securities. All of the proceeds will be received by the Selling Holders. See
"Selling Holders and Plan of Distribution."
MARKET PRICES AND DIVIDEND POLICY
The Registrant's common stock, $.01 par value (the "Common Stock") was
listed on the Nasdaq SmallCap Market and traded under the symbol SRMI until
October 26, 1998 delisting. Since January 1999 the Company's common stock has
been trading on the Electronic Over-the-Counter Bulletin Board under the same
symbol. The following table sets forth, for the periods indicated, the range of
high and low bid prices on the dates indicated for the Registrant's securities
indicated below for each full quarterly period within the two most recent fiscal
years (if applicable) and any subsequent interim period for which financial
statements are included and/or required to be included.
Fiscal Year Ended June 30, 1997 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
Quarter Date High Low
1st September 30, 1996 $5.0625 $3.6875
2nd December 31, 1996 $4.000 $2.375
3rd March 31, 1997 $3.5625 $1.6875
4th June 30, 1997 $3.250 $1.4063
Fiscal Year Ended June 30, 1998 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
Quarter Date High Low
1st September 30, 1997 $1.6375 $1.5625
2nd December 31, 1997 $1.250 $1.125
3rd March 31, 1998 $1.6875 $.750
4th June 30, 1998 $1.000 $.500
Fiscal Year Ended June 30, 1999 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
Quarter Date High Low
1st September 30, 1998 (3) $.5625 $0.188
2nd December 31, 1998 $.1375 $0.875
3rd March 31, 1999 $1.25 $0.375
4th June 30, 1999 $2.812 $2.437
- 20 -
<PAGE>
(1) The Registrant's Common Stock began trading on the Nasdaq SmallCap
market on March 20, 1996 with an opening bid of $47.50. The
following statement specifically refers to the Common Stock activity,
if any, prior to March 20, 1996 and subsequent to October 26, 1998
NASDAQ delisting. 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 and since
October 26, 1998, all prices indicated are as reported to the
Registrant by broker-dealer(s) making a market in its common stock in
the National Quotation Data Service ("pink sheets") and in the
Electronic Over-the-Counter Bulletin Board. During such dates 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.
(2) All prices indicated hereinabove for quarters up to and excluding
quarter ending December 31, 1998 reflect price ranges as they existed
during the quarters indicated but do not retroactively reflect a 1 for
10 reverse stock split effective October 1, 1998.
(3) On the date of NASDAQ's delisting (October 26, 1998) the common stock
price was $.97 per share while on the date immediately prior to
effectiveness of the reverse stock split (October 1, 1998) the stock
price was $.118 per share.
As of the close of business on August 24, 1999 there were 674
stockholders of the Registrant's Common Stock and 14,541,537 shares issued and
outstanding.
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.
- 21 -
<PAGE>
CAPITALIZATION
The following table sets forth (i) the current liabilities and
capitalization of the Company as of June 30, 1999 and (ii) the pro forma
liabilities and capitalization as of June 30, 1998, adjusted to reflect the
conversion of the Convertible Debentures and accrued interest thereon subsequent
to such date.
<TABLE>
<CAPTION>
Proforma as
Actual Proforma (2) Adjusted (3)
------ ------------ ------------
<S> <C> <C> <C>
Current liabilities 13,944,865 13,944,865 13,194,147
Long-term liabilities, net of current portion 15,750,947 16,899,347 195,095
---------- ---------- -------
Total liabilities 29,695,812 30,844,212 13,389,242
---------- ---------- ----------
Common stock subject to put 1,819,985 1,819,985 1,819,985
--------- --------- ---------
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 140,062 140,062 227,943
shares authorized; 14,006,239 issued and
outstanding; 22,794,365 as adjusted (1)
Additional paid-in-capital 64,688,013 64,688,013 83,006,075
Treasury stock (540,000) (540,000) (540,000)
Accumulated deficit (67,727,741) (67,776,141) (68,730,745)
Accumulated other comprehensive loss (1,787,735) (1,787,735) (1,787,735)
Common stock subject to put (1,819,985) (1,819,985) (1,819,985)
Deferred compensation (707,222) (707,222) (707,222)
--------- --------- ---------
Total stockholders' equity (7,754,608) (7,803,008) 9,648,331
----------- ----------- ----------
Total liabilities and stockholders' equity 23,761,189 24,861,189 24,761,189
- ------------------------------------------ ---------- ---------- ----------
</TABLE>
(1) Based on a conversion price of 80% to 82% of the average of the high and low
closing price on August 24, 1999.
(2) Includes July 1999 financing of $1,100,000 and conversion into debenture
in August 1999.
(3) Adjusted to reflect conversion of convertible debentures and accrued
interest thereon.
- 22 -
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The selected consolidated financial data presented below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
notes thereto included elsewhere in this Prospectus. The selected consolidated
financial data as of and for the fiscal years ended, June 30, 1995 (six-month
period), June 30, 1996, June 30, 1997, June 30, 1998 and June 30, 1999 are
derived from the consolidated financial statements of the Company.
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------------
6/30/99 6/30/98 6/30/97* 6/30/96 6/30/95(1)
--------- -------- -------- -------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales 17,296 22,893 13,151 10,899 3,806
Cost of goods sold 13,529 18,082 8,445 5,793 2,484
------ ------- ------ ------- -------
Gross profit 3,767 4,811 4,706 5,106 1,322
Gross profit margin (%) 22% 21% 36% 47% 35%
Selling, general and
administrative expenses 15,581 18,748 17,450 14,966 2,307
Operating loss (11,814) (13,937) (12,744) (9,860) (985)
------- ------- ------- ------- -------
Other expenses (income), net (40) 281 (319) (1,004) 3,054
Interest expense 4,639 8,590 762 194 122
----- ----- ----- ------ ------
Loss from continuing operations,
before income taxes and
extraordinary item (16,413) (22,808) (13,187) (9,050) (4,161)
Income tax provision (benefit) -- -- 110 (365) (339)
----- ------- ------ ------- -------
Loss from continuing operations
before extraordinary item (16,413) (22,808) (13,297) (8,685) (3,822)
======= ======= ======== ======= =======
Loss per share from continuing
operations - basic (2.52) (8.48) (8.41) (6.69) (4.80)
======== ======== ======== ========= ========
BALANCE SHEET DATA:
Working capital (deficit) (2,015) 1,085 2,633 3,433 1,185
Total assets 23,761 25,915 24,788 18,793 13,027
Short-term debt, including
current portion of
long-term debt 5,740 3,910 4,211 2,737 2,954
Long-term debt 15,751 7,771 5,635 -- 705
Common stock subject to put 1,820 1,820 320 -- --
Stockholders' (deficit)
equity (7,755) 4,339 7,373 10,655 6,377
Total shares outstanding
at year end (2) 14,006 4,143 1,969 1,419 1,204
</TABLE>
(1) In 1995, the Registrant changed its fiscal year end from December 31 to
June 30. As a result, the Company had a fiscal year beginning on
January 1, 1995 and ending on June 30, 1995. Accordingly, the Summary
Financial Data for the period ended June 30, 1995 is for a six-month
period.
(2) On October 1, 1998 the Company declared a 1 for 10 reverse stock split.
The financial statements for all periods presented have been
retroactively adjusted for the split.
* Restated
- 23 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All references herein to the "Registrant" refer to Swissray
International Inc. All references herein to the "Company" refer to Swissray
International, Inc. and its subsidiaries.
GENERAL
The focus of the Company for the fiscal year ended June 30, 1999 was
mainly on the industrialization and commercialization of the newly developed
products AddOn-Multi-System and Bucky Diagnost TS and the building and
strengthening of its organization and distribution channels in the principal
markets USA and Europe. At the recent annual conference of the Radiological
Society of North America (RSNA 98), the Company announced that its premier
product, the AddOn-Multi-System has been renamed ddR-Multi-System. The recent
name change is much more in line with the overall system concept and strategy of
the Company.
In October 1997, the Company acquired substantially all of the assets
of Service Support Group LLC "SSG", a company active in the business of selling
diagnostic imaging equipment and providing services related thereto in the
markets on the West Coast of the United States. The Company also started its
activities, in the U.S. and later in Europe, the business of information
solutions by providing a comprehensive package of consulting, services and
products to enable the Healthcare providers to perform the transition into
filmless Radiology. Significant amounts of money were invested in the opening
of the market of the Company's direct digital ddR-Multi- Systems, both in the US
and in Europe.
During the start-up of the production of the Company's newly developed
products, the ddR-Multi-System and the Bucky Diagnost TS, gross margins were
affected negatively because of the need of extra time for training the newly
hired production staff and implementation of the production run as well as
efforts made to improve and maintain the highest product quality. The Company
expects to lower costs and time needed for production of these systems in a
later stage of the learning curve due to positive impact of the optimized
production run. The sales of ddR-Multi-System was slowed down by certain
governmental requirements for the sale of Healthcare products, which differ from
one country to the other. On March 8, 1999 Swissray Medical AG, the
Company's Swiss research and development, production and marketing
subsidiary became ISO 9001 and EN 46001 certified. The Company filed for
CE approval of the ddR-Multi-System in July 1998. Appendix II for
CE-Certification is expected to be completed in September 1999, which
allows the Company to use the CE-Label, including the medical device numbers
for all products manufactured and/or sold through the Company.
The Company started a restructuring process in the fourth quarter of
its fiscal year ended June 30, 1998. With the sale of Empower's Film, Processor
and Chemistry Business to E.M. Parker, the Company continued its focus on
digital Radiography. The process of restructuring is ongoing and includes mainly
internal reorganization to achieve lean structures and cost savings.
- 24 -
<PAGE>
YEAR 2000 POLICY STATEMENT
The Company has conducted an extensive program to check the status of
its equipment (information and non-infornation technology) related to the
millennium.
For relevant material (information and non-information technology)
delivered by third parties the Company received written assurances that their
year 2000 compliance's is under control. The Company is actually 100% compliant
and is ready for Y2K.
In fact, 100% of the Company's installed base equipment (information
and non-information technology) fulfills Year 2000 compliance.
The Year 2000 Statement of the Company has been published on its
website, http://www.swissray.com, and all our customers have been informed.
Contingency plans have been worked out by the Company.
YEAR 2000 COMPLIANT LISTS
All products of the Company (information and non-infornation technology)
fulfill the compliance for Year 2000 and belong to class A Systems. The products
listed have been tested on a stand alone basis; therefore an operational
environment's test results may differ. This information does not affect existing
warranties, warranty exclusions, exclusive warranty remedies or limitations of
liability.
Class A Systems: Year 2000 Compliant
GEN-X-Generators: Mobile Systems:
TURNOMAT 500
GEN-X 500 Eurabil 5 Eurabil C-Arm Standard
GEN-X 650 Eurabil 15 Eurabil C-Arm Plus
GEN-X 800 Eurabil 30 Eurabil C-Arm Top
- 25 -
<PAGE>
Bucky Table Sustems:
GEN-X 1000 - Euramove 1
GEN-X 2000 - Euramove 2
GEN-X 3000 - Euramove 3
GEN-X 4000 - Euramove 4
MRS-GENERATOR - Eurastat 2
- Eurastat 4
Atlas Systems: - Bucky-Diagnost TS
Atlas-U - US 2000
Atlas-U - US 3000 Special Systems
Atlas-U - US 4000 - Euralem 1400
Atlas-BV-Tomo - Euralem 1500
MRS-Stativ - Euralem 1800
- Euralem Tomo
Urology Systems:
KU-100 Digital Bucky Systems:
KU-100 H - ddR-Multi-System
KU-100 H Tomo
Fluoroscopy Systems:
Euroscop 3A
Euroscop 6, 6+, 6++
IT-Systems internally used
In its year 2000 project the Company has tested and asked for
statements about the year 2000 compliance. In fact 100% of IT-Systems
(Information Technology) within the Company are compliant and expected to
encounter no problems on January 1, 2000.
The operating system of the Company's IT-Systems are built on
Microsoft. (Windows 95 and/or Windows NT). SWISSRAY also uses the Microsoft
Office packages for its administration and therefore relies on the operating
system as well as the Microsoft Office package for the year 2000 compliance of
Microsoft for the above mentioned products.
IT-Systems Third Parties
The Company also asked all important partners (e.g. banks, suppliers,
sales channels) for statements about the year 2000 compliance. The Company has
not received any negative responses. All these important partners fulfill the
Year 2000 compliance.
- 26 -
<PAGE>
YEAR 2000 PROJECT COSTS
The Company has separated its cost in the following parts:
<TABLE>
<CAPTION>
June 30, 1999
--------------
<S> <C>
Test & Survey own Products $ 50,000
Test & Survey Third Parties Products $ 20,000
Modification own Products $ 20,000
Administration (Communication with Third Parties) $ 5,000
Consultant $ 5,000
--------------
TOTAL YEAR 2000 Project costs $100,000
</TABLE>
YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998
Results of operations
Net sales amounted to $17,295,882 for the year ended June 30, 1999
compared to $22,892,978, a decrease of $5,597,096, or 24.4% from the year ended
June 30, 1998. Sales for year ended June 30, 1998 include sales of the film and
processor business of Empower which was sold on June 30, 1998, of $7,134,938.
Net sales without the film and processor business of Empower increased for the
year ended June 30, 1999 by $1,537,842 or 9.8%.
Gross profit decreased by $1,044,611 or 21.7% to $3,766,581 for the
year ended June 30, 1999, from $4,811,192 for the year ended June 30, 1998.
Gross profit as a percentage of net revenues increased to 21.8% for the year
ended June 30, 199 from 21% for the year ended June 30, 1998.
Operating expenses decreased by $3,166,512, or 16.9% to $15,581,217 or
90% of net revenues, for the year ended June 30, 1999, from $18,747,729, or
81.9% of net revenues for the year ended June 30, 1998. The principle items
were salaries (net of officers and directors compensation) of $3,784,305 or
21.9% of net sales for the year ended June 30, 1999 compared to $4,168,540 or
18.2% of net sales for the year ended June 30, 1998 and selling expenses of
$3,061,813 or 17.7% of net sales for the year ended June 30, 1999 compared
to $3,740,391 or 16.3% of net sales for the year ended June 30, 1998. Research
and development expenses were $1,808,107 or 10.5% of net sales for the year
ended June 30, 1999 compared to $3,542,149 or 15.5% of net sales for the year
ended June 30, 1998. This decrease is primarily due to the decrease in research
and development related to AddOn-Bucky. Principal costs associated with
development of the ddR-Multi-System have now been accomplished and research and
development costs are expected to continue regarding upgrades and new product
development with respect to associated and related products relating to ddR-
Multi-System.
Interest expense decreased to $4,638,928 for the year ended June 30,
1999 compared to $8,590,268 for the year ended June 30, 1998. This decrease is
primarily due to the decrease of interest expense for amortization of Debenture
issuance cost and Conversion Benefit.
Loss on extinguishment of debt was $832,849 for the year ended June 30,
1999 compared to a gain of $304,923 for the year ended June 30, 1998. The
extinguishment gain or loss resulted from refinancing of Convertible debentures.
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Financial Condition
June 30, 1999 compared to June 30, 1998
Total assets of the Company on June 30, 1999 decreased by $2,153,408 to
$23,761,189 from $25,914,597 on June 30, 1998, primarily due to the decrease in
current assets. Current assets decreased $1,139,876 to $11,929,381 on June 30,
1999 from $13,069,257 on June 30, 1998. The decrease in current assets is
primarily attributable to the decrease in inventories of $368,744 and the
decrease in prepaid expenses and sundry receivables of $635,105. Other assets
decreased $1,286,194 to $5,548,768 on June 30, 1999 from $6,834,962 on June 30,
1998. The decrease is primarily attributable to the amortization of the
licensing agreement, patents & trademark, software development cost and the
goodwill.
On June 30, 1999, the Company had total liabilities of $29,695,812
compared to $19,755,870. On June 30, 1998. On June 30, 1999, current
liabilities were $13,944,865 compared to $11,984,554 on June 30, 1998. Working
capital at June 30, 1999 was ($2,015,484) compared to $1,084,703 at June 30,
1998.
CASH FLOW AND CAPITAL EXPENDITURES YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR
ENDED JUNE 30, 1998.
Cash used for operating activities for the year ended June 30, 1999
was $9,788,606 compared to $11,759,371 for the year ended June 30, 1998. Cash
used for investing activities was $879,303 for the year ended June 30, 1999
compared to $4,517,140 for the year ended June 30, 1998.Cash flow from financing
activities for the year ended June 30, 1999 was $11,068,406 compared to
$14,799,200 for year ended June 30, 1998.
The Company does not have any material commitments for capital
expenditures as of June 30, 1999.
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 production of the planned
increase of sales, 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, future cash flow and/or issuance of
equity and/or debt securities.
However, the availability of a sufficient future cash flow will depend
to a significant extent on the marketability of the Company's ddR-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
will be available on terms satisfactory to management.
On March 16, 1998 the Company issued $5,500,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures") convertible
into Common Stock of the Company. After deducting legal fees of $35,000, place-
ment agent fees of $550,000 directly attributable to such offering the Company
received a net amount of $4,915,000. 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 representation from
each investor to that effect. One Hundred percent of the face amount of the
Convertible Debentures are convertible into shares of Common Stock of the
Company at the earlier of May 15, 1998 orthe effective date of this Registration
Statement at a conversion price equal to 80% of the average closing bid price
for the ten trading days preceding the date of conversion. Any Convertible
Debentures not so converted are subject to mandatory conversion by the Company
on the 24th monthly anniversary of the date of issuance of the Convertible
Debentures. All of these debentures have been converted.
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<PAGE>
In June of 1998 the Company issued $2,000,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures") convertible
into Common Stock of the Company. After deducting fees directly attributable to
such offering the Company received a net amount of $1,760,000. 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 representation from each investor to that effect. One Hundred
percent of the face amount of the Convertible Debentures are convertible into
shares of Common Stock of the Company at the earlier of May 15, 1998 or the
effective date of this Registration Statement at a conversion price equal to 80%
of the average closing bid price for the ten trading days preceding the date of
conversion. Any Convertible Debentures not so converted are subject to mandatory
conversion by the Company on the 24th monthly anniversary of the date of
issuance of the Convertible Debentures. None of these debentures have been
converted as of August 24, 1999.
On August 31, 1998 the Company issued $3,832,849 aggregate principal
amount of 5% convertible debentures (the "Convertible Debentures") including a
25% premium and accrued interest, convertible into Common Stock of the Company.
The Company did not receive any cash proceeds from the offering of the
Convertible Debentures. The full amount was paid by investors to holders of the
Company's Convertible Debentures issued on March 14, 1998 holding $3,000,000 of
such Convertible Debentures as repayment in full of the Company's obligations
under such Convertible Debentures. During the same period the Company issued
$2,311,000 aggregate principal amount of 5% Convertible Debentures, convertible
into Common Stock of the Company. After deducting fees, commissions and escrow
fees in the aggregate amount of $311,000 the Company received a net amount of
$2,000,000. The face amount of both Convertible Debentures are convertible into
shares of Common Stock of the Company commencing March 1, 1999 at a conversion
price equal to the lesser of 82% of the average closing bid price for the ten
trading days preceding the date of the conversion or $1.00 per share. Any
convertible Debentures not so converted are subject to mandatory conversion by
the Company on the 24th monthly anniversary of the date of issuance of the
Convertible Debentures. As of August 24, 1999 an unconverted balance of
$5,629,421 remains outstanding.
On October 6, 1998 the Company issued $2,940,000 aggregate principal
amount of 5% convertible debentures (the "Convertible Debentures") including
as part of the terms of this financing $540,000 repurchase of stock,
(717,850 and 747,150 shares from Dominion Capital Fund, Ltd. and Sovereign
Partners LP respectively) convertible into Common Stock of the Company. After
deducting fees, commissions and escrow fees in the aggregate amount of $300,000
the Company received a net amount of $2,100,000. The face amount of the
Convertible Debentures is convertible into shares of Common Stock of the Company
any time after the closing date at a conversion price equal to the lesser of 82%
of the average closing bid price for the ten trading days preceding the date of
the conversion or $1.00. Any Convertible Debentures not so converted are subject
to mandatory conversion by the Company on the 24th monthly anniversary of the
date of issuance of the Convertible Debentures. None of these debentures have
been converted as of August 24, 1999.
The Registrant received gross proceeds of $1,080,000 in December 1998
pursuant to promissory notes bearing interest at the rate of 8% per annum for
the first 90 calendar days (through March 13, 1999) with the Company having the
option to extend the notes for an additional 60 days with interest increasing 2%
per annum during the 60 day period. The Company exercised its extension option.
As further consideration for the loan, the Company issued Lenders Warrants to
purchase up to 50,000 shares of the Company's common stock exercisable, in whole
or in part, for a period of up to 5 years at $.375 (the bid price for Company
shares on the date of closing). The promissory notes (held by Dominion Capital
Fund, Ltd. and Sovereign Partners) were not paid by their due date and the terms
of a Contingent Subscription Agreement, Debenture and Registration Rights
Agreement automatically went into effect with debentures bearing interest at the
rate of 5% per annum (payable in stock or cash at the Company's option)
and being convertible, at any time at the lesser of (a) 82% of the 10 day
average bid price for the 10 consecutive trading days immediately preceding
the conversion date or (b) $1.00 per share. The documents also provide for
certain Company redemption rights at percentages ranging from 115% of the face
amount of the Debenture to 125% of the face amount of the debenture dependent
upon redemption date, if any as more specifically set forth in the last
paragraph to this subsection.
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<PAGE>
On January 29, 1999 the Company issued a principal aggregate amount of
$1,170,000 of convertible debentures ("Convertible Debenture"), convertible into
Common Stock of the Company at a conversion price of 82% of the average closing
bid price for the ten trading days preceding the date of conversion together
with accrued interest of 3% for the first 90 days, 3.5% for 91-120 days and 4%
for 120 days and thereafter. After deducing fees directly attributable to such
offering the Company received a net amount of $1,020,000. 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 received
written representations from each investor to that effect. Any Convertible
Debenture not so converted are subject to mandatory conversion by the Company on
the 24th anniversary date of issuance of the Convertible Debentures. None of
these Convertible Debentures have been converted as of August 24, 1999.
On March 2, 1999 the Company entered into a second promissory note
contingent convertible debenture financing with the same lenders as the December
1998 transaction described directly above (i.e., Dominion Investment Fund LLC
and Sovereign Partners LP) with terms and conditions identical to those set
forth above excepting (a) gross proceeds amounted to $1,110,000 (b) the initial
due date of such notes was May 31, 1999,(c) the potential 60 day extension date
on such promissory notes was July 30, 1999 but such extension right was never
utilized,(d)the conversion price is 80% of the 10 day average closing bid price
for the 10 consecutive trading days immediately preceding conversion date and
(e) Warrants were issued (similarly exercisable over 5 years)to purchase up to
50,000 shares of common stock at 125% of the average 5 day closing bid price
of the Company's common stock immediately preceding the date of closing but in
no event less than $1.00 per share. In all other respects the terms and
conditions of each of the documents executed with respect to this transaction
are identical in all material respects to those described above regarding
December 1998 transaction. The promissory notes were not paid by their due date
and the terms of the Contingent Subscription Agreement and Registration Rights
Agreement automatically went into effect and, accordingly, the number of shares
being registered for this transaction amounts to 617,682 shares.
On March 26, 1999 the Company entered into a third promissory note
(contingent convertible debenture financing) with terms and conditions identical
to those set forth in the March 2, 1999 promissory note financing referred to
directly above excepting (a) the lender is different, to wit: Aberdeen Avenue,
LLC, (b) gross proceeds amounted to $550,000, (c) the initial due date of such
note was June 25, 1999, (d) the potential 60 day extension date on such
promissory notes was August 24, 1999 but such extendion right was never utilized
(e) Warrants were issued (similarly exercisable over 5 years) to purchase up to
27,500 shares of common stock at 125% of the average 5 day closing bid price
of the Company's common stock immediately preceding the date of closing but in
no event at less than $1.00 per share. In all other respects the terms and
conditions of each of the documents executed with respect to this transaction
are identical to those described in the above March 2, 1999 transaction. The
promissory notes were not paid on their due date and the terms of the Contingent
Subscription Agreement and Registration Rights Agreement automatically went
into effect and, accordingly, the number of shares being registered for this
transaction amounts to 306,059 shares.
From May 14, 1999 to June 9, 1999 (in a single financing) the Company
issued a principal aggregate amount of $850,000 of convertible debentures
("Convertible Debenture"), convertible into Common Stock of the Company at a
conversion price of 80% of the average closing bid price for the ten trading
days preceding the date of conversion together with accrued interest of 5%.After
deducing fees directly attributable to such offering the Company
received a net amount of $772,727. 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 received written representations from
each investor to that effect. Any Convertible Debenture not so converted are
subject to mandatory conversion by the Company on the 24th anniversary date of
issuance of the Convertible Debentures. None of these Convertible Debentures
have been converted as of August 24, 1999.
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<PAGE>
On July 9, 1999 the Company entered into a fourth promissory note
(contingent convertible debenture financing) with terms and conditions
substantially identical to those set forth in the March 2, 1999 promissory note
financing referred to directly above excepting (a) the lender is different, to
wit: Southshore Capital, Ltd., (b) gross proceeds amounted to $1,100,000, (c)
the due date of such note is August 23, 1999 with no right to extend and (d) the
debenture holder did not receive any warrants. In all other respects the terms
and conditions of each of the documents executed with respect to this
transaction are identical to those described in the above referenced March 2,
1999 transaction. The promissory note was not paid on its due date and the terms
of the Contingent Subscription Agreement, Convertible Debenture and Registration
Rights Agreement automatically went into effect and, accordingly, the number of
shares being registered for this transaction amounts to 608,967 shares.
On August 11, 1999 the Company entered into a fifth promissory note
(contingent convertible debenture financing) with terms and conditions
substantially identical to those set forth in the March 2, 1999 promissory note
financing referred to directly above excepting (a) the lender is different, to
wit: Aberdeen Avenue, LLC, (b) gross proceeds amounted to $1,400,000, (c) the
due date of such note is November 11, 1999 with no right to extend and (d) the
debenture holder did not receive any warrants. In all other respects the terms
and conditions of each of the documents executed with respect to this
transaction are identical to those described in the above referenced March 2,
1999 transaction.The terms of the Contingent Subscription Agreement, Convertible
Debenture and Registration Rights Agreement have not gone into effect as the
promissory note is not in default and, accordingly, no shares are currently
being registered for this transaction.
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 US 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 US dollars can vary significantly as a result of
changes in currency exchange rates (in particular the exchange rate between the
Swiss Franc and the US dollar).
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
Net sales for the fiscal year ended June 30, 1998 were $22,892,978
compared to $13,151,701 for the fiscal year ended June 30, 1997.
The 74% increase in net sales was partially due to the acquisition of
Empower on April 1, 1997 (Sales of Empower were $7,134,938 for the fiscal year
ended June 30, 1998 compared to $2,000,603 for the fiscal year ended June 30,
1997), the Asset purchase of Service Support Group LLC on October 17, 1997
(Sales of Swissray Medical Inc. which started its selling activities after the
asset purchase of Service Support Group was $1,577,298 for the fiscal year ended
June 30, 1998 compared to $0 for the fiscal year ended June 30, 1997) and the
increase in sales made under the Philips OEM Agreement of $6,500,529. Also sales
to third parties in Switzerland almost doubled in the fiscal year ended June 30,
1998 compared with the previous fiscal year. These increases have been partially
offset by the decrease of $1,519,159 in sales of Elscint products and decreased
sales of $1,952,016 for Eastern Europe. The Company sold four of the
ddR-Multi-System during the fiscal year ended June 30, 1998.
Gross profits amounted to $4,811,192 or 21% of net sales for the fiscal
year ended June 30, 1998, compared to $4,706,287 or 35.8% of net sales for the
fiscal year ended June 30, 1997. The decrease in gross profits as a percentage
of net revenues is primarily attributable to the fact that sales of lower-margin
products increased substantially compared to the fiscal years ended June 30,
1997. This is mainly attributable to increased sales of accessories, which are
generally low-margin products, as a result of the acquisition of Empower (net
sales of Empower contributed approximately 31% to the Company's net sales). The
Company also sold a significant number of units of newly developed products,
where the Company is at the beginning of the learning curve in the production
process, which results in higher production costs than in a later stage of the
learning curve. These products are the Bucky Diagnost TS produced under the OEM
Agreement with Philips (which contributed approximately 22% to the Company's net
sales) and the ddR-Multi-System (which contributed approximately 6% to the
Company's net sales). The Company expects sales of accessories to be of a
smaller percentage of total sales for the fiscal year ending June 30, 1999
because of the sale of Empower's accessory business to E.M. Parker.
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<PAGE>
Operating expenses for the fiscal year ended June 30, 1998 were
$18,747,729 or 81.9% of net sales compared to $17,450,333 or 132.7% of net sales
for the fiscal year ended June 30, 1997. The principal items were selling
expenses of $3,740,391 or 16.3% of net sales compared to $1,873,389 or 14.2% of
net sales for the fiscal year ended June 30, 1997 and salaries (net of directors
and officers compensation) of $4,168,540 or 18.2% of net sales compared to
$2,059,396 or 15.6% of net sales for the fiscal year ended June 30, 1997.
Research and Development was $3,542,149 or 15.5% of net sales compared to
$5,786,158 or 44% of net sales for the fiscal year ended June 30, 1997.
General and administrative expenses for the year ended June 30, 1997
include the value of stock options granted in the amount of $1,161,462, whereas
no stock options were granted during the fiscal year ended June 30, 1998. The
Company made an accrual of $500,000 for planned restructuring of its
organization. No such costs were accrued in the fiscal year ended June 30, 1997.
The increase of 102% in Salaries was mainly due to the acquisition of
Empower Inc. on April 1, 1997 (with salaries included in the consolidated
statement of operation only for one quarter of the fiscal year ended June 30,
1997) and the takeover of all of the employees of Service Support Group on
October 17, 1997. Both acquisitions were within the Company's marketing strategy
to build a strong market position with its own organization in one of its
principle markets. The number of employees in Switzerland was increased by 21
mainly to handle the significant rise in production volume.
The increase of 100% in selling expenses is the result of additional
significant efforts on the part of the Company to build a strong market position
in the United States and in Germany, the biggest European market as well as the
costs incurred for successful market introduction of the Company's direct
digital ddR-Multi-System. The Company also made efforts to lay the groundwork
for the market introduction of Swissray Information Solutions comprehensive
package of consulting, services and products.
Research and development expenses decreased by 39%. Management
considered the relative size of the research and development expenses for the
fiscal year ended June 30, 1997 as high. The main focus of the R&D was the
industrialization phase of the ddR-Multi-System and the development of
communication interfaces (DICOM 3.0, HL 7, Dicom Worklist etc.) to extend the
connectivity of the ddR-Multi-System to communication networks such as HIS, RIS,
and PACS. Another important task was to finalize the Tahoma TMSSM software and
go into beta-tests. The Tahoma TMSSM, technology management systems are based on
the premise that technology is a resource that can be managed to achieve
organizational objectives, like reducing operating expense and improving
clinical performance. Additional research and development expenses have also
been incurred to maintain the technological advantages of the Company's
conventional X-ray equipment. 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 Company's operating loss increased to $13,936,537 for the fiscal
year ended June 30, 1998 from $12,744,046 for the fiscal year ended June 30,
1997. The increase in the Company's operating loss is due to the significant
expenses associated with the building of the Company's organization and market
position primarily in one of its principle markets, the USA. After taking into
account interest expense, other income, income tax benefits and extraordinary
items of income (loss) the resulting net loss of the Company for the fiscal year
ended June 30, 1998 increased to $22,503,109 from $13,685,188 for the fiscal
year ended June 30, 1997. The increase of net loss is mainly due to the
significant amount of interest expenses which resulted from the amortization of
issuance cost and beneficial Conversion features of Convertible debentures
issued for financing purposes, which amounted to $8,590,268 for the fiscal year
ended June 30, 1998 compared to $759,853 for the fiscal year ended June 30,
1997. Extraordinary income includes the gain on early extinguishment of Debt
which resulted from refinancing of Convertible debentures.
CASH FLOW AND CAPITAL EXPENDITURES
Cash used by operating activities for the fiscal year ended June 30,
1998 increased to $11,759,371 from $10,684,988 for the fiscal year ended June
30,1997 and cash used by investing activities increased to $4,517,140 for the
fiscal year ended June 30, 1998 from $3,668,196 for the fiscal year ended June
30, 1997. Cash flow from financing activities for the fiscal year ended June 30,
1998 was $14,799,200 compared to $14,752,928 for the fiscal year ended June 30,
1997.
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<PAGE>
The Company's capital expenditures totaled $2,849,205 for the fiscal
year ended June 30, 1998 compared to $3,431,375 for the fiscal year ended June
30, 1997. Capital expenditures were primarily for the improvements of the
Hochdorf facility and the purchase of equipment. The increased financing needs
resulted primarily from the building and strengthening of the Company's
organization and distribution channels in the US and Europe and the improvements
of the Hochdorf facility.
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 increasing
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
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, 1999, the Company had an order backlog of $12,000,000 which consisted of
$8,000,000 in conventional x-ray equipment and $4,000,000 in digital
(i.e., ddR-Multi-Systems and information solutions )as compared to an order
backlog of $13,000,000 which consisted of $11,500,000 in conventional x-ray
equipment and $1,500,000 in ddR-Multi-Systems as of the fiscal year ended
June 30, 1998.
NEW ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standard No.
133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities" for the year ended June 2000. SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supersedes and amends
a number of existing standards. The application of the new pronouncement is not
expected to have a material impact on the Company's financial statements.
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BUSINESS
Overview
The Company is active in the markets for diagnostic imaging devices for
the health care industry. Diagnostic imaging devices include X-ray equipment,
computer tomography ("CT") systems and magnetic resonance imaging ("MRI")
systems for three dimensional projections, nuclear medicine ("NM") imaging
devices and ultrasound devices.
The Company is primarily engaged in the business of manufacturing and
selling diagnostic X-ray equipment for all radiological applications other than
mammography and dentistry. In addition, the Company is in the business of
selling imaging systems and components and accessories for X-ray equipment
manufactured by third parties and providing services related to diagnostic
imaging.
X-rays were discovered in 1895 by Wilhelm Konrad Rontgen. Shortly
thereafter, X-ray imaging found numerous applications for medical diagnostic and
non-medical purposes. Today, medical X-ray imaging is a fundamental tool in bone
and soft tissue diagnosis. X-ray diagnosis is primarily used in orthopedics,
traumatology, gastro-enterology, angiography, urology, pulmology, mammography
and dentistry. The principal elements of a diagnostic X-ray system are the X-ray
generator, the X-ray tube and the bucky device. The generator generates high
tension, which is converted into X-rays in the X-ray tube. The X-rays so created
then penetrate a patient's body and subsequently expose a film contained in the
bucky device. Following exposure, the film is chemically processed and dried in
a dark room. A typical room used for general X-ray examinations (bucky room)
contains an X-ray system which includes a table with a bucky device for
examinations of recumbent patients (bucky table) and a wall stand with a second
bucky device for examinations of sitting and standing patients (bucky wall
stand).
The film used in conventional X-ray systems has certain inherent
disadvantages, including the significant amount of time and operating expenses
associated with the handling, processing and storage thereof, the need for
chemicals to develop films and the environmental concerns related to their
disposal. Additional expenses and inconveniences arise in connection with the
storage, duplication and transportation of conventional films. The following
X-ray systems have been developed to overcome these disadvantages: scanning
devices, phosphor plate or Computed Radiography(TM) ("CR") systems and direct
digital radiography ("ddR") systems. Scanning devices are used to convert
existing X-ray images into a digital form. While the use of scanning devices
permits the electronic storage, retrieval and transmission of X-ray images, they
do not eliminate the other inconveniences of conventional films and add time and
expenses associated with the scanning process. In a CR system the film cassette
is replaced with a phosophor plate which is electrically charged by X-rays. The
electrical charges on this phosphor plate are then converted into digital
information by a laser scanner. Although this system has the advantage that the
phosphor plates are reusable and the inconveniences related to the development
of X-ray films are eliminated, it does not achieve instant images and a
significant amount of time and operating expenses are required in connection
with the handling and scanning of the phosphor plates. Additional expenses arise
due to the fact that phosphor plates have a limited lifespan.
ddR technology is designed to eliminate the disadvantages and
significant operating costs associated with conventional X-ray systems and CR
systems. With ddR technology digital information can be made available for
diagnostic purposes within a few seconds after an X-ray image is taken without
any additional steps, thereby reducing processing time and related operating
expenses. Direct digital X-ray technology uses either charge coupled devices
("CCD") arrays, amorphous silicon/selenium panels or selenium drums to convert
X-rays into digital information. To the Company's knowledge, no silicon or
selenium-based technology is currently available for purposes of general X-ray
diagnosis. To the Company's knowledge, the only CCD based direct digital
technology available for general diagnostic purposes is the Company's AddOn
Bucky(R). While other CCD based direct digital X-ray systems are used for
dental X- ray imaging and chest examinations, the Company believes that neither
such technologies nor the silicium based technology used in a chest examination
system offered by one of the Company's competitors can easily be adapted for
general diagnostic purposes because none is capable of providing the resolution
necessary to obtain digital information with sufficient diagnostic value on a
standard 14" by 17" X-ray image.
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Products
The Company's marketing strategy is to offer its customers a complete
package of products and services in the field of radiology, including equipment,
accessories and related services such as consulting and after-sales services.
The Company's products include a full range of conventional X-ray equipment for
all diagnostic purposes other than mammography and dentistry, the direct digital
ddR-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 March 8, 1999 Swissray Medical AG, the Company's Swiss research and
development, production and marketing subsidiary became ISO 9001 and EN 46001
certified. Appendix II for CE - Certification is expected to be completed in
April 1999, which allows the Company to use the CE-Label, including the medical
device numbers for all products manufactured and/or sold through the Company.
See also "Products Distribution of Agfa Products" and "Government Regulation".
Digital ddR-Multi-System/SwissVision
The ddR-Multi-System, which includes a SwissVision(TM) workstation for
the postprocessing of digital image data and the transfer of such data through
central networks or via telecommunications systems, is a complete multi-
functional direct digital X-ray system which combines the functions of a
conventional bucky table and a bucky wall stand. The Company's own estimates and
research into this area indicate that the ddR-Multi-System is the first direct
digital radiography system available which allows for substantially all plane
X-ray examinations on the recumbent, upright and sitting patient necessary in
orthopedics, emergency rooms and chest examination rooms. The ddR-Multi-System
uses the Company's AddOn Bucky(R) as the digital detector. The AddOn Bucky(R)
is able to make available an X-ray image in a direct digital way for diagnostic
study within 16 to 20 seconds. As a consequence, the efficiency and the
throughput of the bucky room can be increased. The Company believes that a
significant advantage of the Company's ddR-Multi-System is the fact that a
variety of X-ray examinations can be made with the use of only one digital
detector, the most expensive part of an X-ray system using direct digital
technology.
During the 100 years in which X-ray imaging has been used for medical
purposes, there has been a continuous trend to improve image quality, to reduce
the radiation dose and to improve the ergonomic features of X-ray equipment.
Management believes that the ddR technology developed by the Company will take
this development to the next level because the ergonomically advanced
ddR-Multi-System provides 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.
The Company's line of SwissVision(TM) postprocessing workstations
permit the postprocessing of digital X-ray images, including section, zooming,
enlargement, soft tissue and bone structure imaging, accentuation of the
limitation of the joints, noise suppression, presentation of different fields of
interest within an area and archiving and transferring the data through central
networks and telecommunication systems. In addition, the SwissVision(TM)
post-processing workstations are able to analyze data stored with respect to a
particular patient. As a result, consistent image quality of different images of
the same patient can be achieved. The workstations operate on a Windows NT
platform and are DICOM 3.0 compatible. The Company is also offering products and
services related to networking, archiving and electronic distribution of digital
X-ray images, including PACS.
Conventional X-Ray Equipment, Imaging Systems, Components and
Accessories
The Company manufactures and sells conventional diagnostic X-ray
equipment for all radiological applications other than mammography and
dentistry. The conventional X-ray equipment manufactured by the Company includes
X- ray generators, basic X-ray equipment, bucky table systems, mobile X-ray
systems, mobile C-arm systems, fluoroscopy systems, urology systems and remote
controlled examination systems. In addition, the Company sells components and
accessories for X-ray systems. In general, the components and accessories for
X-ray equipment sold by the Company are manufactured by third parties. In
Switzerland, the Company was the exclusive distributor of CT systems, MRI
systems and NM systems manufactured by Elscint. No sales were made under such
distributorship arrangement for the fiscal year ended June 30, 1998 while for
the fiscal year ended June 30, 1997 revenues under such agreement approximated
12% of total sales. The Company does not currently have any business
arrangements with Elscint in that such firm sold all or part of its company to
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Picker International Inc. and GE Medical Systems in the later part of 1998.
Original Equipment Manufacturing (OEM)
On June 11, 1996, the Company entered into a new OEM Agreement (the
"Philips OEM Agreement") with Philips Medical Systems which replaced the
previous OEM Agreement with Philips Medical Systems, dated July 29, 1992. The
Philips OEM Agreement provides for the production of two conventional X-ray
systems, the Bucky Diagnost TS bucky table and a Multi Radiography System
("MRS"), which is approved by the World Health Organization ("WHO") as a World
Health Imaging System for Radiology ("WHIS-RAD"). As a result, the Company's MRS
system may be tendered in projects financed by the World Bank. Under the Philips
OEM Agreement these two products are marketed worldwide by Philips Medical
Systems through its existing distribution network. The initial term of the
Philips OEM Agreement expires on December 31, 2000.
Services
The services offered by the Company include the installation and
after-sales servicing of imaging equipment sold by the Company, consulting
services and application training of radiographers. In the United States, the
Company offers consulting services to hospital imaging departments and imaging
centers, including maintenance management, and after-sales services of products
manufactured by the Company and third parties. Maintenance management services
for imaging equipment include the management of after-sales services with
respect to different kinds and brands of imaging equipment (multi-vendor and
multi-modality services).
Distribution of Agfa Products
In April of 1998 the Company entered into a OEM Agreement with Agfa for
the distribution of the latter's laser imagers, dry printers and computed
radiography systems. By virtue of having entered into such distribution
agreement, the Company is able to offer a complete solution for a total digital
radiology department. Both Company products and Agfa products are DICOM 3.0
compatible and can be used on a network or for ponit-to-point connections. Agfa,
a leading worldwide manufacturer of imaging products and systems, is part of the
Agfa-Gevaert Group, with Agfa-Gevaert being a wholly owned subsidiary of Bayer
AG.
Markets
Product Markets
The Company estimates that the global market for X-ray equipment and
accessories is approximately $5 billion, 45% of which is in the United States,
26% in Western Europe, 19% in Japan and 10% in the rest of the world (Sources:
National Electrical Manufacturers Association; Market Line). The Company's
principal markets for its X-ray equipment, components and accessories by country
are Switzerland, the United States and Germany constituting 73%, 23% and 4% of
the Company's sales during the fiscal year ended June 30, 1999 respectively. The
Company believes that because of the need to bring medical services to Western
standards, Eastern Europe continues to offer interesting opportunities as a
market for the Company's conventional X-ray equipment and accessories. The
Company has also been able to gain access to markets in Asia, the Middle East
and Africa. See "-- Sales and Marketing."
The Company believes that the principal markets for its direct digital
X-ray equipment are located in North America and Western Europe, where the first
sales of the ddR-Multi-System have been made. The Company submitted both its
AddOn Bucky(R) and the ddR-Multi-System to the FDA for Section 510(k)
clearance. On November 21, 1997, the Company's AddOn Bucky(R), the direct
digital detector of the ddR-Multi-System, received FDA approval and on December
18, 1997 the Company's ddR-Multi-System received FDA approval; the Company thus
receiving authorization to market the ddR-Multi-System in the United States.
Having obtained the required approval from the FDA, the Company intends to sell
the ddR-Multi-System in the United States through its subsidiaries and other
channels. See "Risk Factors -- Government Regulation" and "Business --
Regulatory Matters."
Service Markets
The Company estimates that the worldwide market for services related to
X-ray equipment, including maintenance management is approximately $44 billion,
of which approximately $40.5 billion (or 92%) relate to after-sales services.
The markets for maintenance management and capital planning amount to $3.4
billion or 8% of the total market for services related to X-ray equipment. The
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principal markets for after-sales services are the United States (45%), Western
Europe (26%) and Japan (19%). The Company expects that as the installed base of
X-ray equipment grows, the market for after-sales services will also expand.
Additional growth may result from a general increase in the demand for such
services. To date, a significant market for maintenance management and capital
planning has only developed in the United States as a result of the impact of
managed care plans and health maintenance organizations ("HMOs") on the health
care industry. The Company expects that in the future there will be a similar
trend in Europe, which may lead to the development of a market for such services
in Europe. See "-- Products" and "-- Sales and Marketing."
Sales and Marketing
The Company's customers are universities, hospitals, clinics, imaging
centers and physicians. The Company markets its products and services primarily
through its own sales force in the United States, Switzerland, Germany and
Eastern Europe and through resellers in these and other markets in Europe,
Middle East, Africa, Asia, and Latin America. The Company also offers products
and services related to networking, electronic archiving and distribution,
including PACS, through the Swissray Information Solution division.
Two of the Company's products, the MRS system and the Bucky Diagnost TS
system, are distributed worldwide through Philips Medical Systems.
The Company believes that in the foreseeable future there will be a
continuous world-wide growth in the markets for complete X-ray systems,
components, accessories and related services because of the improvement of
health care services in developing countries and Eastern Europe and the
necessity to meet increasingly stricter regulations with respect to radiation
dosage and other safety features and environmental hazards in many
jurisdictions. With the transition from conventional to digital X-ray systems,
the demand for products and services related to networking, archiving and
electronic distribution of digital X-ray images will grow in industrialized
countries. In these markets the demand for conventional X-ray equipment,
accessories and related services will decrease over time. See "-- Markets."
In August of 1999 the Company signed a one year exclusive sales,
marketing and service agreement with Hitachi Medical Systems America, Inc.(HMSA)
, a subsidiary of Hitachi Medical Corporation. Under the terms of the agreement
HMSA will provide sales, marketing and service for the distribution of
Swissray's ddR-Multi-System to end users within certain defined territories
within the United States. In addition HMSA will utilize and promote the
Swissray Information Solutions Services and products consisting of consulting
imaging informatics.
In the past, the Company has made a significant amount of sales of
its X-ray equipment to a few large customers. For the fiscal year ended June 30,
1999 sales to the Company's single largest customer accounted for approximately
54% 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 the Company's current
single largest customer or a reduction of the volume purchased by it 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 ddR-Multi-System increase, the Company's revenue will be less
dependent on a few large customers. See "Risk Factors -- Reliance on Large
Customers" and Notes to the Company's Consolidated Financial Statements.
In August 1998 the Company entered into a global distributorship
agreement for its ddR-Multi-System with Elscint Ltd. of Haifa to sell and
service such product in 14 countries in Europe, Canada, South America and
Africa. Soon thereafter almost all of the assets of Elscint Ltd. were sold to
Picker International and GE Medical Systems respectively. Neither Picker
International nor GE Medical Systems have executed or honored the
distributorship agreement as of the date hereof and therefore the Company is
unable to sell the anticipated 75 ddr-Multi-Systems (partially anticipated to
be sold through Elscint Ltd.)within the fiscal year 98/99 as originally planned.
Research and Development
During the fiscal year ended June 30, 1999, the Company incurred
expenses regarding to research and development of $1,808,107(accounting for 12%
of the Company's operating expenses) compared to $3,542,149 (accounting for 19%
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of the Company's operating expenses) for fiscal year ended June 30, 1998 and
compared to $5,786,158 (accounting for 33% of the Company's operating expenses)
for fiscal year ended June 30, 1997. The decrease of the Company's research and
development expenses by 68% from the fiscal year ended June 30, 1997 to the
fiscal year ended June 30, 1999 resulted primarily from the fact that principal
costs associated with development of the direct digital detector, the unique
Add-On Bucky have been completed. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company will continue to have significant research and development
expenses associated with the development of new products (including diagnostic
hardware and software products and new digital X-ray products) and improvements
to existing products manufactured by the Company. New products currently being
developed by or on behalf of the Company include a new digital chest examination
system (ddRChest-System), a direct digital universal radiography system (ddR
Combi)and a multi-functional floating table.
As of June 30, 1999, the Company employed 11 people in research and
development. The number of people employed in research and development has
increased by 10% since June 30, 1998. The Company is outsourcing certain
research and development activities and intends to continue this policy in the
future.
The Company has established a scientific advisory 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.
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. At June 30, 1999 finished
products accounted for approximately 10% of inventory while raw material, parts
and supplies accounted for approximately 76% of inventory and work in process
for approximately 14%.
The percentage of Company revenues derived from products which included
components then only currently available from a single source supplier amounted
to 13.6% as of June 30, 1999. The agreement with the single source supplier of
certain cameras, electronics will be terminated on December 31, 1999.The Company
currently has 160 CCD cameras in stock which can be used for the next 40 ddR-
Systems. The Company is currently in negotiations with three different
comparable source suppliers and does not expect any material business
interruptions to occur regarding CCD camera availability in a timely manner nor
does it anticipate that change of supplier will have any effect upon quality
of its ddR-Systems. The agreement with the single source supplier of optics
expires in July 2002 and subject to renegotiations.
Backlog
Management estimates that as of the end of the fiscal year ended June
30, 1999, the Company had an order backlog of $12,000,000 which consisted of
$8,000,000 forconventional x-ray equipment and $4,000,000 digital (i.e., ddR-
Multi-Systems and information solutions) as compared to an order backlog of
$13,000,000 which consisted of $11,500,000 in conventional x-ray equipment and
$1,500,000 in ddR-Multi-Systems as of the fiscal year ended June 30,1998. The
Company had previously reported an order backlog for its digital x-ray equipment
as of June 30, 1997 of $30,000,000; $29,000,000 of which related to a contract
with a purchaser located in South Korea, management currently does not expect
that such order will be filled (to any significant degree) in the current
calendar year (if at all) absent a dramatic positive change in such economic
conditions which currently is not expected to occur. Accordingly, the Company
no longer, for practicable purposes, considers such South Korea contract to
be part of its backlog. The Company believes that substantially the entire
order backlog for conventional X-ray equipment (which consists primarily of
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orders under the Philips OEM Agreement)will be filled during the current fiscal
year. While the Company expects to continue to have a certain order backlog
for conventional X-ray equipment (exclusive of that indicated above) in the
future because of the Philips OEM Agreement, the order backlog for digital
X-ray equipment is likely to be substantially reduced in the future as the
Company estimates that orders for such equipment will typically be filled within
three months.
Competition
X-Ray Equipment Market
The markets in which the Company operates are highly competitive. Most
of the Company's competitors are significantly larger than the Company and have
access to greater financial and other resources than the Company. The principal
competitors for the Company's X-ray equipment are General Electric, Siemens,
Toshiba, Trex Medical, Shimatsu, Picker and Philips. In general, it is the
Company's strategy to compete primarily based on the quality of its products. In
the market for conventional X-ray equipment, the Company's strategy is to focus
on niche products and niche markets.
To the Company's knowledge the only direct digital X-ray systems for
medical diagnostic purposes other than the ddR-Multi-System currently available
are chest examination systems offered by Philips, IMIX and Odelft. In addition,
there are several direct digital X-ray systems available for dental purposes.
None of these systems is able to perform bone examinations on extremities. To
the best of management's knowledge the Company's ddR-Multi-System is the only
multi-functional direct digital X-ray system currently available which allows
all plane X-ray examinations on the recumbent, upright and sitting patient
without the use of cassettes, films, chemicals or phosphor plates. A number of
companies, including certain of the Company's competitors in the markets for
conventional X-ray equipment, are currently developing direct digital X-ray
detectors or direct digital X-ray systems for specific applications (including
mammography). See "-- Products," "-- Markets," "Risk Factors -- Competition."
Service Market
In the markets for services related to imaging equipment the Company's
competitors are equipment manufacturers (including certain of the Company's
competitors in the X-ray equipment market) and independent service
organizations. In the service markets, it is the Company's strategy to build a
market position based on the confidence of its customers in the quality of its
products and service personnel. See "-- Products," "-- Markets," "Risk Factors
- -- Competition."
Intellectual Property
The Company has obtained patent protection for certain aspects of its
conventional X-ray technology. The Company has filed patent applications
covering certain aspects of its direct digital technology in key markets in
Europe, North America and Asia, including the United States, Canada, Switzerland
and Germany. The Company has obtained for one of its two patents the European
patent as well as the U.S. patent. Although the Company believes that its
products do not infringe patents or violate proprietary rights of others, it
is possible that infringement of proprietary rights of others has occurred or
may occur. In the event the Company's products infringe patents or
proprietary rights of others, the Company may be required to modify the
design of its products or obtain a license. There can be no assurance that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions or at all. The failure to do any of the foregoing could have a
material adverse effect upon the Company. In addition, there can be no
assurance that the Company will have the financial or other resources
necessary to enforce or defend a patent infringement action and the Company
could, under certain circumstances, become liable for damages, which also
could have a material adverse effect on the Company.
The Company also relies on proprietary know-how and employs various
methods to protect its concepts, ideas and technology. However, such methods may
not afford complete protection and there can be no assurance that others will
not independently develop such technology or obtain access to the Company's
proprietary know-how or ideas. Furthermore, although the Company has generally
entered into confidentiality agreements with its employees, consultants and
other parties, there can be no assurance that such arrangements will adequately
protect the Company. The Company has obtained licenses to use certain technology
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which is essential for certain of the Company's products, including certain
software used for its line of SwissVision(TM) postprocessing systems. The
software license is a worldwide, non-exclusive, non-transferable license
recently extended to July 31, 2000 to use and distribute the Agfa software in
combination with the Add-On Bucky.
The Company considers the Swissray name as material to its business and
has obtained, or is in the process of obtaining, trademark protection in key
markets. The Company is not aware of any claims or infringement or other
challenges to the Company's rights to use this or any other trademarks used by
the Company. See "Risk Factors -- Dependence on Patents and Proprietary
Technology."
Regulatory Matters
The Company's X-ray equipment, components and related accessories are
subject to regulation by national or regional authorities in the markets in
which the Company operates. Pursuant to the Federal Food, Drug and Cosmetic Act,
X-ray equipment is a class II medical device which may not be marketed in the
United States without prior approval from the FDA.
The FDA review process typically requires extended proceedings
pertaining to the safety and efficacy of new products. A 510(k) application is
required in order to market a new or modified medical device. If specifically
required by the FDA, a pre-market approval ("PMA")may be necessary. Such
proceedings, which must be completed prior to marketing a new medical device,
are potentially expensive and time consuming. They may delay or hinder a
product's timely entry into the marketplace. Moreover, there can be no assurance
that the review or approval process for these products by the FDA or any other
applicable governmental authorities will occur in a timely fashion, if at all,
or that additional regulations will not be adopted or current regulations
amended in such a manner as will adversely affect the Company. Moreover, such
pre-marketing clearance, if obtained, may be subject to conditions on the
marketing or manufacturing of the ddR-Multi-System which could impede the
Company's ability to manufacture and/or market the product. The Company
submitted both its AddOn-Bucky(R) and the ddR-Multi-System for Section 510(k)
clearance with the FDA. On November 21, 1997, the Company's AddOn Bucky(R), the
direct digital detector of the ddR-Multi-System, received FDA approval and on
December 18, 1997 the Company's ddR-Multi-System received FDA approval; the
Company thus receiving authorization to market the ddR-Multi-System in the U.S.
The FDA also regulates the content of advertising and marketing materials
relating to medical devices. There can be no assurance that the Company's
advertising and marketing materials regarding its products are and will be in
compliance with such regulations.
The Company is also subject to other federal, state, local and foreign
laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices. The electrical components of the
Company's products are subject to electrical safety standards in many
jurisdictions, including Switzerland, EU, Germany and the United States. The
Company believes that it is in compliance in all material respects with
applicable regulations. Failure to comply with applicable regulatory
requirements can result in, among other things, fines, suspensions of approvals,
seizures or recalls of products, operating restrictions and criminal
prosecutions. The effect of government regulation may be to delay for a
considerable period of time or to prevent the marketing and full
commercialization of future products or services that the Company may develop
and/or to impose costly requirements on the Company. There can also be no
assurance that additional regulations will not be adopted or current regulations
amended in such a manner as will materially adversely affect the Company. See
"Risk Factors -- Risks Associated With International Operations," "-- Government
Regulations," "Business -- Markets" and "-- Regulatory Matters." Company product
certifications may be briefly summarized as follows: On March 8, 1999
Swissray Medical AG, the Company's Swiss research and development, production
and marketing subsidiary became ISO 9001 and EN 46001 certified. Appendix II
for CE - Certification is expected to be completed in September 1999, which
allows the Company to use the CE-Label, including the medical device numbers
for all products manufactured and/or sold through the Company. See also
"Government Regulation".
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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 may specifically apply to
it. The Company does not believe that it has been involved in utilization of
any types of substances and/or wastes which it considers to be hazardous and the
operation of its business (or former business), accordingly is not believed to
have created any potential liability involving environmental matters. 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 or changing environmental laws or
liabilities in the future that could result in an adverse effect on the
Company's financial condition or results of operations. See "Risk Factors --
Environmental Matters."
Employees
After giving effect to the Empower, Inc. transaction heretofore
initially referred to on page 5 of this Registration Statement, the Company had
99 employees worldwide, of which 25 were employed by subsidiaries in the United
States, 68 in Switzerland, and 6 in European countries other than Switzerland.
The Company believes that its relationship with employees is satisfactory. The
Company has not suffered any significant labor problems during the last five
years.
Description of Property
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 and has since moved the offices and other facilities formerly located
in its Hitzkirch facility to the new Hochdorf facility. 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 office space in New York City, Brno,
Czech Republic, Gig Harbor, Washington and Wiesbaden, Germany.
Legal Proceedings
A. On or about October 3, 1997, the Registrant and Swissray Healthcare, Inc.
were served with a complaint by a company engaged in the business of providing
services related to imaging equipment alleging that defendant received benefits
from breach of fiduciary duties and contract obligations and misappropriation of
trade secrets by certain former employees of such competitor Such company also
obtained a temporary restraining order against the Registrant and Swissray
Healthcare, Inc. in the aforesaid action entitled Serviscope Corporation v.
Swissray International, Inc., and Swissray Healthcare, Inc. commenced in the
Supreme Court of the State of New York under Index No. 605091/97. On November
10, 1997, the Court denied a Motion for a preliminary injunction and the
temporary restraining order was vacated. On December 1, 1997 and January 30,
1998 the Registrant answered the Complaint and Amended Complaint
respectively by denying the allegations contained therein. The Plaintiff
in such action (on December 2, 1997) filed a Motion to reargue and renew
its prior denied Motion for a Preliminary Injunction and such Motion was
by Order and Decision dated June 17, 1998) denied. The Company denied the
allegations, vigorously defended the litigation and thereafter settled such
litigation and all outstanding matters with respect thereto in July 1998 for
$60,000.
B. Dispute with Gary J. Durday ("Durday"), Kenneth R. Montler ("Montler") and
Michael E. Harle ("Harle"). On July 17, 1998, two legal proceedings were
commenced by Swissray, and two of its subsidiaries against Durday, Montler and
Harle. Harle and Montler are former Chief Executive Officers of Swissray Medical
Systems Inc. and Swissray Healthcare Inc., respectively, and Durday is the
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former Chief Financial Officer of both of those companies. Each of them was
employed pursuant to an Employment Agreement dated October 17, 1997. In
addition, these three individuals were owners of a company by the name of
Service Support Group LLC ("SSG"), the assets of which were sold to Swissray
Medical Systems Inc. pursuant to an Asset Purchase Agreement dated as of October
17, 1997. whereby Messrs. Durday, Montler and Harle received, among other
consideration, 33,333 shares of Swissray's common stock, together with a put
option entitling these individuals to require Swissray to purchase any or all of
such shares at a purchase price equal to $45.00 per share (on or after June 30,
1998 and until April 16, 1999).
On July 17, 1998, Swissray and its subsidiaries, Swissray Medical
Systems Inc. and Swissray Healthcare Inc. commenced an arbitration proceeding
before the American Arbitration Association in Seattle, Washington (Case No. 75
489 00196 98) alleging that Messrs. Durday, Montler and Harle fraudulently
induced Swissray and its subsidiaries to enter into the above referenced Asset
Purchase Agreement and otherwise breached that Agreement. The relief sought in
the arbitration proceeding was the recovery of damages suffered as a result of
this alleged wrongful conduct and a rescission of the put option provided for in
the Asset Purchase Agreement. Messrs. Durday, Montler and Harle responded to the
allegations made in the arbitration proceeding and asserted counterclaims
against Swissray and its subsidiaries claiming a breach by them of their
obligations under the Asset Purchase Agreement and other relief. The arbitration
took place in Seattle on January 8-10, 1999; the proceeding concluded on January
27, 1999 after the submission of post-hearing briefs. On February 23, 1999, the
Arbitrator issued his ruling, awarding Messrs. Durday, Montler and Harle
$1,500,000 and ordering them to surrender all rights to 33,333 shares of
Swissray common stock. On February 26, 1999, Swissray and Swissray Medical
Systems Inc. filed a petition in Supreme Court, New York County (Index No.
99/104017) to vacate the above referenced arbitration award. By order dated
July 8, 1999 such motion was denied and the court confirmed the aforesaid
arbitration award.
In addition to the above referenced arbitration proceeding, Swissray
and its subsidiaries commenced an action against Messrs. Durday, Montler and
Harle Supreme Court of the State of New York, County of New York, alleging that
these individuals breached the obligations undertaken by them in their
respective Employment Agreements. Further, Messrs. Durday, Montler and Harle
commenced an action in Superior Court in Pierce County, Washington, (September
1998 under Cause No. 98-2-10701-0), and asked that Court to adjudicate the
issues raised in the above referenced New York State Court action. Swissray
filed applications in both the Washington and New York litigations urging that,
because the action was first filed in New York, the New York court, rather than
the Washington court, should decide where the litigation should proceed. Messrs.
Durday, Montler and Harle initially opposed that position and urged the
Washington State court to adjudicate all issues, but subsequently withdrew their
opposition to Swissray's application and consented to a stay of all further
proceedings in the Washington State court action until after the New York court
had reached a decision as to whether it or the Washington court is the proper
forum for litigation of the parties' dispute. By order dated June 1, 1999
filed in Supreme Court of the State of New York, County of New York (Index No.
603512/98) Messrs. Durday, Montler and Harle's motion for an order dismissing
Swissray's complaint (on the ground of forum non conveniens) was granted. The
aforesaid action commenced by Messrs. Durday, Montler and Harle in Pierce County
Washington remained pending.
Parties to each of the aforesaid procedings thereafter entered into
settlement negotiations resulting in Swissray agreeing to pay $1,500,000 as and
for full settlement of all outstanding claims; such settlement agreement having
been executed August 31, 1999.
C. Dispute with J. Douglas Maxwell. On or about July 1, 1999 an action
was commenced in the Supreme Court, State of New York, County of New York (Index
No. 113099/99) entitled J. Douglas Maxwell ("Maxwell") against Swissray
International, Inc. ("Swissray") whereby Maxwell is seeking judgement in the sum
of $380,000 based upon his interpretation of various terms and conditions
contained in an Exchange Agreement between the parties dated June 1, 1998.
Swissray has denied the material allegations of Maxwell's complaint and has
asserted three affirmative defenses and two separate counterclaims seeking
(amongst other matters) dismissal of the complaint and rescission of th settle-
ment agreement. It is Swissray's management's intention to contest this matter
vigorously.
- 42 -
<PAGE>
Recent Developments
In May 1998 Swissray Medical Systems, Inc., a wholly owned subsidiary
of the Company, was awarded a contract from the Department of Veterans Affairs
("VA") estimated at $400,000 for the base year for its Diagnostic X-ray systems,
the ddR-Multi-System, with the VA reserving its option to extend the term of the
contract up to March 31, 2001; the ddR-Multi-System being the first ever FDA
approved multifunctional direct digital radiography (ddR) system to be offered
worldwide. With the official contract award in hand, management intends to
actively pursue sales to various VA hospitals, medical centers and outpatient,
community and outreach clinics throughout the United States. Since receipt of
such award the Company has contracted for the sale of 4 ddR-Multi-Systems
(through August 24, 1999) to different VA institutions.
In July of 1998 the Company sold its multifunctional direct digital
radiography (ddR) system, the ddR-Multi- System, to the largest Diagnostic Out
Patient Center in Warsaw, Poland, the Diagnostic Center Luxmed. This order
represents Swissray's first sale within the Eastern European Market,
complementing sales previously made in both Western Europe and the United
States.
In October 1998 the Company entered into a distribution agreement with
X-ray Inc. ("XRI"), Warwick, RI. XRI will distribute the Company's
ddR-Multi-System in the territories of Connecticut, Rhode Island, Vermont, New
Hampshire, Massachusetts and Maine.
In November 1998 the Company reached an agreement with Data General
Corporation of Westborough, MA, which grants authority to Data General to act as
a reseller for the Company's family of products. Data General will sell the
Company's ddr-Multi-System and Information Solutions as a package with their
PACS system.
In February of 1999 the Company announced the sale of three of its
ddR-Multi-System, to Houston, Texas based Kelsey-Seybold Clinic and to the
Federal Maximum Security Facility in Florence, Colorado. The two Kelsey- Seybold
systems are scheduled to be viewed in clinical use by attendees of the annual
Society for Computer Applications (SCAR) meeting in Houston in May 1999 while
the Colorado sale was made through the above indicated contract with the
Department of Veterans Affairs.
In February 1999 the Company announced entry into distribution
agreements with three medical equipment suppliers for distribution in both
domestic and international markets. These firms - Medika International Inc., of
San Juan, Puerto Rico, Radiographic Equipment Services (RES) of San Diego,
California, and H & H X-Ray Corporation of Lancaster, New York, have agreed to
distribute Swissray's direct digital radiography system, the ddr-Multi- System.
Medika, one of the largest medical equipment suppliers in the Southern
Hemisphere, will cover ddR-Multi-Systems sales in Puerto Rico, the Caribbean,
Mexico and selected South American markets. RES will represent Swissray in San
Diego and Orange Counties (California), and H&H X-Ray - with 28 years of
experience in medical imaging - will oversee sales in New York, Pennsylvania and
Ohio.
On March 29, 1999 the Company entered into a one year Consulting
Agreement (with option to extend for an additional period of one year) with
Liviakis Financial Communications, Inc.("LFC ") In accordance with the terms and
conditions of the Consulting Agreement, the Consultant agreed to provide certain
specified consulting services in a diligent and thorough manner in return for
which and as full and complete compensation thereunder, the Company is required
to compensate the Consultant through its issuance and delivery of 3,000,000
shares of the Company's restrictive common stock. As regards such shares of
common stock, Consultant has agreed that throughout the period of time that it
retains beneficial ownership of all or any portion of such shares that it shall
(a) vote such shares in favor of Ruedi G. Laupper continuing to maintain his
current position(s) with the Company and (b) give Ruedi G. Laupper and/or his
designee the right to vote Consultant's shares at all Company shareholder
meetings. In the event that the Company, in its sole discretion, exercises its
option to extend the Agreement for an additional period of one year,
remuneration for such second year has been set at $630,000 to be paid in
restrictive shares of Company common stock (with the number of shares to be
determined based upon the ten day average closing bid price for the ten
consecutive trading days preceding March 29, 2000). The foregoing does not
purport to set forth each of the terms and conditions of the aforesaid
Consulting Agreement but rather is designed to summarize what management
considers to be pertinent portions thereof.
- 43 -
<PAGE>
In accordance with the terms of the aforementioned consulting agreement
,LFC has agreed that it will generally provide the following consulting services
: (a) advise and assist the Company in developing and implementing appropriate
plans and materials for presenting the Company in the financial community, and
creating the foundation for subsequent financial public relations efforts, (b)
advise and assist the Company in communicating appropriate information regarding
its plans, strategy and personnel to the financial community; (c) assist and
advise the Company with respect to its (i) stockholder and investor relations,
(ii) relations with brokers, dealers, analysts and other investment
professionals, and (iii) financial public relations generally, (d) perform the
functions generally assigned to investor/stockholder relations and public
relations departments in major corporations, (e) upon the Company's approval,
(i) disseminate information regarding the Company to shareholders, brokers,
dealers, other investment community professionals and the general investing
public and (ii) conduct meetings with brokers, dealers, analysts and other
investment professionals to advise them of the Company's plans, goals and
activities and (f) otherwise perform as the Company's financial relations and
public relations consultant.
Additionally, on March 29, 1999 the Company entered into a five year
Consulting Agreement with Rolcan Finance Ltd. ("Rolcan"), pursuant to which
Rolcan agreed to provide certain business and consulting services outside the
United States and in return for which the Company became obligated to issue as
full and complete compensation thereunder, 800,000 restrictive shares of its
common stock.
In accordance with terms of aforementioned consulting agreement, Rolcan
has agreed to facilitate the endeavors of the Company's medium and long term
business plans through services, including but not limited to, introducing
Company management (i) to potential financial partners, financial brokers, and
assist in developing market awareness within the financial community with an
emphasis upon introductions to offshore investors in Europe, the Middle East
and the Far East and to the extent practicable assisting the Company in having
its stock listed on various European exchanges and (ii) continuing to discuss
Company financial requirements and types of financing which may be available and
/or appropriateunder then existing circumstances.
In April of 1999 the Company entered into distribution agreements with
(a) Linear Medical Systems, Inc. for the territory of Arizona and (b) Capital
X-RAy, Inc. for the territories of Alabama and Mississippi.
In May 1999 the European Patent Office issued patent No. EP 0 804 853
and in July of 1999 the U.S. Patent Office issued patent No. 5,920,604-both for
the Company's Radiography (ddR) detector, the Add-On Bucky (R) which patent
relates to the optical arrangement and process for transmitting and converting
primary x-ray images, which is the first of two inventions for the Add-On Bucky
(R). The second patent application for optical arrangement and method for
electronically detecting an x-ray image has been submitted and is pending
approval. The Add-On Bucky (R) is incorporated in Swissray's unique
multifunctional ddR-Multi-System.
In July of 1999 the Company signed an investment banking agreement with
Raymond James & Associates, Inc. (NYSE:RJE-news). Under the terms of the
agreement, Raymond James will assist Swissray in evaluating strategic
alternatives including, but not limited to, identifying and evaluating proposals
from potential suitors or strategic partners, as well as supporting the
Company's financing requirements.
In August of 1999 the Company signed a one year exclusive sales,
marketing and service agreement with Hitachi Medical Systems America, Inc.
(HMSA), a subsidiary of Hitachi Medical Corporation. Under the terms of the
agreement HMSA will provide sales, marketing, and service for the distribution
of Swissray's ddR-Multi-System to end users within certain defined territories
within the United States. In addition HMSA will utilize and promote the
Swissray Information Solutions services and products consisting of consulting
and product solutions for medical imaging informatics.
- 44 -
<PAGE>
MANAGEMENT
Directors and Executive Officers of the Company
Set forth below is certain information concerning each current director
and executive officer of the Registrant, including age, position(s) with the
Registrant, present principal occupation and business experience during the past
five years.
Name Age Position(s) Held
Ruedi G. Laupper 49 Chairman of the Board of Directors,
President and Chief Executive Officer,
Josef Laupper 54 Secretary, Treasurer and Director
Ueli Laupper 29 Vice President and Director
Dr. Erwin Zimmerli 52 Director and Member of the Independent
Audit Committee
Erich A. Kalbermatter 43 Chief Operating Officer *
Dr. Sc. Dov Maor 52 Director and Member of the Independent
Audit Committee
Michael Laupper 26 Chief Financial Officer
* Until his resignation in February 1999.
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and have qualified.
Ruedi G. Laupper has been President, Chief Executive Officer and a
director of the Registrant since May 1995 and Chairman of the Board of Directors
since March 1997. In addition, he is Chairman of the Board of Directors and
President of the Company's principal operating subsidiaries. Ruedi G. Laupper is
the founder of the predecessors of the Company and was Chief Executive Officer
of SR Medical AG until May 1995. He has approximately 23 years of experience in
the field of radiology. Ruedi G. Laupper is the brother of Josef Laupper and the
father of Ueli and Michael Laupper.
Josef Laupper has been Secretary, Treasurer (until January 1998 and
recommencing January 1999) and a director of the Registrant since May 1995 (with
the exception of not having served as Secretary from December 23, 1997 to
February 23, 1998). He has held comparable positions with SR Medical Holding AG,
SR-Medical AG, and their respective predecessors since 1990. He is principally
in charge of the Company's administration. Josef Laupper has approximately 19
years of experience within the medical device business.
Ueli Laupper has overall Company responsibilities in the area of
international marketing and sales with approximately eight years of experience
within the international X-ray market. He has been a Vice President of the
Company since March 1997 and a director of the Registrant since March 1997. He
was Chief Executive Officer of SR Medical AG from July 1995 until June 30, 1997.
Since the beginning of July 1998 he has been in charge of the Company's U.S.
operations and currently serves as CEO of both Swissray America Inc. since its
formation in September 1998 and Swissray Healthcare, Inc..
Dr.Erwin Zimmerli has been a director of the Registrant since May 1995
and, since March 1998, a member of the Registrant's Independent Audit Committee.
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), as 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.
Erich A. Kalbermatter, commenced serving the Company in the position of
Chief Operating Officer in April 1998 and held such position until February
1999. Mr. Kalbermatter whose background is principally as an internationally
experienced manager with expertise in the areas of electronics and
telecommunications, has also served as managing director of Private & Business
Communications of ASCOM Ltd., Berne, Switzerland being responsible for the
turn-over of more than 1 billion Swiss Francs, with approximately 4,800
employees worldwide. In addition, he was a member of ASCOM's Group Management,
an international communications corporation.
- 45 -
<PAGE>
Dr. Sc. Dov Maor, was appointed as a member of the Registrant's Board
of Directors and a member of its Independent Audit Committee effective March 26,
1998. Dr. Sc. Dov Maor currently holds the position of Vice President for
Technology with ELBIT Medical Imaging, Haifa. Dr. Sc. Dov Maor is well
experienced in the field of Nuclear Medicine and medical imaging and has been
employed for over 10 years in a leading position in Research & Development.
Additionally, he was working in conjunction with the Max Planck Institute for
Nuclear Physics in Heidelberg within his field of experience. In addition to his
technical knowledge, Dr. Sc. Dov Maor is experienced in the commercial sector of
the industry.
Michael Laupper assumed the position of Interim Chief Financial Officer
of the Company effective January 1, 1999, having previously served as Controller
working in conjunction with the Company's former CFO and currently serves as the
Company's CFO.Michael Laupper completed his commercial education in the chemical
industry in 1991 in Switzerland and has additionally completed studies in
finance and accounting (in the United States during 1996-97). He has served the
Company in various management positions at SR Management AG and SR Medical AG,
Company subsidiaries, prior to assuming his current position.
The Board of Directors
The Board of Directors has responsibility for establishing broad
corporate policies and for overseeing the performance of the Registrant. Members
of the Board of Directors are kept informed of the Registrant's business by
various reports and documents sent to them in anticipation of Board meetings as
well as by operating and financial reports presented at Board meetings. The
Registrant pays its directors fees or compensation for services rendered in
their capacity as directors. The current Board of Directors was elected and
assumed office as of December 23, 1997 with the exception that Dr. Sc. Dov Maor
assumed his position on March 26, 1998.
The Board does not currently have a standing audit, nominating or
compensation committee or any committee or committees performing similar
functions, but acts, as a whole, in performing the functions of such committees
(except as may be indicated directly hereinafter). At a meeting of the Board of
Directors held on March 26, 1998, an Independent Audit Committee was
established.
Employment Agreements
Ruedi G. Laupper has entered into a five-year employment agreement with
Swissray Management AG, a wholly owned subsidiary of the Registrant, on December
18, 1997, which agreement will be automatically renewed for another five years
unless terminated by either party no later than December 31, 2001. Such
agreement provides for (i) an annual salary of 299,000 Swiss francs (or
$208,740, based on an exchange rate of 1.4324), (ii) an annual bonus of 12,000
Swiss francs (or $8,377), and (iii) a performance based bonus, based on the
audited consolidated financial statements of the Company as of the end of the
fiscal year. The bonus shall be 25% of EBIT (earnings before interest and taxes)
payable in stock of Swissray International, Inc. valued at the average of the
closing prices during the five business days following the filing of the 10-K.
In addition, the agreement entitles Mr. Laupper to a car allowance, five weeks
of vacation, $698 per month for expenses and a "Bel Etage" insurance which
provides certain pension benefits not mandated by Swiss law. If such employment
agreement is terminated for reasons beyond the employee's control, Ruedi Laupper
will receive 2 million Swiss francs (or $1,396,258) including any bonus. The
Registrant guarantees the obligation of Swissray Management AG in the event of a
default.
Pursuant to June 1999 Board meeting the EBIT bonus provisions referred
to above were extinguished in exchange for (a) extending the duration of the
employment agreement to December 18, 2007 and (b) issuance to Ruedi G. Laupper
of 2,000,000 shares of restrictive Company common stock.
Ueli Laupper and Josef Laupper have entered into three-year employment
agreements with Swissray Management AG on December 18, 1997, which agreements
will be automatically renewed for another three years unless notice is given six
months prior to the expiration date. Such agreements provide for salaries of
$84,924 and 119,700 Swiss francs (or $83,566) respectively with annual bonuses
of $7,077 and 9975 Swiss francs (or $6,964) respectively, $1,500 and 1000 Swiss
francs (or $698) per month for expenses respectively and 20 days and 25 days of
vacation respectively. The employment agreements of each of Ueli Laupper and
Josef Laupper also provide for a car allowance. If either of such employees is
terminated for reasons beyond the employees control he will receive 500,000
Swiss francs (or $349,065).
- 46 -
<PAGE>
Mr. Kalbermatter in accordance with his Agreement with Swissray
Management AG assumed the position of Chief Operating Officer of the Company
effective April 14, 1998 at an annual salary equivalent to $153,333. Mr.
Kalbermatter shall also receive (a) an expense allowance equivalent to $12,000,
(b) an automobile allowance equivalent to $11,333, (c) 25 days of vacation and
(d) a "Bel Etage" inusrance which provides certain pension benefits. U.S. dollar
equivalents indicated above are based upon a Swiss Francs (CHF) exchange rate of
$1.50. This Agreement expires May 31, 1999.
All of these employment agreements are covered by Swiss law.
Compensation of Directors and Executive Officers
Summary Compensation Table
(A) The following Summary Compensation Table sets forth certain
information for the years ended June 30, 1997, 1998 and 1999 concerning the cash
and non-cash compensation earned by or awarded to the Chief Executive Oficer of
the Registrant, the three other most highly compensated executive officers of
the Registrant as of June 30, 1999 and the former Chairman of the Board of
Directors (the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Fiscal Other Annual Stock All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
- ------------------------------------ ----- ----------- ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ruedi G. Laupper 1999 $202,498 --- $755,000(1)(8) -- ---
President and Chief Executive 1998 $189,644 --- $15,000 (1) -- ---
Officer, Chairman of the 1998 --- --- $1,122,973 (1) -- ---
Board of Directors 1997 $146,983 --- $15,000 (1) 12,000(5) ---
Josef Laupper 1999 $ 87,822 --- $12,000 (1) --- ---
Secretary, Treasurer 1998 $ 94,669 --- $12,000 (1) --- ---
1997 $ 96,861 --- $12,000 (1) --- ---
Ueli Laupper 1999 $ 92,001 --- $10,000 (1) --- ---
Vice President International 1998 $ 95,685 --- $10,000 (1) --- ---
Sales (2) 1997 $ --- --- $ --- --- ---
Herbert Laubscher
Chief Financial Officer (2)(3) 1998 $ 79,244 --- $ --- --- ---
1997 $ --- --- $ --- --- ---
Ulrich R. Ernst (4)
1997 $ 96,979 --- $10,000 (1) --- ---
Erich A. Kalbermatter 1999 $153,439 --- $ --- --- ---
Chief Operating Officer (6) 1998 $ 33,652 --- $ --- --- ---
- --------------------
</TABLE>
(1) Fees for service on the Board of Directors of the Company.
(2) Compensation did not exceed $100,000 in any fiscal year.
(3) Herbert Laubscher joined the Company in August of 1996 and served as
Treasurer from January 1998 until his resignation effective December
31, 1998.
(4) Ulrich R. Ernst was Chairman of the Board of Directors from May 1995
until March 18, 1997.
(5) The options, which were fully vested on date of grant (6/13/97), were
issued in exchange for services to the Company as Chairman of the Board
of Directors.
(6) Erich A. Kalbermatter joined the Company on April 14, 1998 and resigned
in February 1999.
(7) Compensation paid in equivalent of 48,259 post reverse split shares of
Common Stock for cancellation of Common Stock held by officer.
(8) Dollar value of common stock issued for relinquishment of EBIT bonus.
- 47 -
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables set forth certain information concerning the grant
of options to purchase shares of the Common Stock to each of the executive
officers of the Registrant, as well as certain information concerning the
exercise and value of such stock options for each of such individuals. Options
generally become exercisable upon issuance and expire no later than ten years
from the date of grant.
STOCK OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 1997(1)
<TABLE>
<CAPTION>
Percent of
Total Potential
Options Realization Value at
Granted Assumed Annual Rates
Number of to Exercise of Stock Appreciation
Securities Employees or Market For Option Term
Underlying in Base Price on
Options Fiscal Price Date of Expiration
Name Granted Year Per Share Grant Date 0% 5% 10%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ruedi G. Laupper 120,000(2) 30.4% $0.73(3) $2.94(4) 6/13/02 265,200 282,840 300,480
Josef Laupper(5) -- -- -- -- -- -- -- --
Ueli Laupper(5) -- -- -- -- -- -- -- --
Herbert Laubscher(5) -- -- -- -- -- -- -- --
Ulrich Ernst(5)(6) -- -- -- -- -- -- -- --
</TABLE>
(1) The options to purchase the Registrant's Common Stock were granted
under the Swissray International, Inc. 1996 Non-Statutory Stock Option
Plan.
(2) These options were owned indirectly through SR Medical Equipment Ltd.,
a corporation wholly owned by Mr. Laupper. They were immediately
exercisable on the date of grant but do not give effect to subsequent
October 1998 1 for 10 reverse stock split.
(3) The exercise price per share is contingent on purchase of the entire
amount of securities.
(4) The market price on date of grant was based on the average of the high
and low reported prices on the Nasdaq SmallCap Market on June 13, 1997.
On October 26, 1998 the Company's securities were delisted by NASDAQ.
(5) These individuals own no stock options of the Registrant.
(6) Mr. Ernst was Chairman of the Board of Directors from May 1995 until
March 18, 1997.
STOCK OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1998
With respect to the Named Executive Officers there were no granting of
stock options under either the Company's 1996 or 1997 Stock Option Plans (the
"Plans") during the fiscal year ended June 30, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options Options
Name At Fiscal Year-End(#) At Fiscal Year-End($)
(A) Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C>
Ruedi G. Laupper 12,000/0(3) $1.79/0
Josef Laupper(4) 0/0 0/0
Ueli Laupper(4) 0/0 0/0
Herbert Laubscher(4) 0/0 0/0
Ulrich R. Ernst(4)(5) 0/0 0/0
</TABLE>
(1) No options were exercised by a Named Executive Officer during the
fiscal year ended June 30, 1997 and 1998.
(2) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the option.
(3) Includes 12,000 options which are owned indirectly by Mr. Laupper
through SR Medical Equipment Ltd., a corporation which is wholly owned
by Mr. Laupper.
(4) These individuals own no stock options of the Registrant.
(5) Mr. Ernst was Chairman of the Board of Directors from May 1995 until
March 18, 1997.
- 48 -
<PAGE>
Stock Option Plans
On January 30, 1996, the Board of Directors adopted the Company's 1996
Non-Statutory Stock Option Plan (the "1996 Plan"). Substantially all of the
options under such 1996 Plan have been granted. Consequently, the Board of
Directors and the Registrant's stockholders approved the Swissray International,
Inc. 1997 Stock Option Plan (the "Stock Option Plans").
The purpose of the Stock Option Plans is to provide directors, officers
and employees of, and consultants to the Company and its subsidiaries with
additional incentives by increasing their ownership interests in the Company.
Directors, officers and other employees of the Company and its subsidiaries are
eligible to participate in the Stock Option Plans. Options may also be granted
to directors who are not employed by the Company and consultants providing
valuable services to the Company and its subsidiaries. In addition, individuals
who have agreed to become an employee of, director of or a consultant to the
Company and its subsidiaries are eligible for option grants, conditional in each
case on actual employment, directorship or consultant status. Awards of options
to purchase Common Stock may include incentive stock options under Section 422
of the Internal Revenue Code ("ISOs") and/or non-qualified stock options
("NQSOs"). Grantees who are not employees of the Company or a subsidiary shall
only receive NQSOs.
The maximum number of options that may be granted under this Plan shall
be options to purchase 200,000 shares of Common Stock. As of August 24, 1999,
none of such options have been granted.
The Compensation Committee will administer the Stock Option Plans. The
Compensation Committee generally will have discretion to determine the terms of
any option grant, including the number of option shares, exercise price, term,
vesting schedule, the post-termination exercise period, and whether the grant
will be an ISO or NQSO. Notwithstanding this discretion: (i) the number of
shares subject to options granted to any individual in any calendar year may not
exceed 200,000; (ii) the term of any option may not exceed 10 years (unless
granted as an ISO to an individual or entity who possesses more than 10% of the
voting power of the Company, which term may not exceed five years); (iii) an
option will terminate as follows: (a) if such termination is on account of
permanent and total disability (as determined by the Compensation Committee),
such options shall terminate one year thereafter; (b) if such termination is on
account of death, such options shall terminate six months thereafter; (c) if
such termination is for cause (as determined by the Compensation Committee),
such options shall terminate immediately; (d) if such termination is for any
other reason, such options shall terminate three months thereafter; and (iv) the
exercise price of each share subject to an ISO shall be not less than 100%, or,
in the case of an ISO granted to an individual described in Section 422(b)(6) of
the Code, 110% of the fair market value (determined in accordance with Section
422 of the Code) of a share of the Stock on the date such option is granted.
Unless otherwise determined by the Compensation Committee, (i) the exercise
price per share of Common Stock subject to an option shall be equal to the fair
market value of the Common Stock on the date such option is granted; (ii) all
outstanding options become exercisable immediately prior to a "change in
control" of the Company (as defined in the Stock Option Plans) and (iii) each
option shall become exercisable in three equal installments on each of the
first, second and third anniversary of the date such option is granted.
The Stock Option Plans may be amended, altered, suspended, discontinued
or terminated by the Board of Directors without further stockholder approval,
unless such approval is required by law or regulation or under the rules of the
stock exchange or automated quotation system on which the Common Stock is then
listed or quoted. Thus, stockholder approval will not necessarily be required
for amendments which might increase the cost of the Stock Option Plans or
broaden eligibility. The Stock Option Plans will remain in effect until
terminated by the Board of Directors. No ISO may be granted more than ten years
after such date.
Pursuant to February 1999 Board of Directors approval and subsequent
July 23, 1999 stockholder approval, the Registrant adopted its 1999 Non
Statutory Stock Option Plan, whereby it reserved for issuance up to 3,000,000
shares of its common stock. Thereafter in August 1999 the Registrant filed a
Registration Statement on Form S-8 (File No. 0-26972) so as to register those
shares of common stock underlying the aforesaid options. As of August 24, 1999
none of such options had been granted.
The Registrant currently has outstanding non-statutory stock options to
purchase an aggregate of 161,000 shares of Common Stock. See "Management --
Compensation of Directors and Executive Officers" and Notes to the
Consolidated Financial Statements June 30, 1999, 1998 and 1997.
- 49 -
<PAGE>
Retirement and Long-Term Incentive Plans
The Swiss and German Subsidiaries, mandated by government regulations,
are required to contribute approximately five (5%) percent of eligible, as
defined, employees' salaries into a government pension plan. The subsidiaries
also contribute approximately five (5%) percent of eligible employee salaries
into a private pension plan. Total contributions charged to operations for the
years ended June 30, 1999 and 1998, were $509,959 and $347,854, respectively.
Director Compensation
Directors of the Registrant receive $10,000 annually for serving as
directors except for Josef Laupper, who receives $12,000 and Ruedi Laupper, the
Chairman of the Board of Directors, who receives $15,000. Ruedi Laupper also
received options to acquire 12,000 shares of the Registrant's Common Stock on
June 13, 1997 in accordance with applicable provisions of the Company's 1996
Non-Statutory Stock Option Plan. The exercise price for such options is $7.30
per share. The options were fully vested on the date of grant.
Compensation Committee Interlocks and Insider Participation
The Registrant had no Compensation Committee during the last completed
fiscal year. The Registrant's executive compensation was supervised by all
members of the Registrant's Board of Directors and the following directors were
concurrently officers of the Registrant in the following capacities: Ruedi G.
Laupper (Chairman of the Board of Directors, President and Chief Executive
Officer); Josef Laupper (Secretary and Treasurer), Ueli Laupper (Vice President
International Sales) and Ulrich R. Ernst (Chairman of the Board of Directors
from May 1995 until March 18, 1997). No executive officer of the Registrant
served as a member of the board of directors or compensation committee of any
entity which has one or more executive officers who serve on the Registrant's
Board of Directors.
While the Company did not issue any shares of its Common Stock to any
of its officers during fiscal year ended June 30, 1998 it did issue 48,259
shares of Common Stock to a company controlled by Ruedi G. Laupper pursuant to
an agreement between Ruedi G. Laupper and the Company, dated as of June 30,
1997, in consideration of Mr. Laupper's agreement to the temporary cancellation
of 160,863 shares of Common Stock held by Ruedi G. Laupper or companies
controlled by him to enable the Company to maintain a sufficient number of
shares of Common stock to meet certain obligations of the Company to issue
Common Stock and to permit certain financings prior to the increase of the
number of authorized shares of Common Stock from 15,000,000 to 30,000,000.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of August 24, 1999 (except where otherwise
noted) with respect to (a) each person known by the Registrant to be the
beneficial owner of more than five percent of the outstanding shares of Common
Stock, (b) each director of the Registrant, (c) the Registrant's executive
officers and (d) all officers and directors of the Registrant as a group (except
as indicated in the footnotes to the table, all of such shares of Common Stock
are owned with sole voting and investment power):
No. Of Shares Percentage of
Beneficially Shs. Benficially
Name and Address of Beneficial Owner (1) Owned (2) Owned (2)
- ---------------------------------------- -------------- -------------
Ruedi G. Laupper (3) 2,509,824 17.25%
Josef Laupper (4) 50,000 *
Erwin Zimmerli (5) 5,000 *
Ueli Laupper --- *
Dov Maor --- *
Michael Laupper --- *
Thomson Kernaghan & Co. Ltd. %
Atlantis Capital Fund, Ltd. %
Dominion Capital Fund, Ltd. 3,221,131(6) 18.65%
Sovereign Partners LP 3,983,182(7) 22.35%
Canadian Advantage Limited Partnership 752,543(8) 5.11%
Liviakis Financial Communications, Inc. 3,000,000(9) 20.63%
Rolcan Finance Ltd. 800,000(10) 5.50%
All directors and officers as
a group (six persons) 2,564,824(11) 17.62%
- ---------------
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<PAGE>
o Represents less than 1% of the 14,541,537 shares outstanding as of
August 24, 1999.
(1) Unless otherwise indicated, the address for each named individual is in
care of SWISSRAY International, Inc., 320 West 77th Street, Suite 1A,
New York, New York 10024.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of the Common Stock beneficially owned by them. A person is
deemed to be the beneficial owner of securities which may be acquired
by such person within 60 days from the date indicated above upon the
exercise of options, warrants or convertible securities.Each beneficial
owner's percentage ownership is determined by assuming that options,
warrants or convertible securities that are held by such person (but
not those held by any other person) and which are exercisable within 60
days of the date indicated above, have been exercised.
(3) Includes (i) 37,500 shares owned indirectly by Ruedi G. Laupper through
SR Medical Equipment Ltd., a corporation which is wholly owned by him;
(ii) 460,324 shares owned indirectly by Ruedi G. Laupper through
Tomlinson Holding Inc., a corporation which is wholly owned by him and
(iii) 12,000 shares which may be acquired upon exercise of immediately
exercisable options, which options are owned indirectly by Ruedi G.
Laupper through SR Medical Equipment Ltd., a corporation which is
wholly owned by him.
(4) Includes 50,000 shares owned indirectly by Josef Laupper through Lairy
Investment Inc., a corporation in which he is a majority shareholder.
(5) Includes 5,000 shares which may be acquired upon exercise of
immediately exercisable options.
As of the August 24, 1999, an aggregate principal outstanding balance
(exclusive of interest) for those Convertible Debentures referred
to below amounts to $13,132,631. None of these convertible
debentures are owned by officers and/or directors of the Company.
(6) Includes the 491,308 shares currently owned as wellas up to 2,729,823
shares which normally could be issued at any time, upon conversion
of previously issued convertible debentures (the "Convertible
Debentures") assuming conversion based on 80%-82% (dependent upon
debenture) of the last reported sales price on August 24, 1999. The
number of shares, if issued, would require disclosure of beneficial
ownership of in excess of 5%. However, pursuant to terms of Convertible
Debentures, the holders thereof may not beneficially own more than
4.99% of outstanding Company shares(other than as a result of mandatory
conversion provisions). The 4.99% limitation is only contractual in
nature.
(7) Includes the 703,018 shares currently owned as well as up to 3,280,164
shares which normally could be issued at any time, upon conversion
of previously issued convertible debentures (the "Convertible
Debentures") assuming conversion based on 80%-82% (dependent upon
debenture) of the last reported sales price on August 24, 1999. The
number of shares, if issued, would require disclosure of beneficial
ownership of in excess of 5%. However, pursuant to terms of
Convertible Debentures, the holders thereof may not beneficially own
more than 4.99% of outstanding Company shares (other than as a result
of mandatory conversion provisions). The 4.99% limitation is only
contractural in nature.
(8) Includes the 562,620 shares currently owned as wellas up to 189,923
shares which normally could be issued at any time, upon conversion
of previously issued convertible debentures (the "Convertible
Debentures") assuming conversion based on 80%-82% (dependent upon
debenture) of the last reported sales price on August 24, 1999.
The number of shares, if issued, would require disclosure of beneficial
ownership of in excess of 5%. However, pursuant to terms of Convertible
Debentures,the holders thereof may not beneficially own more than 4.99%
of outstanding Company shares (other than as a result of mandatory
conversion provisions). The 4.99% limitation is only contractural in
nature.
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(9) Pursuant to a Voting Trust Agreement, the Registrant's President has
sole voting rights with respect to these shares.
(10) Roland Kaufmann, a control person of this firm has voting control over
these shares.
(11) Includes 17,000 shares issuable upon option exercise.
CERTAIN TRANSACTIONS
Reference is herewith made to Compensation Committee Interlock, second
paragraph regarding 48,259 shares of Company common stock issued to its
President.
The Company made unsecured advances to its former Chairman of the Board
of Directors (a principal stockholder) during the fiscal year ended June 30,
1997 requiring interest at 6% per annum. The balance at June 30, 1997 was
$69,587. Interest charged to the stockholder for the fiscal year ended June 30,
1997 was $3,460. Such indebtedness was repaid in full in July 1997. See Notes
to the Consolidated Financial Statements June 30, 1999, 1998 and 1997.
Reference is herewith made to "Management-Employment Agreements"
regarding recent issuance of 2,000,000 restrictive shares to the Company's
president in exchange for cancellation of certain bonus rights referred to in
such subsection.
SELLING HOLDERS AND PLAN OF DISTRIBUTION
The Securities offered hereby may be sold from time to time to
purchasers directly by the Selling Holders (which term includes their
transferees, pledgees, donees or their successors). Any such transferee,
pledgee, donee or their successors may not offer the Securities pursuant to this
Prospectus until such holder is included as a Selling Holder in a supplement to
this Prospectus. The Securities consist of shares of Common Stock which are
issuable to Selling Holders upon conversion of the Convertible Debentures.
The Registrant has agreed to register the public offering of the
Securities by the Selling Holders under the Securities Act. The Registrant
will not receive any of the proceeds from the sale of the shares by the Selling
Holders.
The following table sets forth as of August 24, 1999, certain
information with respect to the Selling Holders, (who participated in financings
from June 1998 to August 24, 1999) including the number of shares that may be
offered by them. The number of shares which may actually be sold by the Selling
Holders will be determined from time to time by them and will depend upon a
number of factors, including, with respect to the shares underlying the
Convertible Debentures, the price of the Registrant's Common Stock from time to
time. Because the Selling Holders may offer all or none of the Securities that
they hold and because the offering contemplated by the Prospectus is not being
underwritten, no estimate can be given as to the number of Securities that will
be held by the Selling Holders upon termination of such offering. None of the
Selling Holders have had any material relationship with the Registrant other
than as purchasers of Convertible Debentures.
Name of Selling Holder(3) Shares(1) % of Class(2)
Dominion Capital Fund Ltd. 3,011,624 17.16%
Sovereign Partners Ltd. Partnership 3,608,462 19.89%
Canadian Advantage Ltd. Partnership 210,844 1.43%
Dominion Investment Fund LLC 441,437 2.95%
Aberdeen Avenue, LLC 79,541 .54%
Endeavor Capital Fund SA 265,137 1.79%
Excalibur Limited Partnership 106,054 .72%
Carbon Mesa Partners LLC 79,541 .54%
Southshore Capital Ltd. 608,967 4.02%
(1) Assumes conversion of the Convertible Debentures held by such Selling
Holders based on the reported closing prices on the Electronic Over-
the-Counter Bulletin Board on August 24, 1999 at an 18% to 20% discount
(as required) and including additional shares which may be issued for
interest earned through mandatory conversion datee.
(2) Based upon an aggregate of 14,541,537 shares arrived at by adding the
aggregate of those shares indicated in column designated "Shares" to
those shares issued and outstanding as of August 24, 1999.
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<PAGE>
(3) The names of those person(s) who have voting control over each of these
entities is as follows: (i) Dominion Capital Fund, Ltd. and Dominion
Investment Fund, LLC - Livingstone Asset Management Ltd., Navigator
Management Ltd.(President)and David Sims(director of Navigator)-British
Virgin Islands, (ii) Sovereign Partners Limited Partnership-Southridge
Capital Management LLC, G.P., Stevem Hicks(President)-Connecticut (iii)
Atlantis Capital Fund, Ltd.-Harbourcrest Asset Management Ltd., Barry
Herman (President and director) - Bahamas, (iv) Canadian Advantage
Limited Partnership - Ian McKinnon, General Partner and (v) Aberdeen
Avenue, LLC-Minglewood Capital LLC., CTC Corporation Ltd., Bas Horsten
(director of CTC) and (iv) Southshore Capital Ltd. - Citco Fund
Services- Carl O'Connell.
Reference is herewith made to prior Registration Statement on Form S-1
as declared effective May 12, 1998 (Registration No. 333-50069) and in
particular the section therein entitled "Selling Holders and Plan of
Distribution". In that regard, and as heretofore indicated, and in accordance
with Rule 429 under the Securities Act of 1933, an aggregate of an additional
2,346,716 shares of Common Stock are being registered hereunder; which shares
were previously issued with restrictive legend.There is no remaining unconverted
balance on what was an aggregate principal amount of $5,500,000 in
Convertible Debentures issued in March 1998.
The Selling Holders of the Securities identified above may have sold,
transferred or otherwise disposed of, in transactions exempt from the
registration requirements of the Securities Act, all or a portion of the
Convertible Debentures or Securities since the date on which the information in
the preceding table is presented. Information concerning the Selling Holders may
change from time to time and any such changed information will be set forth in
supplements to this Prospectus if and when necessary.
Each Subscription Agreement and Debenture, as amended to date, contains
a contractual provision between Registrant and debenture holder whereby
debenture holder is limited in the amount of debenture it may convert and own.
Such limitations provides that excepting for mandatory conversion provisions
(i.e., automatic conversion on last date of debenture of any outstanding
unconverted balances) contained in such agreement in no event except (i) with
respect to a conversion pursuant to redemption by the Company or (ii) if there
is a public announcement that 50% or more of the Company is being acquired, a
public announcement that the Company is being merged, or a change in control,
shall the debenture holder be entitled to convert and Debentures to the extent
that, after such conversion, the sum of the number of shares of common stock
beneficially owned by the debenture holder and its affiliates (other than shares
of common stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Debentures or unexercised Warrants) and number of
shares of common stock issuable upon the conversion of the debentures with
respect to which the determination of these provisions is being made, would
result in beneficial ownership by the debenture holder and its affiliates of
more than 4.99% of the outstanding shares of common stock (after taking into
account the shares to be issued to the debenture holder upon such conversion).
The sale of the Securities by the Selling Holders may be affected from
time to time in transactions on the Electronic Over-the-Counter Bulletin Board
in negotiated transactions, or through a combination of such methods of sale (a)
at fixed prices, which may be changed, (b) at market prices prevailing at the
time of sale, (c) at prices related to such prevailing market prices or (d) at
negotiated prices. The Selling Holders may effect such transactions by selling
the Securities directly to purchasers or to or through broker-dealers. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Holders and/or the purchasers of the Securities for
whom such broker-dealers may act as agents or to whom they sell as principals,
or both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). The Selling Holders and any broker-dealers who act in
connection with the sale of the Securities hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and profit on any resale of the Securities as
principals might be deemed to be underwriting discounts and commissions under
the Securities Act.
At the time a particular offering of the Securities is made, a
Prospectus Supplement, if required, will be distributed, which will set forth
the aggregate amount and type of Securities being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker/dealers.
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<PAGE>
To comply with the securities laws of certain jurisdictions, if
applicable, the Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any exemption from
registration or qualification is available and is complied with. The Registrant
has not taken any action to register or qualify the Securities for offer and
sale under the securities or "blue sky" laws of any state of the United States.
However, pursuant to the Registration Rights Agreements among the Registrant and
the Selling Holders (the "Registration Rights Agreements"), the Registrant will
use reasonable efforts to (i) register and qualify the Securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Selling Holders who hold a majority in interest of the
Securities being offered reasonably request and in which significant volumes of
shares of Common Stock are traded, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times until the earliest (the "Registration
Period") of (A) the date that is two years after the Closing Date, (B) the date
when the Selling Holders may sell all Securities under Rule 144 or (C) the date
the Selling Holders no longer own any of the Securities, (iii) take such other
actions as may be necessary to maintain such registrations and qualification in
effect at all times during the Registration Period and (iv) take all other
actions reasonably necessary or advisable to qualify the Securities for sale in
such jurisdictions; provided, however, that the Registrant shall not be required
in connection therewith or as a condition thereto to (A) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify, (B)
subject itself to general taxation in any such jurisdiction, (C) file a general
consent to service of process in any such jurisdiction, (D) provide any
undertakings that cause more than nominal expense or burden to the Company or
(E) make any change in its articles of incorporation or by-laws or any then
existing contracts, which in each case the Board of Directors of the Registrant
determines to be contrary to the best interests of the Company and its
stockholders. Unless and until such times as offers and sales of the Securities
by Selling Holders are registered or qualified under applicable state securities
or "blue sky" laws, or are otherwise entitled to an exemption therefrom, initial
resales by Selling Holders will be materially restricted. Selling Holders are
advised to consult with their respective legal counsel prior to offering or
selling any of their Securities.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Securities by the Selling
Holders. The foregoing may affect the marketability of the Securities.
Pursuant to the Registration Rights Agreements between the Registrant
and each of the Selling Holders all expenses of the registration of the
Securities will be paid by the Registrant, including, without limitation,
Commission filing fees and expenses of compliance with state securities or "blue
sky" laws; provided, however, that the Selling Holders will pay all underwriting
discounts and selling commissions, if any. The Selling Holders will be
indemnified by the Registrant against certain civil liabilities, including
certain liabilities under the Securities Act or will be entitled to contribution
in connection therewith.
DESCRIPTION OF CAPITAL STOCK
The following statements do not purport to be complete and are
qualified in their entirety by reference to the detailed provisions of the
Registrant's Certificate of Incorporation, as amended and By-Laws, copies of
which are incorporated by reference as exhibits to this Registration Statement.
Common Stock
On December 26, 1997 an amendment to the Certificate of Incorporation
with respect to an increase of the number of shares of Common Stock the
Registrant is authorized to issue from 30,000,000 to 50,000,000 was filed with
the Department of State of the State of New York. Accordingly, the Registrant
thereafter authorized to issue up to 50,000,000 shares of Common Stock, par
value $.01 per share. The amount of shares of Common Stock of the Registrant
issued and outstanding at the close of business on August 24,1999 was 14,541,537
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<PAGE>
In addition, the Registrant currently has reserved 2,437,740 shares for
previously issued restrictive shares pursuant to outstanding convertible
debentures referred to under Registration No. 333-50069 and 333-59829 and an
additional aggregate of 8,873,202 shares which are part of this Registration
Statement and are referred to in footnote 1 to the "Calculation of
Registration Fee". The Company has also reserved (i) 161,000 shares of Common
Stock which may be issued upon the exercise of outstanding options under the
Registrant's 1996 Non-Statutory Stock Option Plan (the "1996 Plan") (ii)200,000
shares of Common Stock reserved for issuance upon the exercise of options
available for future grant under the 1996 Plan and (iii)200,000 shares of Common
Stock reserved for issuance upon the exercise of options available for future
grant under the 1997 Non-Statutory Stock Option Plan (the "1997 Plan").
In accordance with stockholder approval received at Annual Meeting of
Stockholders held July 23, 1999, the Registrant filed on July 28, 1999 (with the
Department of State of the State of New York) a further amendment to its
Certificate of Incorporation pursuant to which it now has authority to issue up
to 1,000,000 shares of preferred stock, par value $.01 per share. None of such
shares have been issued and the authority regarding shares of common stock
remains at 50,000,000.
All of the issued and outstanding shares of Common Stock are fully paid
and non-assessable. The holders of Common Stock are entitled to one vote per
share for the election of directors and with respect to all other matters
submitted to a vote of stockholders. Shares of Common Stock do not have
cumulative voting rights, which means that the holders of more than 50% of such
shares voting for the election of directors can elect 100% of the directors if
they choose to do so and, in such event, the holders of the remaining shares so
voting will not be able to elect any directors. There is no classification of
the Board of Directors. The payment by the Registrant of dividends, if any, in
the future rests within the discretion of its Board of Directors and will
depend, among other things, upon the Registrant's earnings, its capital
requirements and its financial condition, as well as other relevant factors. The
Registrant has not paid or declared any dividends upon its Common Stock since
its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future. The holders of
the Common Stock have no preemptive or conversion rights, and there are no
redemption or sinking fund rights with respect to the Common Stock. See "Market
Prices and Dividend Policy."
Promissory Note
On or about April 28, 1997 an otherwise unaffiliated lender, Trianon
Opus One Inc. ("Trianon"), loaned the Company the sum of $2,000,000 bearing
interest at the rate of 6% per annum in accordance with the terms and conditions
of a certain convertible promissory note due April 28, 1998. In accordance with
the terms of such note both principal and interest were convertible into shares
of Company Common Stock one year from the date of the note at the higher of 80%
of bid price or $2.50 per share on the date of conversion. The note also
provided for certain "piggy-back" registration rights and, accordingly, the
85,077 restrictive shares of Company Common Stock issued upon conversion in
accordance with the terms of the note are herewith being registered hereunder
with Trianon being the selling shareholder.
Promissory Notes - Subsequently Converted Into Debentures
(a) December 1998
The Registrant received gross proceeds of $1,080,000 in December 1998
pursuant to promissory notes bearing interest at the rate of 8% per annum for
the first 90 calendar days (through March 13, 1999) with the Company having the
option to extend the notes for an additional 60 days with interest increasing 2%
per annum during the 60 day period. The Company exercised its extension option.
As further consideration for the loan, the Company issued Lenders Warrants to
purchase up to 50,000 shares of the Company's common stock exercisable, in whole
or in part, for a period of up to 5 years at $.375 (the bid price for Company
shares on the date of closing). The notes are secured by a second mortgage on
land and building. The promissory notes (held by Dominion Capital Fund, Ltd.
and Sovereign Partners) were not paid by their due date and the terms
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<PAGE>
of a Contingent Subscription Agreement, Debenture and Registration Rights
Agreement automatically went into effect with debentures bearing interest at the
rate of 5% per annum (payable in stock or cash at the Company's option)
and being convertible, at any time at the lesser of (a) 82% of the 10 day
average bid price for the 10 consecutive trading days immediately preceding
the conversion date or (b) $1.00 per share. The documents also provide for
certain Company redemption rights at percentages ranging from 115% of the face
amount of the Debenture to 125% of the face amount of the debenture dependent
upon redemption date, if any as more specifically set forth in the last
paragraph to this subsection.
The Company is also required to register those shares of common stock
underlying the convertible debentures. Accordingly, 579,214 shares are being
registered pursuant to the terms of such agreements.
(b) March 2, 1999
On March 2, 1999 the Company entered into a second promissory note
contingent convertible debenture financing with the same lenders as the December
1998 transaction described directly above (i.e., Dominion Investment Fund LLC
and Sovereign Partners LP) with terms and conditions identical to those set
forth above excepting (a) gross proceeds amounted to $1,110,000 (b) the initial
due date of such notes were May 31, 1999,(c) the potential 60 day extension date
on such promissory notes was July 30, 1999 but such extendion right was never
utilized, (d) the conversion price is 80% of the 10 day average bid price for
the 10 consecutive trading days immediately preceding conversion date and (e)
Warrants were issued (similarly exercisable over 5 years) purchase up to 50,000
shares of common stock at 125% of the average 5 day closing bid price of the
Company's common stock immediately preceding the date of closing but in no event
at less than $1.00 per share. In all other respects the terms and conditions of
each of the documents executed with respect to this transaction are identical
in all material respects to those described above (in subparagraph (a) regarding
December 1998 transaction). The promissory notes were not paid by their due date
and the terms of the Contingent Subscription Agreement and Registration Rights
Agreement automatically went into effect and, accordingly, the number of shares
being registered for this transaction amounts to 585,733 shares.
(c) March 26, 1999
On March 26, 1999 the Company entered into a third promissory note
(contingent convertible debenture financing) with terms and conditions identical
to those set forth in the March 2, 1999 promissory note financing referred to
directly above excepting (a) the lender is different, to wit: Aberdeen Avenue,
LLC, (b) gross proceeds amounted to $550,000, (c) the initial due date of such
note is June 25, 1999, (d) the potential 60 day extension date on such
promissory notes was August 24, 1999 but such extendion right was never utilized
(e) Warrants were issued (similarly exercisable over 5 years) to purchase up to
27,500 shares of common stock at 125% of the average 5 day closing bid price
of the Company's common stock immediately preceding the date of closing but in
no event at less than $1.00 per share. In all other respects the terms and
conditions of each of the documents executed with respect to this transaction
are identical to those described in the above March 2, 1999 transaction. The
promissory notes were not paid on their due date and the terms of the Contingent
Subscription Agreement and Registration Rights Agreement automatically went
into effect and, accordingly, the number of shares being registered for this
transaction amounts to 306,059 shares.
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<PAGE>
(d) July 9, 1999
On July 9, 1999 the Company entered into a fourth promissory note
(contingent convertible debenture financing) with terms and conditions
substantially identical to those set forth in the March 2, 1999 promissory note
financing referred to directly above excepting (a) the lender is different, to
wit: Southshore Capital, Ltd., (b) gross proceeds amounted to $1,100,000, (c)
the due date of such note is August 23, 1999 with no right to extend and (d) the
debenture holder did not receive any warrants. In all other respects the terms
and conditions of each of the documents executed with respect to this
transaction are identical to those described in the above referenced March 2,
1999 transaction. The promissory note was not paid on its due date and the terms
of the Contingent Subscription Agreement, Convertible Debenture and Registration
Rights Agreement automatically went into effect and, accordingly, the number of
shares being registered for this transaction amounts to 608,967 shares.
With respect to each debenture referred to in this subsection in
paragraphs designated (a) through (d) inclusive hereof, the Company has the
right to redeem debentures during the first four months thereof at the rate of
115% of the face amount of the debenture to be redeemed (plus accrued interest)
which percentage increase to 120% during the fifth and sixth months of the
debenture and which percentage further increases to 125% at any time after the
last day of the aforesaid sixth month.Additionally with respect to each of these
debentures, the debenture holder may not require the Company to pay any balance
due in cash and it has been the Company's policy to pay such outstanding
indebtedness through issuance of shares of its common stock.
Registration Rights
The Convertible Debentures
The Registrant issued $17,065,040 aggregate principal amount of
Convertible Debentures from June of 1998 to August 24, 1999. One Hundred percent
of the face amount of such Convertible Debentures is convertible into shares of
Common Stock of the Registrant at the earlier of the effective date of a
Registration Statement covering the underlying shares of Common Stock or within
90 to 120 days from closing dependent upon the specific convertible debenture
at a conversion price equal to 18% to 20% except for one instance where the
discount from market was 25% on a $145,969 debenture (since entirely converted
into shares of Company common stock) of the average closing bid price for the
five to ten trading days preceding the date of conversion (dependent upon
the particular debenture). Any Convertible Debentures not so converted are
subject to mandatory conversion by the Registrant on the 24th monthly
anniversary of the date of issuance of the Convertible Debentures. Other than on
the date of such mandatory conversion provision, (and certain other defined
circumstances regarding acquisition, merger and/or change of control as
summarized in the fifth paragraph to the section entitled "Selling Holders and
Plan of Distribution"), the Selling Holder shall not be entitled to convert any
amount of Convertible Debentures in excess of that amount upon conversion of
which the sum of (i) the number of shares of Common Stock beneficially owned by
the Selling Holder and its affiliates (other than the unconverted Convertible
Debentures) and (ii) the number of shares of Common Stock issuable upon
conversion of the Convertible Debentures would result in beneficial ownership by
the Selling Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock of the Registrant. This conversion limitation is
contractual in nature.
Reference is herewith made to chart appearing under "Selling Holders
and Plan of Distribution" regarding specific percentages as same relate to
debenture conversion price and percent of beneficial ownership that Selling
Shareholders may have at any one time.
If at any time the number of shares of Common Stock into which the
Convertible Debentures may be converted exceeds the aggregate number of shares
of Common Stock then registered, the Registrant shall, within ten (10) business
days after receipt of written notice from any investor, either (i) amend the
registration statement filed by the Registrant, if such registration statement
has not been declared effective by the SEC at that time, to register all shares
of Common Stock into which the Debenture may be converted, or (ii) if such
registration statement has been declared effective by the Securities and
- 57 -
<PAGE>
Exchange Commission (the "SEC") at that time, file with the SEC an additional
registration statement on Form S-1 to register the shares of Common Stock into
which the Convertible Debentures may be converted that exceed the aggregate
number of shares of Common Stock already registered.
Pursuant to the Registration Rights Agreements between the Registrant
and the Selling Holders, the Registrant is required to file with the SEC, within
a set time frame, a Registration Statement(s) covering a sufficient number of
shares of Common Stock for the Selling Holders into which the Convertible
Debentures would be convertible. Consequently, the Registrant is filing with the
Commission this Registration Statement on Form S-1 (the "Registration
Statement"), of which this prospectus is a part, to cover the sale of the Common
Stock issuable to the Selling Holders upon conversion of the Convertible
Debentures. The Registration Rights Agreements provide that the Registrant shall
keep the Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is two years after the Closing Date,
(ii) the date when the Investors may sell all Securities under Rule 144 or (iii)
the date the Investors no longer own any of the Securities.
If the Registration Statement covering the Securities required to be
filed by the Registrant pursuant to the Registration Rights Agreements is not
filed by the agreed to date or if such Registration Statement is not declared
effective within 90 to 120 days of the closing date (dependent upon applicable
Registration Rights Agreement) (the "Initial Date"), the Registrant shall make
payments to the Selling Holders in such amounts and at such times as shall be
determined pursuant to the Registration Rights Agreements. In the event a timely
filing is not made, the Registrant shall pay the Selling Holder 2% of the face
amount of the Convertible Debenture for each 30 day period, or portion thereof
after 30 days following the Closing Date that the Registration Statement is not
filed. The amount to be paid by the Registrant to the Selling Holders in the
event the Registration Statement is not declared effective within the agreed to
number of days subsequent to closing date shall be determined as of each
Computation Date, and such amount shall be equal to two percent (2%) of the
purchase price paid by the Selling Holders for the Convertible Debentures
pursuant to the Registration Rights Agreements for the period from the Initial
Date to the first Computation Date, and two percent (2%) of the purchase price
for each Computation Date thereafter, to the date the Registration Statement is
declared effective by the SEC (the "Periodic Amount"). The full Periodic Amount
shall be paid by the Registrant in immediately available funds within five
business days after each Computation Date. The Registrant has not paid any
"periodic amounts" (notwithstanding delays in anticipated effective date) nor
has any demand for payment been made upon the Registrant. Notwithstanding the
foregoing, the amounts payable by the Registrant pursuant to the Registration
Rights Agreements shall not be payable to the extent any delay in the
effectiveness of the Registration Statement occurs because of an act of, or a
failure to act or to act timely by the Selling Holders or their respective
counsel.
"Computation Date" means the date which is the earlier of (i) 35 days
after the Registrant is notified by the SEC that the Registration Statement may
be declared effective or (ii) one hundred twenty (120) days after the Closing
Date and, if the Registration Statement required to be filed by the Registrant
pursuant to the Registration Rights Agreements has not therefore been declared
effective by the SEC, each date which is thirty (30) days after the previous
Computation Date until such Registration Statement is so declared effective.
The number of shares of Common Stock issuable upon conversion of the
Convertible Debentures depends on several factors, including the conversion
ratio and the date on which such shares are converted. As of August 24,1999 if
all of the Convertible Debentures (issued from June 1998 to March 1999, as
indicated in aforesaid chart) were converted based on a 18% to 20% discount to
the reported closing price on the Electronic Over-the-Counter Bulletin Board on
August 24, 1999, the Registrant would be required to issue 8,638,125 shares of
Common Stock (inclusive of shares which may be issued in exchange for interest
earned through mandatory conversion date).
Except for the total number of shares to which this Prospectus relates
as set forth above, references in this Prospectus to the "number of Shares
covered by this Prospectus," or similar statements, and information in this
Prospectus regarding the number of Securities issuable to or held by the Selling
Holders and percentage information relating to the Securities of the outstanding
capital stock of the Registrant, are based, with respect to the Convertible
Debentures. See "Selling Holders and Plan of Distribution" and "Description of
Capital Stock."
- 58 -
<PAGE>
The Securities are being offered on a continuous basis pursuant to Rule
415 under the Securities Act of 1933, as amended (the "Securities Act"). No
underwriting discounts, commissions or expenses are payable or applicable in
connection with the sale of the Securities by the Selling Holders. The Common
Stock of the Registrant was quoted on the NASDAQ SmallCap Market("NASDAQ") under
the symbol "SRMI" until October 26, 1998 delisting. See also rish factor
entitled "Delisting Due to Non-Compliance with Certain NASDAQ Standard."
The Securities offered hereby will be sold from time to time at the then
prevailing market prices, at prices relating to prevailing market prices or at
negotiated prices. On August 24, 1999, the last reported sale price of the
Common Stock on Electronic Over-the-Counter Bulletin Board was $2.625 per
share. This Prospectus may be used by the Selling Holders or any broker-dealer
who may participate in sales of the Securities covered hereby.
Reference is herewith made to risk factor entitled "Significant Number
of Shares.." and in particular to the chart which is a part therof. In that
respect, it should be noted that on two separate occasions during 1997 and 1998
the Company raised monies in private placements partially to pay off holders of
debentures from previous private placements as hereinafter indicated. In the
first instance the August 19, 1997 debenture financing which resulted in gross
proceeds of $5,000,000 which had an outstanding balance of $1,850,000 was rolled
over into a November 26, 1997 debenture financing. Such outstanding balances
from August 19, 1997 financing) was paid to The Isosceles Fund Limited, Otato
Limited Partnership and Thomson Kernaghan & Co. Ltd. in the sums of $583,630,
$145,969 and $1,428,686 respectively. Similarly the March 16, 1998 debenture
financing which resulted in gross proceeds of $5,500,000 which had an
outstanding balance of $4,000,000 was partially rolled over into a August 31,
1998 debenture financing. Such outstanding balances as rolled over (from the
March 16, 1998 financing) were paid to Atlantis Capital Fund, Ltd., Canadian
Advantage Limited Partnership, Dominion Capital Fund, Ltd. and Sovereign
Partners LP in the sums of $191,642, $421,613, $1,226,512 and $1,993,082
respectively.
Common Stock Reserved
The Registrant is required to reserve and keep available out of its
authorized but unissued Common Stock such number of shares of Common Stock as
shall from time to time be sufficient to effect conversion of all of the then
outstanding Convertible Debentures and exercise of options. While the Registrant
currently has a sufficient number of authorized but unissued shares for such
purposes in the event of any significant decrease in the bid price of the
Company's common stock additional authorized shares may be necessary in
order to meet its contractual commitments regarding conversion especially in
view of the fact that none of the Subscription Agreements or convertible
debentures contain any "floor", i.e., a bid price beneath which Debenture Holder
may not convert. In the event that additional authorized shares are necessary
but not readily available, (which while currently appears unlikely cannot be
discounted) the Company intends to take such steps as are necessary in
order to hold a Special Meeting of Stockholders for the purpose of amending its
Certificate of Incorporation so as to increase its authorized shares.
Registrar and Transfer Agent
The registrar and transfer agent for the Registrant's Common Stock is
Continental Stock Transfer & Trust Company, New York, New York.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Registrant by Gary B.
Wolff, P.C., counsel to the Company.
INDEPENDENT AUDITORS
The consolidated financial statements of the Registrant and its
subsidiaires for the years ended June 30, 1999 and 1998 included herein have
been included in reliance upon the report of Feldman Sherb Horowitz & Co., P.C.,
independent accountants, appearing elsewhere herein and upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of the Registrant and its
subsidiaries for the year ended June 30, 1997 included herein has been included
in reliance upon the report of Bederson & Company LLP, independent accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
- 59 -
<PAGE>
As set forth in the report of Bederson & Company LLP, the financial
statements of one of the Registrant's subsidiaries for the year ended June 30,
1997 were audited by other auditors whose report was furnished to Bederson &
Company LLP. The opinion of Bederson & Company LLP set forth in such report,
insofar as it relates to amounts included for that subsidiary, is based solely
on the report of the other auditors.
- 59 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Audited Financial Statements for Fiscal Years Ended
June 30, 1999, 1998 and 1997:
Independent Auditors' Report F-1-3
Consolidated Balance Sheets at June 30, 1999 and 1998 F-4-5
Consolidated Statements of Operations for the years ended
June 30, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash flows for the years ended
June 30, 1999, 1998 and 1997 F-7-8
Consolidated Statements of Stockholders Equity for the years F-9-10
ended June 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements F-11-26
- 60 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Swissray International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Swissray
International, Inc. and subsidiaries as of June 30, 1999 and 1998 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Swissray International, Inc.
and subsidiaries as of June 30, 1999 and 1998, and the results of its operations
changes in stockholders' equity and cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Feldman Sherb Horowitz & Co., P.C.
Feldman Sherb Horowitz & Co., P.C.
(Formerly Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
New York, New York
August 6, 1999
F-1
<PAGE>
[LETTERHEAD OF BEDERSON & COMPANY LLP]
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 the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Swissray (Deutschland) Rontgentechnik
GmbH, a wholly-owned subsidiary, which statements reflect total assets of
$437,021 as of June 30, 1997 and total revenues of $1,255,140 for the year then
ended. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it related to the amounts included
for Swissray (Deutschland) Rontgentechnick GmbH, is based solely on the report
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Swissray International, Inc., and
its subsidiaries, at June 30, 1997 and the results of their operations and their
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ BEDERSON & COMPANY LLP
---------------------------
Bederson & Company LLP
West Orange, New Jersey
September 16, 1997
Except for Notes 17, 20 and 22, as of March 6, 1998, and Note 1, 16, 23, 25, 26,
27, 29 30, 31 and 32, as of November 16, 1998
Member of TAG International with offices in principal cities worldwide
Affiliated with the American Institute of CPAs Division for Firms
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Swissray (Duetschland) Rontegentechnik Gmbh
Wiesbaden, Germany
We have audited the balance sheet of Swissray (Duetschland) Rontegentechnik
Gmbh as of June 30, 1997 and the related statements of income and stockholder's
equity for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance to all laws governed by German
regulations and with generally accepted auditing standards promulgated by the
American Institute of Certified public accountants. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Swissray (Duetschland)
Rontegentechnik Gmbh as of June 30, 1997 and the results of its operations for
the year then ended.
/s/ Theo Lepper
Theo Lepper
Certified Public Accountant
Wiesbaden, Germany
August 8, 1997
F-3
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
------------------------------
1999 1998
------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,281,297 $ 1,281,552
Accounts receivable, net of allowance for doubtful
accounts of $219,993 and $32,356 2,448,879 2,584,651
Inventories 7,332,401 7,701,145
Prepaid expenses and sundry receivables 866,804 1,501,909
------------------------------
TOTAL CURRENT ASSETS 11,929,381 13,069,257
------------------------------
PROPERTY AND EQUIPMENT 6,283,040 6,010,378
------------------------------
OTHER ASSETS
Loan receivable 15,948 20,005
Licensing agreement 3,104,109 3,600,766
Patents and trademarks 199,906 230,614
Software development costs 347,762 455,318
Security deposits 28,035 38,280
Note receivable - net of allowance of $544,376 and $30,733 --- 513,643
Goodwill 1,603,007 1,796,336
Receivable from sale of debentures 227,273 ---
Debt issuance costs on convertible 22,728 180,000
------------------------------
TOTAL OTHER ASSETS 5,548,768 6,834,962
------------------------------
TOTAL ASSETS $23,761,189 $25,914,597
==============================
</TABLE>
F-4
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL
CONSOLIDATED BALANCE SHEET (Continued)
JUNE 30, 1999 and 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
------------------------------
1999 1998
------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 247,028 $ 233,746
Notes payable - banks 3,667,159 3,551,091
Notes payable - short-term 1,700,000 ---
Loan payable 126,006 125,029
Accounts payable 5,422,321 5,030,449
Accrued expenses 2,003,844 2,365,450
Restructuring 500,000 500,000
Customer deposits 278,507 176,583
Due to stockholders and officers --- 2,206
------------------------------
TOTAL CURRENT LIABILITIES 13,944,865 11,984,554
------------------------------
CONVERTIBLE DEBENTURES, net of conversion benefit 15,555,852 7,330,642
------------------------------
LONG-TERM DEBT, less current maturities 195,095 440,674
COMMON STOCK SUBJECT TO PUT 1,819,985 1,819,985
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 140,062 41,426
Additional paid-in capital 64,688,013 58,074,793
Treasury stock (540,000) ---
Deferred compensation (707,222) ---
Accumulated deficit (67,727,741) (50,481,713)
Accumulated other comprehensive loss (1,787,735) (1,475,779)
Common stock subject to put (1,819,985) (1,819,985)
------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (7,754,608) 4,338,742
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,761,189 $ 25,914,597
==============================
</TABLE>
F-5
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED JUNE 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
----------------------------------------------------
1999 1998 1997
(Restated) (Restated)
----------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 17,295,882 $ 22,892,978 $ 13,151,701
COST OF SALES 13,529,301 18,081,786 8,445,414
----------------------------------------------------
GROSS PROFIT 3,766,301 4,811,192 4,706,287
----------------------------------------------------
OPERATING EXPENSES
Officers and directors compensation 1,434,293 569,816 1,816,879
Salaries 3,784,305 4,168,540 2,059,396
Selling 3,061,813 3,740,391 1,873,389
Research and development 1,808,107 3,542,149 5,786,158
General and administrative 2,445,867 2,612,262 2,879,257
Restructuring cost --- 500,000 ---
Other operating expenses 1,066,039 1,735,877 1,645,800
Bad debts 706,877 133,196 619,160
Depreciation and amortization 1,273,916 1,745,498 770,294
----------------------------------------------------
TOTAL OPERATING EXPENSES 15,581,217 18,747,729 17,450,333
----------------------------------------------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (11,814,636) (13,936,537) (12,744,046)
Other income (expenses) 40,385 (281,227) 318,763
Interest expense (4,638,928) (8,590,268) (762,168)
----------------------------------------------------
OTHER EXPENSES (4,598,543) (8,871,495) (443,405)
----------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS (16,413,179) (22,808,032) (13,187,451)
INCOME TAX PROVISION --- --- 110,223
----------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (16,413,179) (22,808,032) (13,297,674)
Extraordinary income (expenses) (832,849) 304,923 (384,514)
----------------------------------------------------
NET LOSS $(17,246,028) $(22,503,109) $(13,685,188)
====================================================
LOSS PER COMMON SHARE BASIC
Loss from continuing operations (2.52) (8.48) (8.41)
Extraordinary items (0.13) 0.11 (0.24)
----------------------------------------------------
NET LOSS (2.65) (8.37) (8.65)
====================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 6,525,423 2,690,695 1,581,757
============ ========= =========
</TABLE>
F-6
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
----------------------------------------------------
1999 1998 1997
----------------------------------------------------
(Restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES
Net loss $(17,246,028) $(22,503,109) $(13,685,188)
Adjustment to reconcile net loss to net
cash used by operating activities
Depreciation and amortization 1,327,395 1,874,206 770,294
Provision for bad debts 931,146 (38,803) 552,725
Write-off of affiliate receivable --- --- 166,384
Common stock and stock options issued for services 991,203 --- 2,309,435
Issuance of common stock in lieu of interest payments 128,107 449,376 132,950
Interest expense on Debt issuance cost and
conversion benefit 2,778,006 7,905,225 511,125
Interest expense on option value per Black Scholes 91,763 --- ---
Early extinguishment of debt (gain) 832,849 (304,923) ---
Deferred compensation (707,222) --- ---
(Increase) decrease in operating assets:
Accounts receivable (51,866) 2,887,427 (1,857,662)
Accounts receivable - others --- --- 31,533
Accounts receivable - long-term --- 163,680 283,603
Inventories 368,744 (3,790,038) (998,271)
Prepaid expenses and sundry receivables 635,106 434 229 (860,457)
Increase (decrease) in operating liabilities:
Accounts payable 391,873 (306,300) 1,601,074
Accounts payable-affiliates --- --- (1,541)
Accrued expenses (361,606) 1,463,512 266,245
Customers deposits 101,924 6,147 92,763
----------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (9,788,606) (11,759,371) (10,684,988)
----------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and equipment (692,954) (2,849,205) (3,431,375)
Capitalized computer software (1,518) (225,174) (352,036)
Patents and trademarks --- (52,386) (12,925)
Goodwill --- (802,107) (299,837)
Asset purchase net of cash received --- (591,108) ---
Increase in notes receivable (199,132) --- ---
Collection of note receivable --- --- 448,857
Security deposits 10,245 5,448 (23,776)
(Repayment of) loan receivable 4,056 (2,608) 2,896
----------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (879,303) (4,517,140) (3,668,196)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 20,191,413 10,342,060 9,198,821
Proceeds from long-term borrowings --- --- 248,987
Proceeds related to debentures not funded (227,273) --- ---
Principal payment of short-term borrowings (11,268,343) (3,852,075) (2,093,074)
Principal payment of long-term borrowings (245,580) (21,748) (442,681)
Principal payment of long-term borrowings with stock --- (62,267) ---
Issuance of common stock for cash 3,160,396 8,461,262 7,753,222
Purchase of treasury stock (540,000) --- ---
Repayment from (payment to) stockholders and officers (2,207) (68,032) 87,653
----------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 11,068,406 14,779,200 14,752,928
----------------------------------------------------
EFFECT OF EXCHANGE RATE ON CASH (400,752) (332,444) (561,122)
----------------------------------------------------
NET INCREASE (DECREASE) IN CASH (255) (1,809,755) (161,378)
CASH AND CASH EQUIVALENT - beginning of period 1,281,552 3,091,307 3,252,685
----------------------------------------------------
CASH AND CASH EQUIVALENTS - end of period $ 1,281,297 $ 1,281,552 $ 3,091,307
====================================================
</TABLE>
F-7
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------------------------
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Cash paid for interest $ 462,997 $ 161,093 $ 122,427
Cash paid for taxes --- --- 56,562
DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Stock options, warrants and common stock issued for services 1,732,163 --- 2,287,935
Shares issued in lieu of interest paymnets 126,107 449,376 132,950
Stock issued for acquisition --- 1,499,997 120,000
Beneficial conversion feature recorded as additional paid-in
capital 1,633,164 5,738,149 1,000,000
</TABLE>
F-8
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CONSOLITATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common
Additional Stock
Paid-in to be
Common Stock Capital issued Treasury
Shares Amount (Restated) (Restated) ) Stock
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - July 1, 1996 1,418,506 $ 14,185 $ 25,770,534 $ -- $ --
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- -- --
Issuance of common stock for cash 519,776 5,197 7,630,495 -- --
Stock options exercised for cash 16,100 161 117,369 -- --
Issuance of common stock in lieu of interest payment 7,061 71 132,879 -- --
Beneficial conversion feature of convertible debentures -- -- 1,000,000 -- --
Stock options granted as compensation -- -- 25,000 -- --
Stock options granted for services -- -- 1,161,462 -- --
Shares to be issued to officers for services -- -- -- 1,122,973 --
Purchase of subsidiary for stock 8,000 80 119,920 -- --
Common stock subject to put -- -- -- -- --
--------------------------------------------------------------------
BALANCE - JUNE 30, 1997 1,969,443 19,694 35,957,659 1,122,973 --
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- -- --
Issuance of common stock for cash 2,013,688 20,137 13,581,739 -- --
Stock options exercised for cash 16,900 169 123,201 -- --
Shares issued to officers for services 48,259 483 1,122,490 (1,122,973) --
Issuance of common stock in lieu of interest payment 60,999 610 448,766 -- --
Beneficial conversion feature of convertible debentures -- -- 5,738,149 -- --
Early extinguishment of Debt -- -- (396,875) -- --
Issuance of common stock for asset purchase 33,333 333 1,499,664 -- --
Common Stock subject to put -- -- -- -- --
--------------------------------------------------------------------
BALANCE - JUNE 30, 1998 4,142,622 41,426 58,074,793 -- --
COMPREHENSIVE LOSS:
Net loss of the year -- -- -- -- --
Foreign currency translation losses net of taxes $ -0- -- -- -- -- --
TOTAL COMPREHENSIVE LOSS -- -- -- -- --
Issuance of common stock for cash 3,861,287 38,613 3,121,784 -- --
Stock options exercised for services 1,000 10 7,290 -- --
Shares issued for services 3,801,500 38,015 913,110 -- --
Issuance of common stock in lieu of interest payment 199,830 1,998 126,109 -- --
Beneficial conversion feature of convertible debentures -- -- 1,633,164 -- --
Shares issued to officers for services 2,000,000 20,000 720,000 -- --
Treasury stock - at cost -- -- -- -- (540,000)
Interest expense on option value per Black Scholes -- -- 91,763 -- --
----------------------------------------------------------------------
BALANCE - JUNE 30, 1999 14,006,239 $ 140,062 $ 64,688,013 $ -- $(540,000)
======================================================================
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated Other
Deficit Deferred Comprehensive Common Stock Total
(Restated) Compensation Loss Subject to Put (Restated)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - July 1, 1996 $(14,293,416) $ -- $ (836,047) $ -- $10,655,256
COMPREHENSIVE LOSS:
Net loss of the year (13,685,188) -- -- -- (13,685,188)
Foreign currency transaction losses net of taxes $ -0- -- -- (592,487) -- (592,487)
--------------
TOTAL COMPREHENSIVE LOSS -- -- -- -- (14,277,675)
--------------
Issuance of common stock for cash -- -- -- -- 7,635,692
Stock options exercised for cash -- -- -- -- 117,530
Issuance of common stock in lieu of interest payment -- -- -- -- 132,950
Beneficial conversion feature of convertible debentures -- -- -- -- 1,000,000
Stock options granted as compensation -- -- -- -- 25,000
Stock options granted for services -- -- -- -- 1,161,462
Shares to be issued to officers for services -- -- -- -- 1,122,973
Purchase of subsidiary for stock -- -- -- -- 120,000
Common Stock subject to put -- -- -- (320,000) (320,000)
---------------------------------------------------------------------
BALANCE - JUNE 30, 1997 (27,978,604) -- (1,428,534) (320,000) 7,373,188
COMPREHENSIVE LOSS:
Net loss of the year (22,503,109) -- -- -- (22,503,109)
Foreign currency transaction losses net of taxes $ -0- (47,245) -- (47,245)
--------------
TOTAL COMPREHENSIVE LOSS -- -- -- -- (22,550,354)
Issuance of common stock for cash -- -- -- -- 13,601,876
Stock options exercised for cash -- -- -- -- 123,370
Shares issued to officers for services -- -- -- -- --
Issuance of common stock in lieu of interest payment -- -- -- -- 449,376
Beneficial conversion feature of convertible debentures -- -- -- -- 5,738,149
Early extinguishment of Debt -- -- -- -- (396,875)
Issuance of common stock for asset purchase -- -- -- -- 1,499,997
Common Stock subject to put -- -- -- (1,499,983) (1,819,985)
----------------------------------------------------------------------
BALANCE - JUNE 30, 1998 (50,481,713) -- (1,475,779) (1,819,985) 4,338,742
COMPREHENSIVE LOSS:
Net loss of the year (17,246,028) -- -- -- (17,246,028)
Foreign currency translation losses net of taxes $ -0- -- -- (311,956) -- (311,956)
--------------
TOTAL COMPREHENSIVE LOSS -- -- -- -- (17,557,984)
Issuance of common stock for cash -- -- -- -- 3,160,397
Stock options exercised for services -- -- -- -- 7,300
Shares issued for services -- (707,222) -- -- 243,903
Issuance of common stock in lieu of interest payment -- -- -- -- 128,107
Beneficial conversion feature of convertible debentures -- -- -- -- 1,633,164
Shares issued to officers for services -- -- -- -- 740,000
Treasury stock - at cost -- -- -- -- (540,000)
Interest expense on option value per Black Scholes -- -- -- -- 91,763
---------------------------------------------------------------------
BALANCE - JUNE 30, 1999 $(67,727,741) $ (707,222) $ (1,787,735) $(1,819,985) $ (7,754,608)
======================================================================
</TABLE>
F-10
The accompanying notes are an integral part of these financial statements
<PAGE>
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
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 CGS Units Incorporated. On June 6, 1994, the Company
merged with Direct Marketing Services, Inc. and changed its name to DMS
Industries, Inc. In May of 1995 the Company discontinued the operations of DMS
Industries, Inc. and acquired all of the outstanding stock 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 Company changed its
name to Swissray International, Inc. The Company's operations are conducted
principally through its wholly owned subsidiaries.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. Investments which are recorded on an equity
method and have operated at a loss in excess of equity are carried at a zero
value.
BUSINESS ACQUISITION
On April 1, 1997, the Company exchanged 8,000 shares of common stock at the then
quoted market price of $120,000 ($15 per share) for all the outstanding shares
of Empower, Inc.The consolidated financial statements presented include the
accounts of Empower, Inc.(whose assets were substantially sold in June 1998),
from April 1, 1997 (date of acquisition) to June 30, 1998. The acquisition has
been accounted under the purchase accounting method. The contract requires the
Company to repurchase the 8,000 shares of common stock at $40 per share for a
period of one year commencing two years from the date of the contract at the
option of the former owner of Empower, Inc.
On October 17, 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Service Support Group, LLC (SSG) located in Gig
Harbor, Washington pursuant to an asset purchase agreement. The acquisition has
been accounted for under the purchase method of accounting. SSG is in the
business of selling diagnostic imaging equipment and related services in markets
on the West Coast of the United States. The purchase price consisted of (1) cash
in the amount of $621,892, (2) 33,333 shares of the Company's common stock, (3)
an amount equal to fifty percent of certain accounts receivable net of certain
accounts payable and (4) the assumptions of certain other liabilities. As a
result of this transaction, the Company recorded goodwill of $1,933,275. The
contract requires the Company to repurchase the 33,333 common shares at $45 per
share during the period June 30, 1998 to April 17, 1999 at the option of the
former owners of SSG.
In connection with the abovementioned acquisitions, the Company has recorded put
options totaling $1,819,985. Such amount is excluded from permanent equity. As
of June 30, 1999, both options were exercised and subject to dispute. (See
Litigation footnote)
REVENUE AND INCOME RECOGNITION POLICIES
Revenues from the sale of products are recorded when the products are shipped,
collection of the purchase price is probable and the Company has no significant
further obligations to the customer. Cost of remaining insignificant company
obligations, if any, are accrued as costs of revenue at the time of revenue
recognition.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect 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.
F-11
<PAGE>
WARRANTY
The company accrues a warranty allowance at the time of sale. The warranty
allowance is based upon the companies experience and varies between 0.5 and 2%
of the net sales amount.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107 "Disclosures about Fair Value
of Financial Instruments" (SFAS 107) requires the disclosure of fair value
information about financial instruments whether or not recognized on the balance
sheet, for which it is practicable to estimate the value. Where quoted market
prices are not readily available, fair values are based on quoted market prices
of comparable instruments. The carrying amount of cash and equivalents, accounts
receivable and accounts payable approximates fair value because of the short
maturity of those instruments.
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 the lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventory costs include
material, labor, and overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective assets,
which are three years for Computers and Telecommunication Equipment, five to ten
years for Equipment, Office Furniture and Equipment and Office and Leasehold
Improvements and thirty years for Buildings. Leasehold improvements are
amortized over the shorter of the estimated useful lives of the improvements, or
the term of the facility lease.
Expenditures for repairs and maintenance are charged to expense as incurred. The
cost of major renewals and betterment's are capitalized and depreciated over
their useful lives. Upon disposition, the cost and related accumulated
depreciation of property and equipment are removed from the accounts and any
resulting gain or loss is reflected in operations.
The Company is required to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, in accordance with the provisions of Statement of
Financial Accounting Standards No.121, "Accounting for Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). Accordingly, when
indicators of impairment are present, the Company evaluates the carrying value
of property, plant, and equipment and intangibles using projected undiscounted
future cash flows and operating income for each subsidiary to determined whether
material impairment of these assets exists.
INTANGIBLE ASSETS
Excess of cost over fair value of net assets acquired ("goodwill") resulting
from the acquisition of SSG is being amortized over ten years from the date of
acquisition using the straight-line method. Patents and Trademarks are
capitalized and are amortized using the straight-line method over their
estimated useful lives (10 year).Debt issuance costs are amortized using the
straight-line method over the term of the related debt, which range from two to
six months. Periods of amortization are evaluated periodically to determine
whether later events and circumstances warrant revised estimates of useful
lives. At each balance sheet date, the Company evaluates the recoverability of
unamortized goodwill based upon expectations of nondiscounted cash flows and
operating income. Impairments, if any, would be recognized in operating results
if a permanent diminution in value were to occur.
Capitalization of software development costs begins upon the establishment of
technological feasibility of new or enhanced software products. Technological
feasibility of a computer software product is established when the Company has
completed all planning, designing, coding and testing that is necessary to
establish that the software product can be produced to meet design
specifications including functions, features and technical performance
requirements. All costs incurred prior to establishing technological feasibility
of a software product are charged to research and development as incurred. The
F-12
<PAGE>
Company amortizes capitalized software development costs over straight-line
method over the estimated remaining economic life of the software products,
generally five to eight years.
All cost incurred by the Company in connection with incorporation of
subsidiaries have been capitalized and are being amortized over a period up to
60 months.
ADVERTISING AND PROMOTION
Advertising and promotion cost are expensed as incurred and included in "Selling
Expenses". Advertising and promotion expense for the years ended June 30, 1999,
1998 and 1997 were $ 1,452,309, $ 1,737,935, and $ 781,189, respectively.
RESEARCH AND DEVELOPMENT
Costs associated with research, new product development, and product cost
improvements are treated as expenses when incurred.
CONVERTIBLE DEBT
Convertible debt is recorded as a liability until converted into common stock,
at which time it is recorded as equity.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
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
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share",
which established new standards for computation of earnings per share. SFAS No.
128 requires the presentation on the face of the income statement of "basic"
earnings per share and "diluted" earnings per share.
Basic earnings per share is computed by dividing the net income (loss) available
to common shareholders by the weighted average number of outstanding common
shares. The calculation of diluted earnings per share is similar to basic
earnings per share except the denominator includes dilutive common stock
equivalents such as stock options and convertible debentures. Common stock
options and the common shares underlying the convertible debentures are not
included as their effect would be anti-dilutive.
ACCOUNTING FOR STOCK OPTIONS
The Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock Based Compensation". SFAS 123 encourages the use of
a fair-value-based method of accounting for stock-based awards under which the
fair value of stock options is determined on the date of grant and expensed over
the vesting period. Under SFAS 123, companies may, however, measure compensation
costs for those plans using the method prescribed by Accounting Principles Board
Opinion No. 25, ("APB No.25"), "Accounting for Stock Issued to Employees."
Companies that apply APB No. 25 are required to include pro forma disclosures of
net earnings and earnings per share as if the fair-value-based method of
accounting had been applied. The Company elected to account for such plans under
the provisions of APB No. 25.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year's financial statements to
conform to the June 30, 1999 presentation.
F-13
<PAGE>
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 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 (Accumulated
other comprehensive loss), while gains and losses resulting from foreign
currency transactions are included in operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standard No. 133 ("SFAS
No. 133"), "Accounting for Derivative Instruments and Hedging Activities" for
the year ended June 30, 2000. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends
a number of existing standards. The application of the new pronouncement is not
expected to have a material impact on the Company's financial statements.
STOCK SPLIT
On October 1, 1998 the Company declared a 1 for 10 reverse stock split. The
financial statements for all periods presented have been retroactively adjusted
for the stock split.
NOTE 2 - 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. The $513,643 was written off during
the year ended June 30, 1999..
NOTE 3 - INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
June 30,
---------------------------------------------
1999 1998
------------------- --------------------
<S> <C> <C>
Raw materials, parts and supplies $ 5,558,330 $ 7,047,001
Work in process 1,048,197 160,064
Finished goods 725,874 494,080
------------------- --------------------
$ 7,332,401 $ 7,701,145
=================== ====================
</TABLE>
NOTE 4 - PREPAID EXPENSES AND SUNDRY RECEIVABLES
Prepaid expenses and sundry receivables consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Prepaid expenses, deposits and advance payments $ 229,236 $ 616,183
Insurance claim for fire damage 389,220 165,655
Prepaid and refundable taxes 240,368 708,246
Employee loans 7,980 11,825
-------------- ---------------
$ 866,804 $ 1,501,909
============== ===============
</TABLE>
F-14
<PAGE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
----------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
Land and building $ 5,501,853 $ 4,956,328
Equipment 1,448,961 1,305,092
Office furniture and equipment 333,596 330,035
----------------- ----------------
7,284,410 6,591,455
Less: Accumulated depreciation and amortization 1,001,370 581,077
----------------- ----------------
$ 6,283,040 $ 6,010,378
================= ================
</TABLE>
Depreciation and amortization expense, for property and equipment, for the years
ended June 30, 1999, 1998 and 1997 were $ 547,693, $1,077,074 and $233,040
respectively.
NOTE 6 - INTANGIBLE ASSETS
Intangible Assets at June 30, 1999 and 1998 consisted of the following
<TABLE>
<CAPTION>
June 30,
---------------------------------------------
1999 1998
------------------- -----------------
<S> <C> <C>
Excess of cost over fair value of net
assets acquired $ 1,933,275 $ 1,933,275
Licensing 4,966,575 4,966,575
Software development cost 578,729 577,210
Patents and Trademarks 313,330 313,330
Other -- 8,385
------------------- -----------------
7,791,909 7,798,775
Less: Accumulated amortization 2,537,125 1,715,741
------------------- -----------------
$ 5,254,784 $ 6,083,034
=================== =================
</TABLE>
Amortization expense, for Intangible Assets, for the years ended June 30, 1999,
1998 and 1997 were $ 830,194, $ 1,227,719 and $ 537,254, respectively.
NOTE 7 - 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 66,000 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.
The Licensing Agreement is amortized using the straight-line method over the
estimated remaining economic life, generally ten years. At each balance sheet
date, the Company evaluates the recoverability of the unamortized License Fee
based upon expectations of nondiscounted cash flows and operating income of its
US-Operation. Impairments, if any, would be recognized in operating results if a
permanent diminution in value were to occur.
F-15
<PAGE>
NOTE 8 - NOTES PAYABLE - BANKS
The Company has negotiated a revolving line-of-credit agreement with Migros Bank
of Switzerland, dated March 23, 1998, for up to $1,314,924. The company has also
negotiated an agreement for up to $1,314,924 for the issuance of guarantees and
letters of credit, both with a commission of 15% per $ 1,000,000, quarterly
while outstanding. There were $ 1,052,906 in outstanding guarantees and $ -0- in
letter of credits as of June 30, 1999. The Company also negotiated a fixed line
of credit for up to $2,630,000 with an agreed repayment of $65,750 per 180 days
first time applicable as of June 30, 1999. All lines of credit are based on the
Exchange rate in effect on June 30, 1999.
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------------
1999 1998
------------- -------------------
<S> <C> <C>
Migros Bank revolving line of credit, due on demand,with interest at 4.75% per
annum, collateralized by certain accounts receivable, and a cash deposit at
Migros Bank as of June 30, 1999 of $485,367 $ 798,730 $ 408,786
Migros Bank, on demand with six week notice, with interest as of June 30, 1999
and 1998 at 3.7/8% and 4% per annum, collateralized by land and building 2,529,930 2,630,000
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,
1999 and 1998 were $332,812 and $627,625, respectively 338,499 512,305
------------- -------------------
$ 3,667,159 $ 3,551,091
============= ===================
</TABLE>
NOTE 9 - LOAN PAYABLE
The Company has negotiated a 5% demand loan from a private foundation fund. The
loan balance payable at June 30, 1999 and 1998 was $126,006 and $125,029
respectively.
NOTE 10 - SHARES ISSUED FOR COMPENSATION
Pursuant to agreements between the President of the Company and the Company,
dated as of December 1996 and June 1997, the Company incurred additional
compensation to the officer payable as 48,259 shares with a fair value of
$1,122,973. The compensation was in consideration of the officer's agreement for
F-16
<PAGE>
the cancellation of 1,608,633 shares of common stock held by the officer or
companies controlled by him which allowed the Company to maintain a sufficient
number of shares of common stock to meet certain obligations of the Company to
issue common stock and to permit certain financings prior to the increase in the
number of authorized shares of common stock from 15,000,000 to 30,000,000
shares. The shares were issued by the Company on July 22, 1997. In June 1999 the
Company incurred additional compensation to the President of the Company of
2,000,000 shares with a fair value of $740,000. The compensation was in
consideration of the President's agreement to extinguish his rights contained in
his employment agreement which entitled him to a 25% bonus of the Company's
earnings (as defined).
In 1999 the Company issued 3,800,000 shares of common stock with a fair value of
$95,000 to consultants for services to be rendered over a term of one year. Such
amount has been deferred and is being amortized over the term of the consulting
agreements.
NOTE 11 - CONVERTIBLE DEBENTURES
Convertible debentures consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------------------
1999 1998
----------------- ---------------
<S> <C> <C>
Convertible debenture dated December 11, 1997. The debenture was converted
into 327,101 shares in Fiscal 1999. $ - $ 145,969
Convertible debenture dated March 14, 1998. A total of $2,500,000 was converted
into 2,482,656 shares in Fiscal 1999. The remaining balance of $3,000,000 was
refinanced. (See August 31, 1998 debenture) - 5,500,000
Convertible debenture dated June 15, 1998 and due June 15, 2000 with interest at
6% per annum. The debentures are convertible into common shares at a price
equal to eighty (80%) of the average closing bid price for the ten (10) trading
days preceding the date of conversion. All of the debentures are convertible
at the earlier of a registration effective date or August 15, 1998. Any
debenture not so converted is subject to mandatory conversion on June 15, 2000.
Debt issuance cost was $240,000, beneficial conversion feature was $420,436. 2,000,000 2,000,000
Convertible debenture of $6,143,849 dated August 31, 1988 and due August
31, 2000 with interest of 5% per annum. The debentures are convertible into
common shares at a price equal to the lesser of eighty-two (82%) of the average
closing bid price for the ten trading days preceding the date of the conversion.
All debentures are convertible at the earlier of a registration effective
date or March 1, 1998. Any debenture not so converted is subject to mandatory
conversion on August 31, 2000. The company at its sole direction can redeem the
debenture at 115% of the face amount up to the fourth month, at 120% within the
fifth and sixth month and at 125% after the sixth month following the closing
date. $514.428 of the balance was converted into 1,051,529 shares in Fiscal 1999
. Debt issuance cost was $311,000, beneficial conversion feature was $-0-. 5,629,421 -
F-17
<PAGE>
Convertible debenture including $ 540,000 repurchase of stock dated October 6,
1988 and due October 6, 2000 with interest of 5% per annum.The debentures are
convertible into common shares at a price equal to the lesser of eighty-two
(82%) of the average closing bid price for the ten trading days preceding the
date of the conversion. All debentures are convertible at the earlier of
a registration effective date or October 6, 1998. Any debenture not so
converted is subject to mandatory conversion on October 6, 2000. The Company
at its sole direction can redeem the debenture at 115% of the face amount up to
the fourth month, at 120% within the fifth and sixth month and at 125% after the
sixth month following the closing date. Debt issuance cost was $300,000,
beneficial conversion feature was $53,112. 2,940,000 -
Convertible debenture dated January 29, 1999 and due January 29, 2001 with
interest of 3% per each 30 days for the first ninety days, 3.5% per each 30 days
for the ninety-first to the one hundred-twentieth day and 4% per each 30 days
from the hundred-twenty-first day until the earlier of conversion or redemption
The debentures are convertible into common shares at a price equal to the lesser
of eighty-two (82%) of the average closing bid price for the ten trading days
preceding the date of the conversion. All debentures are convertible at the
earlier of a registration effective date or January 29, 1999. Any debenture
not so converted is subject to mandatory conversion on January 29, 2001. The
Company at its sole direction can redeem the debentures at any time. Debt
issuance cost was $150,000, beneficial conversion feature was $-0-. 1,170,000 -
Convertible debenture dated May 13, 1999 and due May 13, 2001 with interest of
5% per annum. The debentures are convertible into common shares at a price
equal to the lesser of eighty (80%) of the average closing bid price for the ten
trading days preceding the date of the conversion. All debentures are
convertible at the earlier of a registration effective date or May 13, 1999.
Any debenture not so converted is subject to mandatory conversion on May
13, 2001. The company at its sole direction can redeem the debenture at 115%
of the face amount up to the fourth month, at 120% within the fifth and sixth
month and at 125% after the sixth month following the closing date. Debt
issuance cost was $80,000, interest rollover was $39,600, beneficial conversion
feature was $735,025. 1,119,600 -
Convertible debenture dated May 31, 1999 and due May 31, 2001 with interest of
5% per annum. The debentures are convertible into common shares at a price
equal to the lesser of eighty (80%) of the average closing bid price for the ten
trading days preceding the date of the conversion. All debentures are
convertible at the earlier of a registration effective date or May 31, 1999.
Any debenture not so converted is subject to mandatory conversion on May
31, 2001. The company at its sole direction can redeem the debenture at 115%
of the face amount up to the fourth month, at 120% within the fifth and sixth
month and at 125% after the sixth month following the closing date.Debt issuance
cost was $110,000, interest rollover was $22,200, beneficial conversion feature
was $140,049. 1,132,200 -
Convertible debenture dated June 26, 1999 and due June 26, 2001 with interest of
5% per annum. The debentures are convertible into common shares at a price
equal to the lesser of eighty (80%) of the average closing bid price for the ten
trading days preceding the date of the conversion. All debentures are
convertible at the earlier of a registration effective date or June 26, 1999.
Any debenture not so converted is subject to mandatory conversion on June
26, 2001. The company at its sole direction can redeem the debenture at 115%
of the face amount up to the fourth month, at 120% within the fifth and sixth
month and at 125% after the sixth month following the closing date.Debt issuance
cost was $50,000, interest rollover was $11,000, beneficial conversion feature
was $281,005. 561,000 -
F-18
<PAGE>
Convertible debenture dated May 5, May 24 and June 10, 1999 and due May 5, May
24 and June 10, 2001, respectively with interest of 5% per annum. The debentures
are convertible into common shares at a price equal to eighty (80%) of the
average closing bid price for the ten trading days preceding the date of the
conversion. The investor shall not be allowed to convert any portion of the
Debentures for 120 days from the Closing date, unless the bid price is greater
than $5.50. Every 30-day period after the Closing date, the investor shall
be allowed to convert and sell based upon if the bid price is over $1.50 then
15% of the original face amount can be converted, if the bid price is over
$7.50 then 20% of the original face amount can be converted. No conversion
can be made for 300 days if the bid price is below $1.50 All debentures
are convertible at the earlier of a registration effective date or May 5, May
24 and June 10, 1999, respectively. Any debenture not so converted is subject
to mandatory conversion on May 5, May 24 and June 10, 2001, respectively.
The company at its sole direction can redeem the debenture at 120% of the face
amount including interest. Debt issuance cost was $100,000, beneficial
conversion feature was $423,973. 1,100,000 -
----------------- ---------------
15,652,221 7,645,969
Less: discount due to beneficial conversion features, net of
accumulated amortization of $327,604 and $310,559
respectively (96,369) (315,327)
----------------- ---------------
$ 15,555,852 $ 7,330,642
================= ===============
</TABLE>
The Company is currently in violation of certain covenants in their debenture
agreements. Such covenants have been waived by the holders.
NOTE 12 - NOTES PAYABLE - SHORT-TERM
Notes payable - short-term consists of the following
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------
1999 1998
-------------------- ---------------------
<S> <C> <C>
Promissory note, dated June 11, 1999 $654,000,
due September 9, 1999, collateralized by inventory $ 600,000 $ --
Promissory note, dated April 1999, currently in default,
personally guaranteed by the Company's president and
collateralized by 428,259 shares owned by the Company's
president. Subsequent to June 30, 1999, the collateral
was transferred to the lenders. The Company agreed to
issue the president 535,324 shares to replace the
collateral shares. 1,100,000 --
-------------------- ---------------------
$ 1,700,000 $ --
==================== =====================
</TABLE>
F-19
<PAGE>
NOTE 13 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------
1999 1998
-------------------- ---------------------
<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 $ 122,175 $ 153,603
Note payable - Union Bank of Switzerland, related
to the acquisition of equipment sold to a customer,
in monthly installments of $12,589 with imputed interest at
6.0% per annum, maturing on September 30, 2000 188,907 335,062
Capitalized leases related to the acquisition of
various computer and office equipment in payable
monthly installments over periods through 2001,
with interest imputed at rates ranging from 9.1% to 28.3% 131,041 185,755
-------------------- ---------------------
442,123 674,420
Less: Current portion (247,028) (233,746)
-------------------- ---------------------
$ 195,095 $ 440,674
==================== =====================
</TABLE>
The aggregate long-term debt principal payment are as follows:
Year Ending June 30,
2000 $ 247,028
2001 144,578
2002 40,006
2003 10,511
NOTE 14 - SHAREHOLDERS' EQUITY
Authorized Shares
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. On December 26, 1997, the Company amended its
certificate of incorporation to change the number of authorized common shares
from 30,000,000 to 50,000,000 of $.01 par value common shares.
Preferred Stock
In July 1999, the Company amended its Certificate of Incorporation to authorized
the issuance of 1,000,000 shares of preferred stock, $.01 par value per share.
Stock Option
The Stock Option Plans provide for the grant of options to officers, directors,
employees and consultants. Options may be either incentive stock options or
non-qualified stock options, except that only employees may be granted incentive
stock options.The maximum number of shares of Common Stock with respect to which
options may be granted under the Stock Option Plans is 500,000 shares. Options
vest at the discretion of the Board of Directors. All options granted in 1999
and 1997 vested immediately. The maximum term of an option is ten years. The
1996 Stock Option Plan will terminate in January, 2006, though options granted
prior to termination may expire after that date. The 1997 Stock Option Plan will
terminate at the discretion of the Board of Directors.In Fiscal 1998, there were
no grants or vesting of stock options. In Fiscal 1997, had compensation cost
for the Stock Option Plans been determined based on the fair value at the grant
dates for awards under the Stock Option Plans, except for grants to consultants
for which compensation expense has been recognized consistent with the method
of SFAS No. 123, as discussed in Note 1, the Company's net loss and net loss per
share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Fiscal 1997
----------------------------------------
As Pro
Reported Forma
------------------- -------------------
<S> <C> <C>
Nel loss (in thousands) ($13,685) ($13,959)
Basic and diluted net loss per share ($8.65) ($8.82)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option-pricing method with the following weighted average
assumptions used for grants in 1997; dividend yield 0%, expected volatility
61.6%, risk-free interest rate 6.25%, expected lives in years 1%.
The weighted average fair value of stock options granted during the year ended
June 30, 1997 was $22.80. No employee stock options were granted in fiscal 1999
and 1998.
F-20
<PAGE>
A summary of the status of the Stock Option Plans at June 30, 1999, 1998 and
1997 and the changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ------------------------------ ----------------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
Underlying Exercise Underlying Exercise Underlying Exercise
Options Price Options Price Options Price
-------------- --------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
at beginning 180,000 $23.40 196,900 $23.40 133,500 $25.20
of year
Granted 15,500 $.44 - $0.00 $17.80
79,500
Exercised (1,000) $7.30 (16,900) $7.30 $0.00
(16,100)
-------------- --------------- -------------- -------------- -------------- ------------
Outstanding
at end of year 194,500 $24.30 180,000 $24.30 196,900 $23.40
============== =============== == ============== ============== ==== ============== ============
Exercisable at
end of year 194,500 $24.30 180,000 $24.30 196,900 $23.40
============== =============== == ============== ============== ==== ============== ============
</TABLE>
The following table summarizes information about stock options under the Stock
Option Plans at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
----------------------------------------------------------------------------------
Weighted Average
Number Remaining Contractual Weighted Average
Range of Exercise Pr Outstanding Life Exercise Price
- -------------------------------- ----------------- --------------------------- -----------------------
<C> <C> <C> <C> <C>
$.01 - $.44 15,500 9.5 $0.44
$7.30 - $10.00 18,000 8.4 $8.00
$20.00 - $40.00 127,500 7.8 $22.10
$47.50 - $65.00 33,500 7.5 $58.70
-----------------
194,500
=================
</TABLE>
Stock Warrants
In Fiscal 1999, the Company issued 462,500 warrants. The Company recognized
compensation cost for the warrants issued of $92,000. The following table
summarized information about stock warrants at June 30, 1999:
<TABLE>
<CAPTION>
Warrants Outstanding and Exercisable
-- ------------------------------------------------------------------------------------------
Range of Exercise Price Number Outstanding Remaining Contractual Life Average Exercise Price
- ----------------------------- ------------------------ -------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
$.375 - $9.38 462,500 4.5 $.96
</TABLE>
NOTE 15 - DEFINED CONTRIBUTION PLANS
The Swiss and German Subsidiaries, mandated by government regulations, are
required to contribute approximately five (5%) percent of all 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, 1999, 1998 and 1997, were $ 509,959, $347,854 and $274,009,
respectively.
F-21
<PAGE>
NOTE 16 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------
1999 1998 1997
------------------- ------------------ ---------------
<S> <C> <C> <C>
Interest income $60 $58,902 $68,950
Interest income-stockholder and officer - - 4,351
Foreign currency income (9,097) (87,148) 484,846
Miscellaneous income 49,422 60,648 6,833
Loss from investments - - (246,217)
Loss on sale of certain asset and liabilities - (313,629) -
------------------- ------------------ ---------------
Total other income (expenses) $40,385 ($281,227) $318,763
=================== ================== ===============
</TABLE>
NOTE 17 - INCOME TAXES
Deferred income tax assets as of June 30, 1999 of $12,500,000 as a result of net
operating losses, have been fully offset by valuation allowances. 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 United States corporate income tax rate
(34%) and the effective income tax rates based on continuing operations is as
follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Statutory federal income tax (benefit) $ (5,600,000) $ (7,754,000) $ (4,101,913)
Foreign income tax (benefit) in excess
of domestic rate 377,000 543,000 509,203
Benefit not recognized on operating 3,693,000 5,111,000 2,816,057
loss
Permanent and other differences 1,530,000 2,100,000 886,886
------------------ ----------------- -----------------
$ - $ - $ 110,233
================== ================= =================
</TABLE>
Net operating loss carryforwards at June 30, 1999 were approximately as follows:
United States (expiring through June 30, 2014) $ 21,000,000
Switzerland (expiring through June 30, 2009) 21,000,000
-------------------
$ 42,000,000
===================
F-22
<PAGE>
NOTE 18 - EXTRAORDINARY ITEMS
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 $387,514 ($ 0.24) per share),
net of income taxes of $-0-.
On July 31, 1997 the Company refinanced Convertible debentures issued in May and
June 1997. A gain on extinguishment of debt of $154,212 resulted from that
transaction net of income taxes of $-0-.
In December, 1997 the Company refinanced part of the Convertible debentures
issued in August 1997. A gain on extinguishment of debt of $150,711 resulted
from that transaction net of income taxes of $-0-.
In Fiscal 1999 the Company recognized a loss from early extinguishment of debt
NOTE 19 SIGNIFICANT CUSTOMER AND CONCENTRATION OF CREDIT RISK
The Company sells its products to various customers primarily in Europe and the
USA. 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 establishes reserves for expected
credit losses and such losses, in the aggregate, have not exceeded management's
expectations.
The Company maintains its cash balances with major Swiss, United States and
German financial institutions. Funds on deposit with financial institutions in
the United States are insured by the Federal Deposits Insurance Corporation
("FDIC) up to $ 100,000.
During the years ended June 30, 1999. 1998 and 1997 there were sales to
customers that exceeded 10% of net consolidated sales. Sales to these customers
were: 1999 customer A, $9,253,480 (54%), 1998 customer A $ 7,647,354 (33%),
1997 customer A, $1,899,084 (14%) customer B $2,389,613 (18%).The company
operates in a single industry segment, providing x-ray medical equipment.
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, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ----------------- ----------------
<S> <C> <C> <C>
United States $ 4,026,931 $ 9,127,569 $ 2,000,608
Switzerland 12,625,381 12,851,115 2,184,161
Germany 643,570 914,294 1,393,072
Other export sales - - 7,573,860
==================== ================= ================
$ 17,295,882 $ 22,892,978 $ 13,151,701
==================== ================= ================
</TABLE>
The following summarizes identifiable assets by geographic area:
<TABLE>
<CAPTION>
1999 1998
--------------------- -----------------
<S> <C> <C>
United States $ 7,522,543 $ 8,075,151
Switzerland 16,007,209 17,454,379
Germany 231,437 385,067
--------------------- -----------------
$ 23,763,188 $ 25,914,597
===================== =================
</TABLE>
F-23
<PAGE>
The following summarizes operating losses before provision for income tax:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------- -------------------
<S> <C> <C> <C>
United States $ (10,685,663) $ (13,962,842) $ (175,254)
Switzerland (5,392,436) (8,803,842) (12,678,800)
Germany (243,317) (42,184) (333,397)
------------------ ------------------- -------------------
$ (16,321,416) $ (22,808,868) $ (13,187,451)
================== =================== ===================
</TABLE>
NOTE 20 - COMMITMENTS
The Company leases various facilities and vehicles under operating lease
agreements expiring through September 2003. The company has excluded all vehicle
leases in its presentation because they are deemed to be immaterial. The
facilities lease agreements provide for a base monthly payment of $22,285 per
month. Rent expense for the years ended June 30, 1999, 1998 and 1997 was
325,000, $ 324,726 and $ 297,926 respectively. Future minimum annual lease
payments, based on the exchange rate in effect on June 30, 1999, under the
facilities lease agreements are as follows: 2000 $173,549, 2001 $162,526, 2002
$166,995, 2003 $137,994, Thereafter $0.
The Company has employment agreements with three of its executives. Minimum
compensation under these agreements are as follows:
Year Ended
June 30, 2000 $ 382,321
June 30, 2001 299,326
June 30, 2002 202,498
June 30, 2003 109,037
--------------------
$ $993,182
====================
NOTE 21 - LITIGATION
An arbitrator awarded judgement in favor of SSG in February of 1999, which order
was confirmed by the Supreme Court of the State of NY on July 8, 1999. The
judgement of $1,500,000 has been recorded in the financial statements and is
included in common stock subject to put.
On or about July 1, 1999 an action was commenced in the Supreme Cout, State of
New York, County of New York entitled J. Douglas Maxwell ("Maxwell") against the
Company, whereby Maxwell is seeking judgement in the sum of $380,000 based upon
his interpretation of various terms and conditions contained in an Exchange
Agreement between the parties dated July 22, 1996 and a subsequent Mutual
Release and Settlement Agreement between the parties dated June 1, 1998.
Swissray has denied the material allegations of Maxwell's complaint and has
asserted three affirmative defenses and two separate counteclaims seeking
(amongst other matters) dismissal of the complaint and and recision of the
settlement agreement. It is Swissray's management's intention to contest this
matter vigorously. The $380,000 has been recorded in the financial statements
and is included in common stock subject to put.
NOTE 22 - RESTRUCTURING
During the year ended June 30, 1998 the Company recorded restructuring charges
of $500,000, as a result of its decision to relocate two facilities. The charges
consist primarily of the present value of the remaining lease obligations of
those facilities.
F-24
<PAGE>
NOTE 23 - UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
The following unaudited proforma condensed combined statements of operations for
the years ended June 30, 1998 and 1997 give retroactive effect of the
acquisition of Empower, Inc. on April 1, 1997 and SSG on October 17, 1997, which
were accounted for as purchases. 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.
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL, INC
UNAUDITED PROFORMA CONDENSED COMBINED CONSOLIDATED STATEMENT
OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Year Ended June 30,
-----------------------------------------------------
1998 1997
------------------------ -------------------
<S> <C> <C>
Revenues $ 23,837,000 $ 21,223,000
Loss before extraordinary items (21,963,000) (13,568,000)
Net Loss (22,403,000) (13,956,000)
Loss per share (8.33) (8.79)
Weighted average number of shares 2,690,695 1,587,757
outstanding
</TABLE>
It was not practicable to include information for SSG for the year ended
June 30, 1997
F-25
<PAGE>
TABLE OF CONTENTS
Page
Available Information 3
Prospectus Summary 4
Risk Factors 8
The Company 18
Use of Proceeds 20
Market Prices and Dividend Policy 20
Capitalization 22
Selected Consolidated Financial Data 23
Management's Discussion and Analysis Of Financial Condition and
Results of Operations 24
Business 34
Management 45
Stock Options Granted in 1997 48
Aggregated Option Exercises in Last Fiscal Year and Year-End
Option Values 48
Principal Stockholders 50
Certain Transactions 52
Selling Holders and Plan of Distribution 52
Description of Capital Stock 54
Legal Matters 59
Independent Auditors 59
Index to Consolidated Financial Statements 60
- 61 -
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SECURITIES AND EXCHANGE COMMISSION REGISTRATION FEE $ 9,628.93
PRINTING EXPENSES 15,000.00
ACCOUNTING FEES AND EXPENSES 85,000.00
LEGAL FEES AND EXPENSES 145,000.00
TRANSFER AGENT AND REGISTRATION FEES 1,500.00
BLUE SKY FEES AND EXPENSES 15,000.00
MISCELLANEOUS EXPENSES 5,000.00
----------
Total $ 276,128.93
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 721 of the New York Business Corporation Law provides that the
indemnification and advancement of expenses of directors and officers may be
provided by the certificate of incorporation or by-laws of a corporation, or
when authorized by the certificate of incorporation or by-laws, a resolution of
shareholders, a resolution of directors or an agreement providing for
indemnification (except in cases where a judgment or other final adjudication
establishes that such acts were committed in bad faith or were the result of
active or deliberate dishonesty and were material to the cause of action so
adjudicated or that a person personally gained in fact a financial profit or
other advantage to which he was not legally entitled).
Section 722 of the New York Business Corporation Law provides that a
corporation may indemnify any person made, or threatened to be made, a party of
an action or proceeding other than one by or in the right of the corporation to
procure a judgment in its favor, whether civil or criminal, including an action
by or in the right of any other corporation, partnership, joint venture, trust,
employee benefit plan or other entity which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he was a director or officer of the corporation or served such
other corporation, partnership, joint venture, trust, employee benefit plan or
other entity in any other capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or in the case of
service for any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, not opposed to, the best interests of the
corporation and, in criminal acts or proceedings, in addition, had no reasonable
cause to believe that his conduct was unlawful.
Section 722 of the New York Business Corporation Law also states that a
corporation may indemnify any person made, or threatened to be made, a party to
an action by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director or officer of the
corporation or any other
II - 1
<PAGE>
corporation, partnership, joint venture, trust, employee benefit plan or other
entity at the request of the corporation, against amounts paid in settlement and
reasonable expenses actually and necessarily incurred by him in connection with
the defense or settlement of such action, or in connection with an appeal
therein if such director or officer acted, in good faith, for a purpose which he
reasonably believed to be in, or in the case of service for any other
corporation, partnership, joint venture, employee benefit plan or other entity,
not opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect to a threatened or pending action which
is settled or otherwise disposed of, or any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation, unless the
court determines the person is fairly and reasonably entitled to indemnity for
such portion of the settlement amount and expenses as the court deems proper.
Section 726 of the New York Business Corporation Law provides that a
corporation shall have the power to purchase and maintain insurance for
indemnification of directors and officers. However, no insurance may provide for
any payment, other than cost of defense, to or on behalf of any director or
officer for a judgment or a final adjudication adverse to the insured director
or officer if (i) a judgment or other final adjudication establishes that his
acts of active and deliberate dishonesty were material to the cause of action
adjudicated or that he personally gained a financial profit or other advantage
to which he was not legally entitled or (ii) if prohibited under the insurance
law of New York.
Section 724 of the New York Business Corporation Law provides that
indemnification shall be awarded by a court to the extent authorized under
Sections 722 and 723 (a) of the New York Business Corporation Law
notwithstanding the failure of a corporation to provide indemnification, and
despite any contrary resolution of the board or of the shareholders.
The By-Laws of the Registrant provide for indemnification as follows:
(a) Any person made a party to any action, suit or proceeding, by
reason of the fact that he, his testator or intestate representative is or was a
director, officer or employee of the Corporation, or of any Corporation in which
he served as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding, or in connection with any appeal therein that such officer, director
or employee is liable for negligence or misconduct in the performance of his
duties.
(b) The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which any officer or director or employee may
be entitled apart from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be
entitled shall be fixed by the Board of Directors except that in any case where
there is no disinterested majority of the Board available, the amount shall be
fixed by arbitration pursuant to the then existing rules of the American
Arbitration Association.
The Certificate of Incorporation of the Registrant, as amended,
provides for indemnification as follows:
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for damages for any breach of duty in such
capacity, provided that nothing contained in this Article shall eliminate or
limit the liability of any director if a judgment or final adjudication adverse
to him establishes that his acts or omissions were
II - 2
<PAGE>
in bad faith or involved intentional misconduct or a knowing violation of law to
which he was not legally entitled or that his acts violated Section 719 of the
New York Business Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 20, 1995, the Registrant issued 2,000,000 shares of Common Stock
to non-U.S. persons in reliance on Regulation S promulgated under the Securities
Act for an aggregate consideration of $4,250,000. Placement agents were
Interfinance Investment Co., Ltd., Berkshire Capital Management Corp. and Rolcan
Finance Ltd. Net proceeds received by the Company after costs related to the
financing were $4,000,000.
On December 10, 1995, the Registrant issued 1,000,000 shares of Common
Stock to non-U.S. persons in reliance on Regulation S. Placement agent was
Berkshire Capital Management Corp. Net proceeds received by the Company were
$4,500,000.
On September 11, 1996, the Registrant issued $3,800,000 aggregate
principal amount of convertible debentures to non-U.S. persons in reliance on
Regulation S. The convertible debentures were all converted into shares of
Common Stock at a conversion price equal to 81% of the average closing bid price
for the five trading days preceding the date of conversion. The Registrant
received net proceeds of $2,774,000.
On January 10, 1997, the Registrant issued $3,500,000 aggregate
principal amount of convertible debentures to non-U.S. persons in reliance on
Regulation S. Placement agent was IS-Targas Trading Ltd. Such convertible
debentures were all converted into shares of Common Stock at a conversion price
equal to 81% of the average closing bid price for the five trading days
preceding the date of conversion. Any convertible debentures not so converted
are subject to mandatory conversion by the Registrant on the 36th monthly
anniversary of the date of issuance of the convertible debentures. Net proceeds
received by the Registrant were $3,085,000.
On March 5, 1997, the Registrant issued 1,000,000 shares of Common
Stock for an aggregate price of $2,000,000 to non-U.S. persons in reliance on
Regulation S under the Securities Act. The placement agent for such shares was
Rolcan Finance Ltd. The Registrant received net proceeds of $1,925,000.
On April 28, 1997, the Registrant issued $2,000,000 aggregate principal
amount of convertible debentures, which were all converted into shares of Common
Stock of the Registrant at a conversion price equal to the higher of 80% of the
average closing bid price on the date of conversion or $2.50 per share. The
Registrant received net proceeds of $1,822,500.
On each of May 15, 1997 and June 15, 1997, the Registrant issued
$2,000,000 principal amount of 6% convertible debentures convertible into Common
Stock on terms similar to those of the April 28, 1997 issuance to accredited
investors as defined in Rule 501(a) of Regulation D. Placement agent for such
convertible debentures was Rolcan Finance Ltd. The aggregate offering price for
such convertible debentures was $4,000,000. After deducting underwriting
discounts, commissions and escrow fees in the aggregate amount of $528,610, the
Registrant received an aggregate net amount of $3,458,890. Such convertible
debentures were refinanced on July 31, 1997, with the proceeds of $4,262,500
principal amount of convertible debentures issued to non-U.S. persons under
Regulation S.
On July 31, 1997, the Registrant issued $4,262,500 of 7% convertible
debentures. The proceeds of such issuance were used to refinance $4,000,000
principal amount of 6% convertible debentures dated May 15, 1997 and
II - 3
<PAGE>
June 13, 1997 plus interest. The Registrant did not receive any cash proceeds
from this transaction. Such convertible debentures, due July 31, 2000, were all
converted into shares of Common Stock at a price equal to 80% of the average
closing bid price for the five (5) trading days preceding the date of
conversion.
On August 19, 1997, the Registrant issued $5,000,000 aggregate
principal amount of 6% convertible debentures, convertible into Common Stock of
the Registrant. Placement Agent for such convertible debentures was Rolcan
Finance Ltd. The aggregate offering price of such convertible debentures was
$5,000,000. After deducting underwriting discounts, commissions and escrow fees
in the aggregate amount of $681,250 the Registrant received a net amount of
$4,318,750. All such convertible debentures were issued to accredited investors
as defined in Rule 501(a) of Regulation D promulgated under the Act ("Regulation
D") and the Registrant has received written representations from each investor
to that effect. The placement agent for such convertible debentures was Rolcan
Finance, Ltd. Fifty percent of the face amount of such convertible debentures
were convertible into shares of Common Stock of the Registrant at any time after
November 3, 1997 and the remaining 50% of the face value of such convertible
debentures were convertible into shares of Common Stock of the Registrant after
December 3, 1997, in each case at a conversion price equal to 80% of the average
closing bid price for the five trading days preceding the date of conversion.
Any such convertible debentures not so converted are subject to mandatory
conversion by the Registrant on the 36th monthly anniversary of the date of
issuance of such Convertible Debentures.
All conversions have been competed (or rolled over as indicated below).
Between November 26, 1997 and December 11, 1997, the Company issued
$2,158,285 aggregate principal amount of 5% convertible debentures (the
"Convertible Debentures") including a 15% premium, and accrued interest,
convertible into Common Stock of the Company. The Registrant did not receive any
cash proceeds from the offering of the Convertible Debentures. An amount of
$2,158,285 was paid by investors to holders of the Company's Convertible
Debentures issued on August 19, 1997 holding $1,850,000 of such Convertible
Debentures as repayment in full of the Company's obligations under such
Convertible Debentures. During the same period the Company issued $3,690,000
aggregate principal amount of 8% Convertible Debentures, convertible into Common
Stock of the Company. After deducting fees, commissions and escrow fees in the
aggregate amount of $690,000 the Company received a net amount of $3,000,000.
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 representation from each investor to that effect.
The placement agent for such convertible debentures was Rolcan Finance, Ltd.
Twenty-five percent of the face amount of both Convertible Debentures are
convertible into shares of Common Stock of the Company as at the effective date
of a registration statement covering the underlying shares of Common Stock, to
wit: March 12, 1998. An additional twenty-five percent of the face amount of
both Convertible Debentures may be converted each 30 days thereafter, in each
case at a conversion price equal to 75% of the average closing bid price for the
five trading days preceding the date of the conversion. Any Convertible
Debenture not so converted are subject to mandatory conversion by the Company on
the 24th monthly anniversary of the date of issuance of the Convertible
Debentures. As of March 31, 1999 all conversions were completed.
In March of 1998, the Company issued $5,500,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures"), convertible
into Common Stock of the Company. After deducting legal fees of $35,000 and
placement agent fees of $55,000 directly attributable to such offering the
Company received a net amount of $4,915,000. All Convertible Debentures were
issued to accredited investors as defined in Rule 501(a) of Regulation D
promulgated under the Act ("Regulation D")
II - 4
<PAGE>
and the Company has received written representations from each investor to that
effect. The placement agent for such convertible debentures was Rolcan Finance,
Ltd. One Hundred percent of the face amount of the Convertible Debentures are
convertible into shares of Common Stock of the Company at the earlier of May 15,
1998 or the effective date of this Registration Statement at a conversion price
equal to 80% of the average closing bid price for the ten trading days preceding
the date of conversion. Any Convertible Debentures not so converted are subject
to mandatory conversion by the Company on the 24th monthly anniversary of the
date of issuance of the Convertible Debentures. As of August 24, 1999 all
conversions were completed.
In June of 1998, the Company issued $2,000,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures"), convertible
into Common Stock of the Company. After deducting fees directly attributable to
such offering the Company received a net amount of $1,760,000. 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 representation from each investor to that effect. The placement
agent for such convertible debentures was Net Financial International, Ltd. One
Hundred percent of the face amount of the Convertible Debentures are convertible
into shares of Common Stock of the Company at the earlier of August 14, 1998 or
the effective date of this Registration Statement at a conversion price equal to
80% of the average closing bid price for the ten trading days preceding the date
of conversion. Any Convertible Debentures not so converted are subject to
mandatory conversion by the Company on the 24th monthly anniversary of the date
of issuance of the Convertible Debentures. The number of shares being registered
for this transaction amounts to 1,079,830 shares.
None of these debentures have been converted as of August 24, 1999.
On August 31, 1998 the Company issued a principal aggregate total
amount of $6,143,849 of 5% convertible debentures ("Convertible Debentures"),
convertible into Common Stock of the Company at a conversion price of 82% of the
average closing bid price for the ten trading days preceding the date of
conversion as follows: (a) The Company issued $3,832,849 aggregate principal for
which the Company received no cash; investors having paid the holders of
$3,000,000 in Convertible Debentures (originally issued in March 1998) together
with 25% premium and accrued interest; and (b ) the Company issued new
Convertible Debentures convertible into shares of Company Common Stock. After
deducing fees directly attributable to such offering the Company received a net
amount of $ 2,000,000. 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. The placement agent for such convertible debentures was
Net Financial International, Ltd. Any Convertible Debentures not so converted
are subject to mandatory conversion by the Company on the 24th anniversary of
the date of issuance of the Convertible Debentures. The number of shares being
registered for this transaction amounts to 2,912,326 shares. As of August 24,
1999 an unconverted balance of $5,629,421 remains outstanding.
On October 6, 1998 the Company issued a principal aggregate amount of
$2,940,000 of 5% convertible debentures ("Convertible Debentures"), convertible
into Common Stock of the Company at a conversion price of 82% of the average
closing bid price for the ten trading days preceding the date of conversion.
After deducting fees directly attributable to such offering (including the
Company's repurchase of 1,465,000 pre-split shares 717,850 and (747,150 shares
from Dominion Capital Fund, Ltd. and Sovereign Partners LP respectively) of its
common stock for a cash consideration of $540,000) the Company received a
net amount of $2,100,000. 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.There was no placement agent involved in this financing.
Any Convertible Debentures not so converted are subject to mandatory conversion
by the Company on the 24th anniversary of the date of issuance of the
Convertible Debentures. The number of shares being registered for this
transaction amounts to 1,520,981 shares. None of these Convertible Debentures
II - 5
<PAGE>
have been converted as of August 24, 1999.
The Registrant received gross proceeds of $1,080,000 in December 1998
pursuant to promissory notes bearing interest at the rate of 8% per annum for
the first 90 calendar days (through March 13, 1999) with the Company having the
option to extend the notes for an additional 60 days with interest increasing 2%
per annum during the 60 day period. The Company exercised its extension option.
As further consideration for the loan, the Company issued Lenders Warrants to
purchase up to 50,000 shares of the Company's common stock exercisable, in whole
or in part, for a period of up to 5 years at $.375 (the bid price for Company
shares on the date of closing). The notes are secured by a second mortgage on
land and building ^. The promissory notes (held by Dominion Capital Fund, Ltd.
and Sovereign Partners) were not paid by their due date and the terms of a
Contingent Subscription Agreements, Debentures and Registration Rights
Agreements automatically went into effect with debentures in the principal sum
of $1,119,600 (inclusive of interest on aforesaid promissory notes) bearing
interest at the rate of 5% per annum (payable in stock or cash at the Company's
option) and being convertible, at any time at the lesser of (a) 82% of the 10
day average bid price for the 10 consecutive trading days immediately preceding
the conversion date or (b) $1.00 per share. The documents also provide for
certain Company redemption rights at percentages ranging from 115% of the face
amount of the Debenture to 125% of the face amount of the debenture dependent
upon redemption date, if any. There was no placement agent involved in this
financing. The number of shares being registered for this transaction amounts to
579,214 shares. None of these convertible debentures have been converted as of
August 24, 1999,
On January 29, 1999 the Company issued a principal aggregate amount of
$1,170,000 of convertible debentures ("Convertible Debentures"), convertible
into Common Stock of the Company at a conversion price of 82% of the average
closing bid price for the ten trading days preceding the date of conversion
together with accrued interest of 3% for the first 90 days, 3.5% for 91-120 days
and 4% for 120 days and thereafter. After deducing fees directly attributable to
such offering the Company received a net amount of $ 1,020,000. 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. The
placement agent for such convertible debentures was Rolcan Finance, Ltd. Any
Convertible Debentures not so converted are subject to mandatory conversion by
the Company on the 24th anniversary of the date of issuance of the Convertible
Debentures. The number of shares being registered for this transaction amounts
to 594,283 shares. None of these Convertible Debentures have been converted as
of August 24, 1999.
On March 2, 1999, the Company entered into a second promissory note
contingent convertible debenture financing with the same lenders as the December
1998 transaction described directly above (i.e., Dominion Investment Fund LLC
and Sovereign Partners LP) with terms and conditions identical to those set
forth above excepting (a) gross proceeds amounted to $1,110,000, (b) the initial
due date of such notes were May 31, 1999, (c) the potential 60 day extension
date on such promissory notes was July 30, 1999 but such extension right was
never utilized, (d) the conversion price is 80% of the 10 day average closing
bid price for the 10 consecutive trading days preceding conversion date and (e)
Warrants were issued (similarly exercisable over 5 years) to purchase up to
50,000 shares of common stock at 125% of the average 5 day closing bid price of
the Company's common stock immediately preceding the date of closing but in no
event at less than $1.00 per share. In all other respects the terms and
conditions of each of the documents executed with respect to this transaction
are identical in all material respects to those described above (in subparagraph
(a) regarding December 1998 transaction) There was no placement agent involved
in this financing. The promissory notes were not paid on their due date and the
terms of the Contingent Subscription Agreements, Debentures and Registration
Rights Agreements automatically went into effect with
II - 6
<PAGE>
debentures in the principal sum of $1,132,200 (inclusive of interest on
aforesaid promissory notes) going into effect. Accordingly, the number of shares
being registered for this transaction amounts to 585,733 shares. None of these
Convertible Debentures have been converted as of August 24, 1999.
On March 26, 1999 the Company entered into a third promissory note
(contingent convertible debenture financing) with terms and conditions identical
to those set forth in the March 2, 1999 promissory note financing referred to
directly above excepting (a) the lender is different, to wit: Aberdeen Avenue,
LLC, (b) gross proceeds amounted to $550,000, (c) the initial due date of such
note is June 25, 1999, (d) the potential 60 day extension date on such
promissory note was August 24, 1999 but such extension right was never utilized,
(e) Warrants were issued (similarly exercisable over 5 years) to purchase up to
27,500 shares of common stock at 125% of the average 5 day closing bid price of
the Company's common stock immediately preceding the date of closing but in no
event at less than $1.00 per share. In all other respects the terms and
conditions of each of the documents executed with respect to this transaction
are identical to those described in the above referenced March 2, 1999
transaction. There was no placement agent involved in this financing. The
promissory notes were not paid on their due date and the terms of the Contingent
Subscription Agreement, Debenture and Registration Rights Agreement
automatically went into effect with debentures in the principal sum of $561,000
(inclusive of interest on aforesaid promissory notes) going into effect.
Accordingly, the number of shares being registered for this transaction amounts
to 306 059 shares. None of these Convertible Debentures have been converted as
of August 24, 1999.
From May 14, 1999 to June 9, 1999 (in a single financing) the Company
issued a principal aggregate amount of $850,000 of convertible debentures
("Convertible Debenture"), convertible into Common Stock of the Company at a
conversion price of 80% of the average closing bid price for the ten trading
days preceding the date of conversion together with accrued interest of 5%.
After deducing fees directly attributable to such offering the offering the
Company received a net amount of $772,727. 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 received written
representations from each investor to that effect. There was no placement agent
involved in this financing. Any Convertible Debenture not so converted are
subject to mandatory conversion by the Company on the 24th anniversary date of
issuance of the Convertible Debentures. The number of shares being registered
for this transaction amounts to 450,733 shares. None of these Convertible
Debentures have been converted as of August 24, 1999.
On July 9, 1999 the Company entered into a fourth promissory note
(contingent convertible debenture financing) with terms and conditions
substantially identical to those set forth in the March 2, 1999 promissory note
financing referred to directly above excepting (a) the lender is different, to
wit: Southshore Capital, Ltd., (b) gross proceeds amounted to $1,100,000, (c)
the due date of such note is August 23, 1999 with no right to extend and (d) the
debenture holder did not receive any warrants. In all other respects the terms
and conditions of each of the documents executed with respect to this
transaction are identical to those described in the above referenced March 2,
1999 transaction. There was no placement agent involved in this financing. The
promissory note was not paid on its due date and the terms of the Contingent
Subscription Agreement, Convertible Debenture and Registration Rights Agreement
automatically went into effect with debentures in the principal sum of
$1,148,400 (inclusive of interest on aforesaid promissory note) going into
effect. Accordingly, the number of shares being registered for this transaction
amounts to 608,967 shares. None of these Convertible Debentures have been
converted as of August 24, 1999.
On August 11, 1999 the Company entered into a fifth promissory note
(contingent convertible debenture financing) with terms and conditions
substantially identical to those set forth in the March 2, 1999 promissory note
financing referred to directly above excepting (a) the lender is different, to
wit: Aberdeen Avenue, LLC, (b) gross
II - 7
<PAGE>
proceeds amounted to $1,400,000, (c) the due date of such note is November 11,
1999 with no right to extend and (d) the debenture holder did not receive any
warrants. In all other respects the terms and conditions of each of the
documents executed with respect to this transaction are identical to those
described in the above referenced March 2, 1999 transaction. There was no
placement agent involved in this financing. The terms of the Contingent
Subscription Agreement, Convertible Debenture and Registration Rights Agreement
have not gone into effect as the promissory note is not in default and,
accordingly, no shares are currently being registered for this transaction.
With respect to each of the above referenced financings, to the extent
required, the Company has filed Forms D with the SEC indicating the manner in
which net proceeds received were utilized. Such Forms D require that distinction
be made for net proceeds utilized as "payments to officers, directors and/or
affiliates" as opposed to "payment to others". In each instance the Forms D, as
filed, indicate "payment to others".
Item 16. Exhibits and Financial Statement Schedules
Exhibit
No. Description
<TABLE>
<CAPTION>
<S> <C>
2.1 Acquisition Agreement, dated May 1995, by and between Registrant, a New York
corporation (now Swissray International, Inc.); Berkshire International Finance, Inc.,
SR-Medical AG (a Swiss corporation), Teleray AG (a Swiss corporation) and others
(Incorporated by reference to Exhibit 6(a) of the Registrant's Registration
Statement on Form 10SB, Registration No . 0-26972, effective February 14, 1996).
2.2 Exchange Agreement, dated as of November 22, 1996 by and
between the Registrant and Douglas Maxwell ("Maxwell");
Registration Rights Agreement, dated as of March 13, 1997,
between the Registrant and Maxwell; Assignment and Assumption
Agreement, dated March 13, 1997, between the Registrant and
Maxwell; Option Agreement, dated January 24, 1997, granting
options for 125,000 shares of the Registrant to Maxwell
(Incorporated by reference to Exhibit 2.2 of the Registrant's
Annual Report for the fiscal year ended June 30, 1997 on Form
10-KSB filed on September 30, 1997).
3.1 Registrant's Certificate of Incorporation, dated December 20,
1967 (Incorporated by reference to Exhibit 2(a) of the
Registrant's Registration Statement on Form 10SB, Registration
No. 0- 26972, effective February 14, 1996).
3.2 Amendment to Registrant's Certificate of Incorporation, dated
September 19, 1968 (Incorporated by reference to Exhibit 2(b)
of the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.3 Amendment to Registrant's Certificate of Incorporation, dated
September 8, 1972 (Incorporated by reference to Exhibit 2(c)
of the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.4 Amendment to Registrant's Certificate of Incorporation, dated
October 30, 1981 (Incorporated by reference to Exhibit 2(d) of
the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.5 Certificate of Merger of Direct Marketing Services, Inc. and CGS Units Incorporated
into CGS Units Incorporated, dated June 16, 1994 (Incorporated by reference to
Exhibit 2(e) of the Registrant's Registration Statement on Form 10SB, Registration
No. 0-26972, effective February 14, 1996).
3.6 Amendment to Registrant's Certificate of Incorporation, dated
August 10, 1994 (Incorporated by reference to Exhibit 3.6 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB, filed September 30, 1997).
3.7 Certificate of Correction of Certificate of Merger of Direct Marketing Services, Inc.
and CGS Units Incorporated into CGS Units Incorporated, filed August 5, 1994
(Incorporated by reference to Exhibit 2(f) of the Registrant's Registration
II - 8
<PAGE>
Statement on Form 10SB, Registration No. 0-26972, effective February 14, 1996).
3.8 Amendment to Registrant's Certificate of Incorporation, dated May 24, 1995
(Incorporated by reference to Exhibit 2(g) of the Registrant's Registration
Statement on Form 10SB, Registration No. 0-26972, effective February 14, 1996)
3.9 Amendment to Registrant's Certificate of Incorporation, dated
August 29, 1996 (Incorporated by reference to Exhibit 3.9 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB, filed September 30, 1997).
3.10 Amendment to Registrant's Certificate of Incorporation, dated
December 13, 1996 (Incorporated by reference to Exhibit 3.10
of Registrant's Annual Report for the fiscal year ended June
30, 1997 on Form 10-KSB, filed September 30, 1997).
3.11 Amendment to Registrant's Certificate of Incorporation, dated March 12, 1997
(Incorporated by reference to Exhibit 3.11 of Registrant's Annual Report for the
fiscal year ended June 30, 1997 on Form 10-KSB, filed September 30, 1997).
3.12 Registrant's By-Laws (Incorporated by reference to Exhibit 2 (h) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972, effective February
14, 1996).
3.13 Amendment to Registrant's Certificate of Incorporation, dated
December 26, 1997 (Incorporated by reference to Exhibit 3.13
of Registrant's Form S-1 Registration Statement, Registration
No. 333-43401, effective March 12, 1998).
5.1 Opinion of Gary B. Wolff, P.C., counsel to the Registrant (Incorporated by reference
to Exhibit 5.1 of Registrant's first amendment to filing of Form S-1 Registration
Statement, Registration No. 333-59829 filed April 27, 1999).
5.1(a) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
10.1 License Agreement, dated June 24, 1995, by and between the Registrant and
Hans-Jurgen Behrendt (Incorporated by reference to Exhibit 6(b) of Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972, effective February
14, 1996).
10.2 1996 Swissray International Corporation, Inc. Non-Statutory Stock Option Plan.
(Incorporated by reference to Exhibit 10.2 of Registrant's Amendment No. 1 to Form
S-1 Registration Statement, Registration No. 333-38229, filed December 17, 1997).
10.3 Agreement, dated June 11, 1996 between the Registrant and
Philips Medical Systems (Incorporated by reference to Exhibit
10.3 of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB, filed September 30, 1997).
10.4 License Agreement, dated as of July 18, 1997, by and between
the Registrant and Agfa-Gevaert N.V., certain portions of
which are filed under a request for confidential
II - 9
<PAGE>
treatment pursuant to Rule 24b-2 promulgated pursuant to the
Securities Exchange Act of 1934, as amended, and Rule 80(b)(4)
of Organization; Conduct and Ethics; and Information and
Requests adopted under the Freedom of Information Act, under
Rule 406 of the Securities Act of 1933, as amended, and the
Freedom of Information Act (Incorporated by reference to
Exhibit 10.4 of Registrant's Annual Report for the fiscal year
ended June 30, 1997 on Form 10-KSB/A2, filed December 3,
1997).
10.5 Agreement, dated July 14, 1995, by and between Teleray AG and
Optische Werke G. Roderstock, certain portions of which are
filed under a request for confidential treatment pursuant to
Rule 24b-2 promulgated pursuant to the Securities Exchange Act
of 1934, as amended, and Rule 80(b)(4) of Organization;
Conduct and Ethics; and Information and Requests adopted under
the Freedom of Information Act, under Rule 406 of the
Securities Act of 1933, as amended, and the Freedom of
Information Act (Incorporated by reference to Exhibit 10.5 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB/A2, filed December 3, 1997).
10.6 Agreement, dated as of June 30, 1997, between the Registrant and Ruedi G. Laupper.
(Incorporated by reference to Exhibit 10.2 of Registrant's Amendment No. 1 to Form
S-1 Registration Statement, Registration No. 333-38229, filed December 17, 1997).
10.7 Form of Registration Rights Agreement, dated as of August , 1997, by and between
Swissray International, Inc. and the person named on the signature page hereto.
(Incorporated by reference to Exhibit 10.2 of Registrant's Amendment No. 1 to Form
S-1 Registration Statement, Registration No. 333-38229, filed December 17, 1997).
10.8 Form of Debenture of Swissray International, Inc. (Incorporated by reference to
Exhibit 10.2 of Registrant's Amendment No. 1 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 17, 1997).
10.9 Asset Purchase Agreement, dated as of October 17, 1997 by and
among Swissray Medical Systems, Inc., Swissray International,
Inc., Service Support Group LLC, Gary Durday, Michael Harle
and Kenneth Montler (Incorporated by reference to Exhibit 2.1
of the Registrant's Current Report on Form 8-K, filed November
4, 1997).
10.10 Registration Rights Agreement, dated as of October 17, 1997,
by and among Swissray International, Inc., Service Support
Group, LLC, Gary Durday, Michael Harle and Kenneth Montler
(Incorporated by reference to Exhibit 2.2 of the Registrant's
Current Report on Form 8-K, filed November 4, 1997).
10.11 Employment Agreement between the Registrant and Ruedi G.
Laupper, dated as of December , 1997 (Incorporated by
reference as Exhibit 10.11 to Registrant's initial filing of
Form S-1 Registration Statement, Registration No. 333-43401
filed December 29, 1997).
10.12 Employment Agreement between the Registrant and Josef Laupper, dated as of
December , 1997 (Incorporated by reference as Exhibit 10.12 to Registrant's initial
II - 10
<PAGE>
filing of Form S-1 Registration Statement, Registration No. 333-43401 filed
December 29, 1997).
10.13 Employment Agreement between the Registrant and Herbert Laubscher, dated as of
December , 1997 (Incorporated by reference as Exhibit 10.13 to Registrant's initial
filing of Form S-1 Registration Statement, Registration No. 333-43401 filed
December 29, 1997).
10.14 Employment Agreement between the Registrant and Ueli Laupper, dated as of
December , 1997 (Incorporated by reference as Exhibit 10.14 to Registrant's initial
filing of Form S-1 Registration Statement, Registration No. 333-43401 filed
December 29, 1997).
10.15 Form of Registration Rights Agreement, dated as of November ,
1997 (Incorporated by reference as Exhibit 10.15 to
Registrant's initial filing of Form S-1 Registration
Statement, Registration No. 333-43401 filed December 29,
1997).
10.16 Form of Debenture of Swissray International, Inc., dated November , 1997
(Incorporated by reference as Exhibit 10.16 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed December 29, 1997).
10.17 Form of Subscription Agreement, dated November , 1997
(Incorporated by reference as Exhibit 10.17 to Registrant's
initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.18 Form of Registration Rights Agreement (rollover), dated as of November , 1997
(Incorporated by reference as Exhibit 10.18 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed December 29, 1997).
10.19 Form of Debenture of Swissray International, Inc. (rollover), dated November , 1997
(Incorporated by reference as Exhibit 10.19 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed December 29, 1997).
10.20 Form of Subscription Agreement (rollover), dated November , 1997 (Incorporated by
reference as Exhibit 10.20 to Registrant's initial filing of Form S-1 Registration
Statement, Registration No. 333-43401 filed December 29, 1997).
10.21 Agreement Regarding August, 1997 Regulation D offering (Incorporated by reference
as Exhibit 10.21 to Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.22 Form of Subscription Agreement dated March , 1998
(Incorporated by reference as Exhibit 10.22 to Registrant's
initial filing of Form S-1 Registration Statement,
Registration No. 333-50069 filed April 14, 1998).
10.23 Form of Registration Rights Agreement dated March , 1998 (Incorporated by
II - 11
<PAGE>
reference as Exhibit 10.23 to Registrant's initial filing of Form S-1 Registration
Statement, Registration No. 333-50069 filed April 14, 1998).
10.24 Form of Debenture dated March , 1998 (Incorporated by reference as Exhibit 10.24
to Registrant's initial filing of Form S-1 Registration Statement, Registration No. 333-
50069 filed April 14, 1998).
10.25 This Exhibit Number skipped.
10.26 Form of Subscription Agreement dated June, 1998 (Incorporated
by reference as Exhibit 10.26 to Registrant's initial filing
of Form S-1 Registration Statement, Registration No. 333-59829
filed July 24, 1998).
10.27 Form of Registration Rights Agreement dated June, 1998
(Incorporated by reference as Exhibit 10.27 to Registrant's
initial filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed July 24, 1998).
10.28 Form of Debenture dated June, 1998 (Incorporated by reference as Exhibit 10.28 to
Registrant's initial filing of Form S-1 Registration Statement, Registration No. 333-
59829 filed July 24, 1998)..
10.29 Form of Subscription Agreement dated August, 1998 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.29 to Registrant's first amendment to filing
of Form S-1 Registration Statement, Registration No. 333-59829 filed April 27,
1998).
10.30 Form of Registration Rights Agreement dated August, 1998 (Incorporated by
reference as Exhibit 10.30 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.31 Form of Debenture dated August, 1998 with March 17, 1999 amendment (Incorporated
by reference as Exhibit 10.31 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.32 Form of Subscription Agreement dated October, 1998 with March
17, 1999 amendment (Incorporated by reference as Exhibit 10.32
to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April
27, 1998).
10.33 Form of Registration Rights Agreement dated October, 1998 (Incorporated by
reference as Exhibit 10.33 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.34 Form of Debenture dated October, 1998 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.34 to Registrant's first amendment to filing
of Form S-1 Registration Statement, Registration No. 333-59829 filed April 27,
II - 12
<PAGE>
1998).
10.35 Form of Promissory Note dated December, 1998 (Incorporated by
reference as Exhibit 10.35 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998).
10.36 Form of Contingent Subscription Agreement dated December, 1998 with March 17,
1999 amendment (Incorporated by reference as Exhibit 10.36 to Registrant's first
amendment to filing of Form S-1 Registration Statement, Registration No. 333-59829
filed April 27, 1998).
10.37 Form of Registration Rights Agreement dated December, 1998 (Incorporated by
reference as Exhibit 10.37 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.38 Form of Debenture dated December, 1998 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.38 to Registrant's first amendment to filing
of Form S-1 Registration Statement, Registration No. 333-59829 filed April 27,
1998).
10.39 Form of Warrant dated December, 1998 (Incorporated by reference as Exhibit 10.39
to Registrant's first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1998).
10.40 Form of Subscription Agreement dated January, 1999 (Incorporated by reference as
Exhibit 10.40 to Registrant's first amendment to filing of Form S-1 Registration
Statement, Registration No. 333-59829 filed April 27, 1998).
10.41 Form of Registration Rights Agreement dated January, 1999 (Incorporated by
reference as Exhibit 10.41 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.42 Form of Debenture dated January, 1999 (Incorporated by
reference as Exhibit 10.42 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998).
10.43 Form of Warrant dated January 28, 1999 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.43 to Registrant's first amendment to filing
of Form S-1 Registration Statement, Registration No. 333-59829 filed April 27,
1998).
10.44 Form of Promissory Note dated March 2, 1999 (Incorporated by
reference as Exhibit 10.44 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998).
10.45 Form of Contingent Subscription Agreement dated March 2, 1999 (Incorporated by
II - 13
<PAGE>
reference as Exhibit 10.45 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.46 Form of Registration Rights Agreement dated March 2, 1999 (Incorporated by
reference as Exhibit 10.46 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.47 Form of Debenture dated March 2, 1999 (Incorporated by
reference as Exhibit 10.47 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998).
10.48 Form of Warrant dated March 2, 1999 (Incorporated by reference as Exhibit 10.48
to Registrant's first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1998).
10.49 Form of Promissory Note dated March 26, 1999 (Incorporated by
reference as Exhibit 10.49 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998).
10.50 Form of Contingent Subscription Agreement dated March 26, 1999 (Incorporated by
reference as Exhibit 10.50 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.51 Form of Registration Rights Agreement dated March 26, 1999 (Incorporated by
reference as Exhibit 10.51 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.52 Form of Debenture dated March 26, 1999 (Incorporated by reference as Exhibit
10.52 to Registrant's first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1998).
10.53 Form of Warrant dated March 26, 1999 (Incorporated by reference as Exhibit 10.53
to Registrant's first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1998).
10.54 Form of Subscription Agreement dated May , 1999.
10.55 Form of Registration Rights Agreement dated May , 1999.
10.56 Form of Debenture dated May , 1999.
10.57 Form of Promissory Note dated July 9, 1999.
10.58 Form of Security Agreement dated July 9, 1999.
10.59 Form of Contingent Subscription Agreement dated July 9, 1999.
II - 14
<PAGE>
10.59 Form of Contingent Subscription Agreement dated July 9, 1999.
10.60 Form of Registration Rights Agreement dated July 9, 1999.
10.61 Form of Debenture dated August 23, 1999
10.62 Form of Promissory Note dated August 11, 1999.
10.63 Consulting Agreement between Registrant and Liviakis Financial Communications, Inc. dated March
24, 1999 with exhibit thereto entitled Voting Trust Agreement.
10.64 Contract between Registrant and Rolcan Finance Ltd. Dated April 14, 1999.
10.65 Master Supplier Agreement between Registrant and Data General Corporation effective January 20,
1999.
10.66 Form of Registrant's Authorized Distributor Agreement.
21.1 List of Subsidiaries (Incorporated by reference to Exhibit 21 of Registrant's Annual Report for the
fiscal year ended June 30, 1997 on Form 10-KSB, filed September 30, 1997).
23.1 Consent of Bederson & Company LLP
23.1(a) Consent of Bederson & Company LLP.
23.1(b) Consent of Bederson & Company LLP.
23.2 Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1a).
23.3 Consent of Feldman Sherb Ehrlich & Co., P.C.
23.3(a) Consent of Feldman Sherb Horowitz & Co., P.C.
27 FINANCIAL DATA SCHEDULES
* To be filed by amendment.
</TABLE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by
II - 15
<PAGE>
a director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration
Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price, set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-offering amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II - 16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Hochdorf, Country of Switzerland, on September 10, 1999.
SWISSRAY INTERNATIONAL, INC.
/Ruedi G. Laupper/
By:_______________________
Name: Ruedi G. Laupper
Title: Chairman of the Board of
Directors, President &
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Reudi G. Laupper Chairman of the Board of Dated: Sept. 10 , 1999
- --------------------
Reudi G. Laupper Directors, President &
Principal Executive Officer
/s/ Josef Laupper Secretary, Treasurer and a Dated: Sept. 10 , 1999
- --------------------
Josef Laupper Director
/s/ Michael Laupper
- -------------------- Principal Financial Officer Dated: Sept. 10, 1999
Michael Laupper & Controller
/s/ Ueli Laupper Vice President and a Director Dated: Sept. 10 , 1999
- ---------------------
Ueli Laupper
/s/Dr. Erwin Zimmerli
- -------------------- Director Dated: Sept. 10, 1999
Dr. Erwin Zimmerli
/s/ Dr. Sc. Dov Maor
- -------------------- Director Dated: Sept. 10, 1999
Dr. Sc. Dov Maor
II - 17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT INDEX
Exhibit
No. Description
2.1 Acquisition Agreement, dated May 1995, by and between Registrant, a New York
corporation (now Swissray International, Inc.); Berkshire International Finance, Inc.,
SR-Medical AG (a Swiss corporation), Teleray AG (a Swiss corporation) and others
(Incorporated by reference to Exhibit 6(a) of the Registrant's Registration
Statement on Form 10SB, Registration No . 0-26972, effective February 14, 1996).
2.2 Exchange Agreement, dated as of November 22, 1996 by and
between the Registrant and Douglas Maxwell ("Maxwell");
Registration Rights Agreement, dated as of March 13, 1997,
between the Registrant and Maxwell; Assignment and Assumption
Agreement, dated March 13, 1997, between the Registrant and
Maxwell; Option Agreement, dated January 24, 1997, granting
options for 125,000 shares of the Registrant to Maxwell
(Incorporated by reference to Exhibit 2.2 of the Registrant's
Annual Report for the fiscal year ended June 30, 1997 on Form
10-KSB filed on September 30, 1997).
3.1 Registrant's Certificate of Incorporation, dated December 20,
1967 (Incorporated by reference to Exhibit 2(a) of the
Registrant's Registration Statement on Form 10SB, Registration
No. 0- 26972, effective February 14, 1996).
3.2 Amendment to Registrant's Certificate of Incorporation, dated
September 19, 1968 (Incorporated by reference to Exhibit 2(b)
of the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.3 Amendment to Registrant's Certificate of Incorporation, dated
September 8, 1972 (Incorporated by reference to Exhibit 2(c)
of the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.4 Amendment to Registrant's Certificate of Incorporation, dated
October 30, 1981 (Incorporated by reference to Exhibit 2(d) of
the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.5 Certificate of Merger of Direct Marketing Services, Inc. and CGS Units Incorporated
into CGS Units Incorporated, dated June 16, 1994 (Incorporated by reference to
Exhibit 2(e) of the Registrant's Registration Statement on Form 10SB, Registration
No. 0-26972, effective February 14, 1996).
3.6 Amendment to Registrant's Certificate of Incorporation, dated
August 10, 1994 (Incorporated by reference to Exhibit 3.6 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB, filed September 30, 1997).
3.7 Certificate of Correction of Certificate of Merger of Direct Marketing Services, Inc.
and CGS Units Incorporated into CGS Units Incorporated, filed August 5, 1994
(Incorporated by reference to Exhibit 2(f) of the Registrant's Registration
<PAGE>
Statement on Form 10SB, Registration No. 0-26972, effective February 14, 1996).
3.8 Amendment to Registrant's Certificate of Incorporation, dated May 24, 1995
(Incorporated by reference to Exhibit 2(g) of the Registrant's Registration
Statement on Form 10SB, Registration No. 0-26972, effective February 14, 1996)
3.9 Amendment to Registrant's Certificate of Incorporation, dated
August 29, 1996 (Incorporated by reference to Exhibit 3.9 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB, filed September 30, 1997).
3.10 Amendment to Registrant's Certificate of Incorporation, dated
December 13, 1996 (Incorporated by reference to Exhibit 3.10
of Registrant's Annual Report for the fiscal year ended June
30, 1997 on Form 10-KSB, filed September 30, 1997).
3.11 Amendment to Registrant's Certificate of Incorporation, dated March 12, 1997
(Incorporated by reference to Exhibit 3.11 of Registrant's Annual Report for the
fiscal year ended June 30, 1997 on Form 10-KSB, filed September 30, 1997).
3.12 Registrant's By-Laws (Incorporated by reference to Exhibit 2 (h) of the Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972, effective February
14, 1996).
3.13 Amendment to Registrant's Certificate of Incorporation, dated
December 26, 1997 (Incorporated by reference to Exhibit 3.13
of Registrant's Form S-1 Registration Statement, Registration
No. 333-43401, effective March 12, 1998).
5.1 Opinion of Gary B. Wolff, P.C., counsel to the Registrant (Incorporated by reference
to Exhibit 5.1 of Registrant's first amendment to filing of Form S-1 Registration
Statement, Registration No. 333-59829 filed April 27, 1999).
5.1(a) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
10.1 License Agreement, dated June 24, 1995, by and between the Registrant and
Hans-Jurgen Behrendt (Incorporated by reference to Exhibit 6(b) of Registrant's
Registration Statement on Form 10SB, Registration No. 0-26972, effective February
14, 1996).
10.2 1996 Swissray International Corporation, Inc. Non-Statutory Stock Option Plan.
(Incorporated by reference to Exhibit 10.2 of Registrant's Amendment No. 1 to Form
S-1 Registration Statement, Registration No. 333-38229, filed December 17, 1997).
10.3 Agreement, dated June 11, 1996 between the Registrant and
Philips Medical Systems (Incorporated by reference to Exhibit
10.3 of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB, filed September 30, 1997).
10.4 License Agreement, dated as of July 18, 1997, by and between
the Registrant and Agfa-Gevaert N.V., certain portions of
which are filed under a request for confidential
<PAGE>
treatment pursuant to Rule 24b-2 promulgated pursuant to the
Securities Exchange Act of 1934, as amended, and Rule 80(b)(4)
of Organization; Conduct and Ethics; and Information and
Requests adopted under the Freedom of Information Act, under
Rule 406 of the Securities Act of 1933, as amended, and the
Freedom of Information Act (Incorporated by reference to
Exhibit 10.4 of Registrant's Annual Report for the fiscal year
ended June 30, 1997 on Form 10-KSB/A2, filed December 3,
1997).
10.5 Agreement, dated July 14, 1995, by and between Teleray AG and
Optische Werke G. Roderstock, certain portions of which are
filed under a request for confidential treatment pursuant to
Rule 24b-2 promulgated pursuant to the Securities Exchange Act
of 1934, as amended, and Rule 80(b)(4) of Organization;
Conduct and Ethics; and Information and Requests adopted under
the Freedom of Information Act, under Rule 406 of the
Securities Act of 1933, as amended, and the Freedom of
Information Act (Incorporated by reference to Exhibit 10.5 of
Registrant's Annual Report for the fiscal year ended June 30,
1997 on Form 10-KSB/A2, filed December 3, 1997).
10.6 Agreement, dated as of June 30, 1997, between the Registrant and Ruedi G. Laupper.
(Incorporated by reference to Exhibit 10.2 of Registrant's Amendment No. 1 to Form
S-1 Registration Statement, Registration No. 333-38229, filed December 17, 1997).
10.7 Form of Registration Rights Agreement, dated as of August , 1997, by and between
Swissray International, Inc. and the person named on the signature page hereto.
(Incorporated by reference to Exhibit 10.2 of Registrant's Amendment No. 1 to Form
S-1 Registration Statement, Registration No. 333-38229, filed December 17, 1997).
10.8 Form of Debenture of Swissray International, Inc. (Incorporated by reference to
Exhibit 10.2 of Registrant's Amendment No. 1 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 17, 1997).
10.9 Asset Purchase Agreement, dated as of October 17, 1997 by and
among Swissray Medical Systems, Inc., Swissray International,
Inc., Service Support Group LLC, Gary Durday, Michael Harle
and Kenneth Montler (Incorporated by reference to Exhibit 2.1
of the Registrant's Current Report on Form 8-K, filed November
4, 1997).
10.10 Registration Rights Agreement, dated as of October 17, 1997,
by and among Swissray International, Inc., Service Support
Group, LLC, Gary Durday, Michael Harle and Kenneth Montler
(Incorporated by reference to Exhibit 2.2 of the Registrant's
Current Report on Form 8-K, filed November 4, 1997).
10.11 Employment Agreement between the Registrant and Ruedi G.
Laupper, dated as of December , 1997 (Incorporated by
reference as Exhibit 10.11 to Registrant's initial filing of
Form S-1 Registration Statement, Registration No. 333-43401
filed December 29, 1997).
10.12 Employment Agreement between the Registrant and Josef Laupper, dated as of
December , 1997 (Incorporated by reference as Exhibit 10.12 to Registrant's initial
<PAGE>
filing of Form S-1 Registration Statement, Registration No. 333-43401 filed
December 29, 1997).
10.13 Employment Agreement between the Registrant and Herbert Laubscher, dated as of
December , 1997 (Incorporated by reference as Exhibit 10.13 to Registrant's initial
filing of Form S-1 Registration Statement, Registration No. 333-43401 filed
December 29, 1997).
10.14 Employment Agreement between the Registrant and Ueli Laupper, dated as of
December , 1997 (Incorporated by reference as Exhibit 10.14 to Registrant's initial
filing of Form S-1 Registration Statement, Registration No. 333-43401 filed
December 29, 1997).
10.15 Form of Registration Rights Agreement, dated as of November ,
1997 (Incorporated by reference as Exhibit 10.15 to
Registrant's initial filing of Form S-1 Registration
Statement, Registration No. 333-43401 filed December 29,
1997).
10.16 Form of Debenture of Swissray International, Inc., dated November , 1997
(Incorporated by reference as Exhibit 10.16 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed December 29, 1997).
10.17 Form of Subscription Agreement, dated November , 1997
(Incorporated by reference as Exhibit 10.17 to Registrant's
initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.18 Form of Registration Rights Agreement (rollover), dated as of November , 1997
(Incorporated by reference as Exhibit 10.18 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed December 29, 1997).
10.19 Form of Debenture of Swissray International, Inc. (rollover), dated November , 1997
(Incorporated by reference as Exhibit 10.19 to Registrant's initial filing of Form S-1
Registration Statement, Registration No. 333-43401 filed December 29, 1997).
10.20 Form of Subscription Agreement (rollover), dated November , 1997 (Incorporated by
reference as Exhibit 10.20 to Registrant's initial filing of Form S-1 Registration
Statement, Registration No. 333-43401 filed December 29, 1997).
10.21 Agreement Regarding August, 1997 Regulation D offering (Incorporated by reference
as Exhibit 10.21 to Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-43401 filed December 29, 1997).
10.22 Form of Subscription Agreement dated March , 1998
(Incorporated by reference as Exhibit 10.22 to Registrant's
initial filing of Form S-1 Registration Statement,
Registration No. 333-50069 filed April 14, 1998).
10.23 Form of Registration Rights Agreement dated March , 1998 (Incorporated by
<PAGE>
reference as Exhibit 10.23 to Registrant's initial filing of Form S-1 Registration
Statement, Registration No. 333-50069 filed April 14, 1998).
10.24 Form of Debenture dated March , 1998 (Incorporated by reference as Exhibit 10.24
to Registrant's initial filing of Form S-1 Registration Statement, Registration No. 333-
50069 filed April 14, 1998).
10.25 This Exhibit Number skipped.
10.26 Form of Subscription Agreement dated June, 1998 (Incorporated
by reference as Exhibit 10.26 to Registrant's initial filing
of Form S-1 Registration Statement, Registration No. 333-59829
filed July 24, 1998).
10.27 Form of Registration Rights Agreement dated June, 1998
(Incorporated by reference as Exhibit 10.27 to Registrant's
initial filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed July 24, 1998).
10.28 Form of Debenture dated June, 1998 (Incorporated by reference as Exhibit 10.28 to
Registrant's initial filing of Form S-1 Registration Statement, Registration No. 333-
59829 filed July 24, 1998)..
10.29 Form of Subscription Agreement dated August, 1998 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.29 to Registrant's first amendment to filing
of Form S-1 Registration Statement, Registration No. 333-59829 filed April 27,
1998).
10.30 Form of Registration Rights Agreement dated August, 1998 (Incorporated by
reference as Exhibit 10.30 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.31 Form of Debenture dated August, 1998 with March 17, 1999 amendment (Incorporated
by reference as Exhibit 10.31 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.32 Form of Subscription Agreement dated October, 1998 with March
17, 1999 amendment (Incorporated by reference as Exhibit 10.32
to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April
27, 1998).
10.33 Form of Registration Rights Agreement dated October, 1998 (Incorporated by
reference as Exhibit 10.33 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.34 Form of Debenture dated October, 1998 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.34 to Registrant's first amendment to filing
of Form S-1 Registration Statement, Registration No. 333-59829 filed April 27,
<PAGE>
1998).
10.35 Form of Promissory Note dated December, 1998 (Incorporated by
reference as Exhibit 10.35 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998).
10.36 Form of Contingent Subscription Agreement dated December, 1998 with March 17,
1999 amendment (Incorporated by reference as Exhibit 10.36 to Registrant's first
amendment to filing of Form S-1 Registration Statement, Registration No. 333-59829
filed April 27, 1998).
10.37 Form of Registration Rights Agreement dated December, 1998 (Incorporated by
reference as Exhibit 10.37 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.38 Form of Debenture dated December, 1998 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.38 to Registrant's first amendment to filing
of Form S-1 Registration Statement, Registration No. 333-59829 filed April 27,
1998).
10.39 Form of Warrant dated December, 1998 (Incorporated by reference as Exhibit 10.39
to Registrant's first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1998).
10.40 Form of Subscription Agreement dated January, 1999 (Incorporated by reference as
Exhibit 10.40 to Registrant's first amendment to filing of Form S-1 Registration
Statement, Registration No. 333-59829 filed April 27, 1998).
10.41 Form of Registration Rights Agreement dated January, 1999 (Incorporated by
reference as Exhibit 10.41 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.42 Form of Debenture dated January, 1999 (Incorporated by
reference as Exhibit 10.42 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998).
10.43 Form of Warrant dated January 28, 1999 with March 17, 1999 amendment
(Incorporated by reference as Exhibit 10.43 to Registrant's first amendment to filing
of Form S-1 Registration Statement, Registration No. 333-59829 filed April 27,
1998).
10.44 Form of Promissory Note dated March 2, 1999 (Incorporated by
reference as Exhibit 10.44 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998).
10.45 Form of Contingent Subscription Agreement dated March 2, 1999 (Incorporated by
<PAGE>
reference as Exhibit 10.45 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.46 Form of Registration Rights Agreement dated March 2, 1999 (Incorporated by
reference as Exhibit 10.46 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.47 Form of Debenture dated March 2, 1999 (Incorporated by
reference as Exhibit 10.47 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998).
10.48 Form of Warrant dated March 2, 1999 (Incorporated by reference as Exhibit 10.48
to Registrant's first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1998).
10.49 Form of Promissory Note dated March 26, 1999 (Incorporated by
reference as Exhibit 10.49 to Registrant's first amendment to
filing of Form S-1 Registration Statement, Registration No.
333-59829 filed April 27, 1998).
10.50 Form of Contingent Subscription Agreement dated March 26, 1999 (Incorporated by
reference as Exhibit 10.50 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.51 Form of Registration Rights Agreement dated March 26, 1999 (Incorporated by
reference as Exhibit 10.51 to Registrant's first amendment to filing of Form S-1
Registration Statement, Registration No. 333-59829 filed April 27, 1998).
10.52 Form of Debenture dated March 26, 1999 (Incorporated by reference as Exhibit
10.52 to Registrant's first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1998).
10.53 Form of Warrant dated March 26, 1999 (Incorporated by reference as Exhibit 10.53
to Registrant's first amendment to filing of Form S-1 Registration Statement,
Registration No. 333-59829 filed April 27, 1998).
10.54 Form of Subscription Agreement dated May , 1999.
10.55 Form of Registration Rights Agreement dated May , 1999.
10.56 Form of Debenture dated May , 1999.
10.57 Form of Promissory Note dated July 9, 1999.
10.58 Form of Security Agreement dated July 9, 1999.
10.59 Form of Contingent Subscription Agreement dated July 9, 1999.
<PAGE>
10.60 Form of Registration Rights Agreement dated July 9, 1999.
10.61 Form of Debenture dated August 23, 1999
10.62 Form of Promissory Note dated August , 1999.
10.63 Consulting Agreement between Registrant and Liviakis Financial Communications, Inc.
dated March 24, 1999 with exhibit thereto entitled Voting Trust Agreement.
10.64 Contract between Registrant and Rolcan Finance Ltd. Dated April 14, 1999.
10.65 Master Supplier Agreement between Registrant and Data General Corporation
effective January 20, 1999.
10.66 Form of Registrant's Authorized Distributor Agreement.
21.1 List of Subsidiaries (Incorporated by reference to Exhibit 21 of Registrant's Annual
Report for the fiscal year ended June 30, 1997 on Form 10-KSB, filed September 30,
1997).
23.1 Consent of Bederson & Company LLP
23.1(a) Consent of Bederson & Company LLP.
23.1(b) Consent of Bederson & Company LLP.
23.2 Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1a).
23.3 Consent of Feldman Sherb Ehrlich & Co., P.C.
23.3(a) Consent of Feldman Sherb Horowitz & Co., P.C.
27 FINANCIAL DATA SCHEDULES
* To be filed by amendment.
</TABLE>
<PAGE>
Exhibit 3.14
State of New York
Department of State Ss:
I hereby certify that the annexed copy has been compared with the original
document in the custody of the Secretary of State and that the same is a true
copy of said original.
Witness my hand and seat of the Department of State on
JULY 2 9 1999
Special Deputy Secretary of State
DOS-1266 (5/96)
<PAGE>
CT-07 CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF SWISSRAY International, Inc.
-----------------------------------------
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
WE, THE UNDERSIGNED, Ruedi G. Laupper and Josef Laupper, being
respectively the president and the secretary of SWISSRAY International, Inc.
hereby certify:
1. The name of the corporation is SWISSRAY International, Inc.
2. The certificate of incorporation of said corporation was filed
with the Department of State on the 2nd day of January.1968 under the name C G S
UNITS INCORPORATED
3. That the amendment to the Certificate of Incorporation
effected by this Certificate is as follows:
Article 4 of the Certificate of Incorporation is
amended to add 1,000,000 shares of Preferred Stock,
$.Ol par value, and shall read as follows:
V4. The total number of shares authorized which the
corporation shall have authority to issue is
51,000,000 shares, of which 50,000,000 shares shall
be Common Stock, par value $.Ol per share without
cumulative voting rights and without any preemptive
rights and 1,000,000 shares shall be Preferred Stock,
par value $. 01 per share.
The Board of Directors of the Corporation is expressly authorized at
any time, and from time to time, to provide for the issuance of shares of
Preferred Stock in one or more series, with such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations, or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue thereof adopted by the Board
of Directors.
4. The amendment to the Certificate of Incorporation was
authorized by an affirmative vote of the of at least a majority of all
outstanding shares entitled to vote on an amendment to the Certificate of
Incorporation at the Annual Meeting of Shareholders. Said authorization being
subsequent to the affirmative vote of the Board of Directors
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this _____ day
of July, 1999,
/s/ Ruedi G. Laupper
----------------------------
Ruedi G. Laupper, President
<PAGE>
F990728000 563
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
CT-07 OF
SWISSRAY INTERNATIONAL, INC.
Under Section 805 of the Business Corporation Law
STATE 0F NEW YORK
DEPARTMENT OF STATE
JULY 28 l999
FILED
TAX $5.00
BY: ______________
COUNSEL: GARY D. WOLFF, P.C.
747 Third Avenue
25th Floor
New York, NY 10017
<PAGE>
TOTAI- P.n7
<PAGE>
Exhibit 5.1 a
September 7, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: SWISSRAY International, Inc. (the "Company")
Registration Statement on Form S-1 File No. 333-59829
Relating to shares of the Company's Common Stock, par
value $.01 per share underlying Convertible Debentures
Gentlemen:
I have been requested by the Company, a New York corporation, to
furnish you with my opinion as to the matters hereinafter set forth in
connection with the above captioned Registration Statement (the "Registration
Statement") covering all of the shares which will be offered by the Selling
Shareholders who acquired the shares under various agreements including, but not
limited to, Subscription Agreement, Convertible Debenture and related
Registration Rights Agreement - the number of shares being as indicated on the
calculation chart to the cover page of the Company's aforementioned S-1
Registration Statement.
In connection with this opinion, I have examined the Registration
Statement, the Certificate of Incorporation and By-Laws of the Company, each as
amended to date, copies of the records of corporate proceedings of the Company,
and copies of such other agreements, instruments and documents as I have deemed
necessary to enable me to render the opinion hereinafter expressed.
Based upon and subject to the foregoing, I am of the opinion that the
shares referred to above when sold in the manner described in the Registration
Statement, will be legally issued, fully paid and non-assessable.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the caption "Legal
Matters" in the prospectus included in the Registration Statement.
Very truly yours,
/Gary B. Wolff/
Gary B. Wolff, P.C.
GBW:th
<PAGE>
Exhibit 10.54
----------------------------------
SWISSRAY INTERNATIONAL, INC.
----------------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Maximum Offering: $1,100,000
This offering consists of $500,000 of Convertible Debentures of Swissray
International, Inc.
--------------------
SUBSCRIPTION AGREEMENT
-------------------
SUBSCRIPTION PROCEDURES
Convertible Debentures of SWISSRAY INTERNATIONAL, INC.. (the "Company")
are being offered in an aggregate amount not to exceed $1,100,000 The Debentures
will be transferable to the extent that any such transfer is permitted by law.
This offering is being made in accordance with the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Act") and
Rule 506 of Regulation D promulgated under the Act (the"Regulation D Offering").
The Investor Questionnaire is designed to enable the Investor to
demonstrate the minimum legal requirements under federal and state securities
laws to purchase the Debentures. The Signature Page for the Investor
Questionnaire and the Subscription Agreement contain representations relating to
the subscription.
Also included is an Internal Revenue Service Form W-9: "Request for
Taxpayer Identification Number and Certification" for U.S. citizens or residents
of the U.S. for U.S. federal income tax purposes only. (Foreign investors should
consult their tax advisors regarding the need to complete Internal Revenue
Service Form W-9 and any other forms that may be required).
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to 30% of any dividends paid by the Company. In order to
eliminate or reduce such withholding tax you may submit a properly executed
I.R.S. Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States) or
I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate), claiming
exemption from withholding or eligibility for treaty benefits in the form of a
lower rate of withholding tax on interest or dividends.
Payment must be made by wire transfer as provided below:
Immediately available funds should be sent via wire transfer to the escrow
account stated below and the completed subscription documents should be
forwarded to the Escrow Agent. Your subscription funds will be deposited into a
non-interest bearing escrow account of Joseph B. LaRocco, Esq., Escrow Agent, at
First Union Bank of Connecticut, Stamford, Connecticut. In the event of a
termination of the Regulation D Offering or the rejection of this subscription,
all subscription funds will be returned without interest. The wire instructions
are as follows:
First Union Bank of Connecticut
Executive Office
300 Main Street, P. O. Box 700
Stamford, CT 06904-0700
ABA #: 021101108
Swift #: FUNBUS33
Account #: 20000-2072298-4
Acct.Name: Joseph B. LaRocco, Esq. Trustee Account
SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
To: Swissray International, Inc.
This Subscription Agreement is made between Swissray International,
Inc., ("Company" or "Seller") a New York corporation, and the undersigned
prospective purchaser ("Purchaser") who is subscribing hereby for the Company's
Convertible Debentures (the "Debentures"). The Debentures being offered will be
separately transferable, to the extent that any such transfer is permitted by
law. The conversion terms of the Debentures are set forth in Section 4. This
subscription is submitted to you in accordance with and subject to the terms and
conditions described in this Subscription Agreement together with any Exhibits
thereto, relating to an offering (the "Offering") of up to $1,100,000 of
Debentures. This Offering is comprised of an offering of the Debentures to
accredited investors (the "Regulation D Offering") in accordance with the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), and Rule 506 of Regulation D promulgated under the Act
("Regulation D").
1. SUBSCRIPTION.
(a) The undersigned hereby irrevocably subscribes for and agrees to
purchase $500,000 of the Company's Debentures. The Debentures shall pay interest
in cash or in freely trading Common Stock of the Company, at the Company's
option, at the time of each conversion.The Debentures shall pay an 5% cumulative
interest, payable in cash or in freely trading Common Stock of the Company, at
the Company's option, at the time of each conversion. If paid in Common Stock,
the number of shares of the Company's Common Stock to be received shall be
determined by dividing the dollar amount of the interest by the then applicable
Market Price, as of the interest payment date. "Market Price" shall mean 80%
of the 10-day average closing bid price, as reported by Bloomberg, LP, for the
ten (10) consecutive trading days immediately preceding the date of conversion
(the "Conversion Price"). If the interest is to be paid in cash, the Company
shall make such payment within 5 business days of the date of conversion. If the
interest is to be paid in Common Stock, said Common Stock shall be delivered to
the Purchaser, or per Purchaser's instructions, within 5 business days of the
date of conversion. The Debentures are subject to automatic conversion at the
end of two years from the date of issuance at which time all Debentures
outstanding will be automatically converted based upon the formula set forth in
Section 4(d). The closing shall be deemed to have occurred on the date the funds
are received by the Company or its designated attorney (the "Closing Date").
(b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased the Debentures so purchased will be forwarded by the
Escrow Agent, Joseph B. LaRocco, to the Purchaser and the name of such Purchaser
will be registered on the Debenture transfer books of the Company as the record
owner of such Debentures. The Escrow Agent shall not be liable for any action
taken or omitted by him in good faith and in no event shall the Escrow Agent be
liable or responsible except for the Escrow Agent's own gross negligence or
willful misconduct. The Escrow Agent has made no representations or warranties
in connection with this transaction and has not been involved in the negotiation
of the terms of this Agreement or any matters relative thereto. Seller and
Purchaser each agree to indemnify and hold harmless the Escrow Agent from and
with respect to any suits, claims, actions or liabilities arising in any way out
of this transaction including the obligation to defend any legal action brought
which in any way arises out of or is related to this Agreement. The Escrow Agent
is not rendering securities advice to anyone with respect to this proposed
transaction; nor is the Escrow Agent opining on the compliance of the proposed
transaction under applicable securities law.
2. REPRESENTATIONS AND WARRANTIES.
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
(a) The undersigned has been furnished with, and has carefully read the
applicable form of Debenture included herein as Exhibit A and the form of
Registration Rights Agreement annexed hereto as Exhibit B (the "Registration
Rights Agreement"), and is familiar with and understands the terms of the
Offering. With respect to tax and other economic considerations involved in his
investment, the undersigned is not relying on the Company. The undersigned has
carefully considered and has, to the extent the undersigned believes such
discussion necessary, discussed with the undersigned's professional legal, tax,
accounting and financial advisors the suitability of an investment in the
Company, by purchasing the Debentures, for the undersigned's particular tax and
financial situation and has determined that the investment being made by the
undersigned is a suitable investment for the undersigned.
(b) The undersigned acknowledges that all documents, records, and books
pertaining to this investment including Form 10-K for the fiscal year ended June
30, 1998 (inclusive of any and all amendments thereto) and Form 10-Q for the
quarters ended September 30, 1998 and December 31, 1998 (inclusive of any and
all amendments thereto) (the "Disclosure Documents") have been made available
for inspection by the undersigned or the undersigned has access to the
Disclosure Documents.
(c) The undersigned has had a reasonable opportunity to ask questions
of and receive answers from a person or persons acting on behalf of the Company
concerning the Offering and all such questions have been answered to the full
satisfaction of the undersigned.
(d) The undersigned will not sell or otherwise transfer the Debentures
without registration under the Act or applicable state securities laws or an
exemption therefrom. The Debentures have not been registered under the Act or
under the securities laws of any states. The Common Stock underlying the
Debentures is to be registered by the Company pursuant to the terms of the
Registration Rights Agreement attached hereto as Exhibit B and incorporated
herein and made a part hereof. Without limiting the right to convert the
Debentures and sell the Common Stock pursuant to the Registration Rights
Agreement, the undersigned represents that the undersigned is purchasing the
Debentures for the undersigned's own account, for investment and not with a view
to resale or distribution except in compliance with the Act. The undersigned has
not offered or sold any portion of the Debentures being acquired nor does the
undersigned have any present intention of dividing the Debentures with others or
of selling, distributing or otherwise disposing of any portion of the Debentures
either currently or after the passage of a fixed or determinable period of time
or upon the occurrence or non-occurrence of any predetermined event or
circumstance in violation of the Act. Except as provided in the Registration
Rights Agreement, the Company has no obligation to register the Common Stock
issuable upon conversion of the Debentures.
(e) The undersigned recognizes that an investment in the Debentures
involves substantial risks, including loss of the entire amount of such
investment. Further, the undersigned has carefully read and considered the
schedule entitled Pending Litigation matters attached hereto as Exhibit C.
(f) Legends.
(i) The undersigned acknowledges that each
certificate representing the Debentures unless registered pursuant to the
Registration Rights Agreement, shall be stamped or otherwise imprinted with a
legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT
(OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) IF AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
NOTWITHSTANDING THE FOREGOING, THE COMMON STOCK INTO WHICH THE
SECURITIES EVIDENCED BY THIS CERTIFICATE ARE CONVERTIBLE ARE
ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN EACH OF
THAT CERTAIN SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE COMPANY, A
COPY OF EACH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
(ii) The Common Stock issued upon conversion shall
contain the following legend if converted prior to effectiveness of Registration
Statement:
"No sale, offer to sell or transfer of the securities
represented by this certificate shall be made unless a
registration statement under the Federal Securities Act of
1933, as amended, with respect to such securities is then in
effect or an exemption from the registration requirement of
such Act is then in fact applicable to such securities."
(iii)Common Stock issued upon conversion and
subsequent to effective date of Registration Statement (pursuant to which shares
underlying conversion are registered) shall not bear any restrictive legend.
(g) If this Subscription Agreement is executed and delivered on behalf
of a corporation, (i) such corporation has the full legal right and power and
all authority and approval required (a) to execute and deliver, or authorize
execution and delivery of, this Subscription Agreement and all other instruments
(including, without limitation, the Registration Rights Agreement) executed and
delivered by or on behalf of such corporation in connection with the purchase of
the Debentures and (b) to purchase and hold the Debentures: (ii) the signature
of the party signing on behalf of such corporation is binding upon such
corporation; and (iii) such corporation has not been formed for the specific
purpose of acquiring the Debentures, unless each beneficial owner of such entity
is qualified as an accredited investor within the meaning of Rule 501(a) of
Regulation D and has submitted information substantiating such individual
qualification.
(h) The undersigned shall indemnify and hold harmless the Company and
each stockholder, executive, employee, representative, affiliate, officer,
director, agent (including Counsel) or control person of the Company, who is or
may be a party or is or may be threatened to be made a party to any threatened,
pending or contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of or arising from any actual or
alleged misrepresentation or misstatement of facts or omission to represent or
state facts made or alleged to have been made by the undersigned to the Company
or omitted or alleged to have been omitted by the undersigned, concerning the
undersigned or the undersigned's subscription for and purchase of the Debentures
or the undersigned's authority to invest or financial position in connection
with the Offering, including, without limitation, any such misrepresentation,
misstatement or omission contained in this Subscription Agreement, the
Questionnaire or any other document submitted by the undersigned, against
losses, liabilities and expenses for which the Company, or any stockholder,
executive, employee, representative, affiliate, officer, director, agent
(including Counsel) or control person of the Company has not otherwise been
reimbursed (including attorneys' fees and disbursements, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by the Company, or
such officer, director stockholder, executive, employee, agent (including
Counsel), representative, affiliate or control person in connection with such
action, suit or proceeding.
(i) The undersigned is not subscribing for the Debentures as a result
of, or pursuant to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or meeting.
(j) The undersigned or the undersigned's representatives, as the case
may be, has such knowledge and experience in financial, tax and business matters
so as to enable the undersigned to utilize the information made available to the
undersigned in connection with the Offering to evaluate the merits and risks of
an investment in the Debentures and to make an informed investment decision with
respect thereto.
(k) The Purchaser is purchasing the Debentures for its own account for
investment, and not with a view toward the resale or distribution thereof.
Purchaser is neither an underwriter of, nor a dealer in, the Debentures or the
Common Stock issuable upon conversion thereof and is not participating in the
distribution or resale of the Debentures or the Common Stock issuable upon
conversion thereof.
(l) There has never been represented, guaranteed, or warranted to the
undersigned by any broker, the Company, its officers, directors or agents, or
employees or any other person, expressly or by implication (i) the percentage of
profits and/or amount of or type of consideration, profit or loss to be
realized, if any, as a result of the Company's operations; and (ii) that the
past performance or experience on the part of the management of the Company, or
of any other person, will in any way result in the overall profitable operations
of the Company.
3. SELLER REPRESENTATIONS.
(a) Concerning the Securities. The issuance, sale and delivery of the
Debentures have been duly authorized by all required corporate action on the
part of Seller, and when issued, sold and delivered in accordance with the terms
hereof and thereof for the consideration expressed herein and therein, will be
duly and validly issued and enforceable in accordance with their terms, subject
to the laws of bankruptcy and creditors' rights generally. At least 200% of the
number of shares of Common Stock issuable upon conversion of all the Debentures
issued pursuant to this Offering have been duly and validly reserved for
issuance (or alternative arrangements agreed to in writing to cover the
contingency of there being insufficient reserved shares) and, upon issuance
shall be duly and validly issued, fully paid, and non-assessable (the " Reserved
Shares"). From time to time, the Company shall keep such additional shares of
Common Stock reserved so as to allow for the conversion of all the Debentures
issued pursuant to this offering.
Prior to conversion of all the Debentures, if at anytime the conversion
of all the Debentures outstanding would result in an insufficient number of
authorized shares of Common Stock being available to cover all the conversions,
then in such event, the Company will move to call and hold a shareholder's
meeting within 90 days of such event for the purpose of authorizing additional
shares of Common Stock to facilitate the conversions. In such an event the
Company shall recommend to all shareholders to vote their shares in favor of
increasing the authorized number of shares of Common Stock. Seller represents
and warrants that under no circumstances will it deny or prevent Purchaser's
right to convert the Debentures as permitted under the terms of this
Subscription Agreement or the Registration Rights Agreement. Nothing in this
Section shall limit the obligation of the Company to make the payments set forth
in Section 4(h). In the event the Company's shareholder's meeting does not
result in the necessary authorization, the Company shall redeem the outstanding
Debentures for an amount equal to (x) the sum of the principal of the
outstanding Debentures plus accrued interest thereon multiplied by (y) 125%.
(b) Authority to Enter Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principals of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(c) Non-contravention. The execution and delivery of this Agreement
and the consummation of the issuance of the Debentures, and the transactions
contemplated by this Agreement do not and will not conflict with or result in a
breach by Seller of any of the terms or provisions of, or constitute a default
under, the articles of incorporation or by-laws of Seller, or any indenture,
mortgage, deed of trust, or other material agreement or instrument to which
Seller is a party or by which it or any of its properties or assets are bound,
or any existing applicable law, rule, or regulation of the United States or any
State thereof or any applicable decree, judgment, or order of any Federal or
State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over Seller or any of its
properties or assets.
(d) Company Compliance. The Company represents and warrants that the
Company and its subsidiaries are: (i) in full compliance, to the extent
applicable, with all reporting obligations under either Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; (ii) not in violation of any term or
provision of its Certificate of Incorporation or by-laws; (iii) not in default
in the performance or observance of any obligation, agreement or condition
contained in any bond, debenture (excepting for reservation of number of shares
required if all Debentures were to be converted), note or any other evidence of
indebtedness or in any mortgage, deed of trust, indenture or other instrument or
agreement to which they are a party, either singly or jointly, by which it or
any of its property is bound or subject. Furthermore, the Company is not aware
of any other facts, which it has not disclosed which could have a material
adverse effect on the business, condition, (financial or otherwise), operations,
earnings, performance, properties or prospects of the Company and its
subsidiaries taken as a whole.
(e) Pending Litigation. Except as otherwise disclosed in Exhibit C,
there is (i) no action, suit or proceeding before or by any court, arbitrator or
governmental body now pending or, to the knowledge of the Company, threatened or
contemplated to which the Company or any of its subsidiaries is or may be a
party or to which the business or property of the Company or any of its
subsidiaries is or may be bound or subject, (ii) no law, statute, rule,
regulation, order or ordinance that has been enacted, adopted or issued by any
Governmental Body or that, to the knowledge of the Company, has been proposed by
any Governmental Body adversely affecting the Company or any of its
subsidiaries, (iii) no injunction, restraining order or order of any nature by a
federal, state or foreign court or Governmental Body of competent jurisdiction
to which the Company or any of its subsidiaries is subject issued that, in the
case of clauses (i), (ii) and (iii) above, (x) is reasonably likely, singly or
in the aggregate, to result in a material adverse effect on the business,
condition, (financial or otherwise), operations, earnings, performance,
properties or prospects of the Company, and its subsidiaries taken as a whole or
(y) would interfere with or adversely affect the issuance of the Debentures or
would be reasonably likely to render this Subscription Agreement or the
Debentures, or any portion thereof, invalid or unenforceable.
(f) Issuance of the Debentures. No action has been taken and no law,
statute, rule, regulation, order or ordinance has been enacted, adopted or
issued by any Governmental Body that prevents the issuance of the Debentures or
the Common Stock issuable upon conversion or exercise thereof; no injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction has been issued that prevents the issuance of the
Debentures or the Common Stock issuable upon conversion or exercise thereof or
suspends the sale of the Debentures or the Common Stock issuable upon conversion
thereof in any jurisdiction; and no action, suit or proceeding is pending
against or, to the best knowledge of the Company, threatened against or
affecting, the Company, any of its subsidiaries or, to the best knowledge of the
Company, before any court or arbitrator or any Governmental Body that, if
adversely determined, would prohibit, materially interfere with or adversely
affect the issuance or marketability of the Debentures or the Common Stock
issuable upon conversion or exercise thereof or render the Subscription
Agreement or the Debentures, or any portion thereof, invalid or unenforceable.
(g) The Company shall indemnify and hold harmless the Purchaser and
each stockholder, executive, employee, representative, affiliate, officer,
director or control person of the Purchaser, who is or may be a party or is or
may be threatened to be made a party to any threatened, pending or contemplated
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of or arising from any actual or alleged
misrepresentation or misstatement of facts or omission to represent or state
facts made or alleged to have been made by the Company to the Purchaser or
omitted or alleged to have been omitted by the Company, concerning the Purchaser
or the Purchaser's subscription for and purchase of the Debentures or the
Purchaser 's authority to invest or financial position in connection with the
Offering, including, without limitation, any such misrepresentation,
misstatement or omission contained in this Subscription Agreement, the
Questionnaire or any other document submitted by the Company, against losses,
liabilities and expenses for which the Purchaser, or any stockholder, executive,
employee, representative, affiliate, officer, director or control person of the
Purchaser has not otherwise been reimbursed (including attorneys' fees and
disbursements, judgments, fines and amounts paid in settlement) actually and
reasonably incurred by the Purchaser, or such officer, director, stockholder,
executive, employee, representative, affiliate or control person in connection
with such action, suit or proceeding.
(h) No Change. Other than filings required by the Blue Sky or federal
securities law and/or NASDAQ Rules and Regulations, no consent, approval or
authorization of or designation, declaration or filing with any governmental or
other regulatory authority on the part of the Company is required in connection
with the valid execution, delivery and performance of this Agreement. Any
required qualification or notification under applicable federal securities laws
and state Blue Sky laws of the offer, sale and issuance of the Debentures, has
been obtained on or before the date hereof or will have been obtained within the
allowable period thereafter, and a copy thereof will be forwarded to Counsel for
the Purchaser.
(i) True Statements. Neither this Agreement nor any of the "Disclosure
Documents", as hereinafter defined, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading in the light of the
circumstances under which such statements are made. There exists no fact or
circumstances which, to the knowledge of the Company, materially and adversely
affects the business, properties or assets, or conditions, financial or
otherwise, of the Company, which has not been set forth in this Subscription
Agreement or disclosed in such documents.
(j) The Purchaser has been advised that the Company has not retained
any independent professionals to review or comment on this Offering or otherwise
protect the interests of the Purchaser. Although the Company has retained its
own counsel, neither such counsel nor any other firm, including Joseph B.
LaRocco, Esq., has acted on behalf of the Purchaser, and the Purchaser should
not rely on the Company's legal counsel or Joseph B. LaRocco, Esq. with respect
to any matters herein described.
(k) Prior Shares Issued Under Regulation S or Regulation D. In the past
thirteen months the Company raised $16,068,649 in Regulation S and Regulation D
offerings, including redemptions and rollovers inclusive of contingent
convertible debentures.
(l) Current Authorized Shares. As of April 26, 1999 there were
50,000,000 authorized shares of Common Stock of which approximately 11,712,379
shares of Common Stock were deemed issued and outstanding.
(m) Disclosure Documents. The Disclosure Documents are all the
documents (other than preliminary materials) that the Company has been required
to file with the SEC from June 30, 1998, to the date hereof, exclusive of such
registration statements as have been filed in accordance with certain
registration rights agreements. As of their respective dates, and/or dates of
amended filings with respect thereto, none of the Disclosure Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and no material event has occurred since the Company's initial
filing on Form 10-K for the year ended June 30, 1998 (or the filing of necessary
amendments thereto) which could make any of the disclosures contained therein
(as subsequently amended and restated) misleading The financial statements of
the Company included in the Disclosure Documents have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the audit
adjustments) the consolidated financial position of the Company and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of their operations and changes in financial position for the periods then
ended.
(n) Information Supplied. The information supplied by the Company to
Purchaser in connection with the offering of the Debentures does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements, in the light of the circumstances in which they were
made, not misleading. There exists no fact or circumstances which, to the
knowledge of the Company, materially and adversely affects the business,
properties, assets, or conditions, financial or otherwise, of the Company, which
has not been set forth in this Agreement or disclosed in such documents.
(o) Delivery Instructions. On the Closing Date the Debentures being
purchased hereunder shall be delivered to Joseph B. LaRocco, Esq. as Escrow
Agent, who will simultaneously wire to the Company's counsel the funds being
held in escrow, less placement fees, if not already directly wired to Company
Counsel, at which time the Escrow Agent shall then have the Debentures delivered
to the Purchaser, per the Purchaser's instructions.
(p) Non-contravention. The execution and delivery of this Agreement by
the Company, the issuance of the Debentures, and the consummation by the Company
of the other transactions contemplated by this Agreement, and the Debentures do
not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under, the (i) certificate
of incorporation or by-laws of the Company, (ii) any indenture, mortgage, deed
of trust, or other material agreement or instrument to which the Company is a
party or by which it or any of its properties or assets are bound, (iii) any
material existing applicable law, rule, or regulation or any applicable decree,
judgment, or (iv) order of any court, United States federal or state regulatory
body, administrative agency, or other governmental body having jurisdiction over
the Company or any of its properties or assets, except such conflict, breach or
default which would not have a material adverse effect on the transactions
contemplated herein.
(q) No Default. Except as may be set forth in the Company's report on
form 10-K for the fiscal year ending June 30, 1998, as initially filed and
subsequently amended, the Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it or its property is bound, and
neither the execution of, nor the delivery by the Company of, nor the
performance by the Company of its obligations under, this Agreement or the
Debentures, other than the conversion provision thereof, will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under, (i) any material
indenture, mortgage, deed of trust or other material agreement applicable to the
Company or instrument to which the Company is a party or by which it is bound,
(ii) any statute applicable to the Company or its property, (iii) the
Certificate of Incorporation or ByLaws of the Company, (iv) any decree ,
judgment, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or its properties, or (v) the Company's
listing agreement, if any, for its Common Stock.
(r) Use of Proceeds. The Company represents that the net proceeds of
this offering will be primarily used for working capital and other corporate
purposes.
(s) The Company hereby represents that it shall be paying a consultant
fee and other legal fees $100,000 from the gross proceeds of this Offering,
which fee shall be paid out of escrow by the Escrow Agent
4. TERMS OF CONVERSION.
(a) Debentures. Upon receipt by the Company or its designated
attorney of a facsimile or original of Purchaser's signed Notice of Conversion
preceded by, together with or followed by receipt of the original Debenture to
be converted in whole or in part (within 5 business days as indicated in 4(b)
below), the Company shall instruct its transfer agent to issue one or more
Certificates representing that number of shares of Common Stock into which the
Debenture is convertible in accordance with the provisions regarding conversion
set forth in Exhibit D hereto. The Seller's transfer agent or attorney shall act
as Registrar and shall maintain an appropriate ledger containing the necessary
information with respect to each Debenture.
(b) Conversion Procedures. The face amount of each Debenture
may be converted anytime following the Closing Date except as otherwise set
forth herein in this Article 4. Such conversion shall be effectuated by
surrendering to the Company, or its attorney, the Debentures to be converted
together with a facsimile or original of the signed Notice of Conversion which
evidences Purchaser's intention to convert those Debentures indicated. The date
on which the Notice of Conversion is effective ("Conversion Date") shall be
deemed to be the date on which the Purchaser has delivered to the Company a
facsimile or original of the signed Notice of Conversion, as long as the
original Debentures to be converted are received by the Company or its
designated attorney within 5 business days thereafter. Unless otherwise notified
by the Company in writing via facsimile, the Company's designated attorney is
Gary B. Wolff, Esq., 747 Third Avenue, New York, NY 10017 (P) 212-644-6446 (f)
212-644-6498.
(c) Common Stock to be Issued. Upon the conversion of any
Debentures and upon receipt by the Company or its designated attorney of a
facsimile or original of Purchaser's signed Notice of Conversion (see Exhibit D)
Seller shall instruct Seller's transfer agent to issue Stock Certificates
without restrictive legend or stop transfer instructions, if at that time the
Registration Statement has been deemed effective (or with proper restrictive
legend if the Registration Statement has not as yet been declared effective), in
the name of Purchaser (or its nominee) and in such denominations to be specified
at conversion representing the number of shares of Common Stock issuable upon
such conversion, as applicable. Seller warrants that no instructions, other than
these instructions, have been given or will be given to the transfer agent and
that the Common Stock shall otherwise be freely transferable on the books and
records of Seller, except as may be set forth herein.
(d) (i) Conversion Rate. Purchaser is entitled, at its option,
to convert the face amount of each Debenture, plus accrued interest, anytime
following the Closing Date at 80% of the 10 day average closing bid price, as
reported by Bloomberg, LP for the 10 consecutive trading days immediately
preceding the applicable Conversion Date (the "Conversion Price"). The date on
which the Notice of Conversion is effective ("Conversion Date") shall be
deemed to be the date on which the Purchaser has delivered to the Company
a facsimile or original of the signed Notice of Conversion, as long as the
original Debentures to be converted are received by the Company or its
designated attorney within 5 business days thereafter. No fractional shares
or scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded up or down, as the case may be, to
the nearest whole share.
(ii)The Purchaser shall not be allowed to convert any
portion of the Debentures for 120 days from the Closing Date, unless the
closing bid price of the Company's common stock on the day prior to the
Conversion Date is greater than $5.50. Every 30-day period after the Closing
Date, until the expiration of 300 days following the Closing Date, the Purchaser
shall be allowed to convert and sell based upon the following terms: So long
as the closing bid price of the Company's common stock on the day prior to the
Conversion Date is over $1.50, the Purchaser shall be allowed to convert up to
15% of the original face amount of its Debentures; so long as the closing bid
price of the Company's common stock on the day prior to the Conversion Date is
over $7.50, the Purchaser shall be allowed to convert up to 20% of the original
face amount of its Debentures. The Purchaser shall not be allowed to convert any
of its Debentures for 300 days from the Closing Date if the bid price of the
Company's common stock is below $1.50. None of the foregoing restrictions shall
apply after the 300th day following the Closing Date.
(iii) Most Favored Financing. If after the Closing Date, but
prior to the Purchaser's conversion of all the Debentures, the Company raises
money under either Regulation D or Regulation S on terms that are more favorable
than those terms set forth in this Subscription Agreement, then in such event,
the Purchaser at its sole option shall be entitled to completely replace the
terms of this Subscription Agreement with the terms of the more beneficial
Subscription Agreement as to that balance, including accrued interest and any
accumulated liquidated damages, remaining on Purchaser's original investment.
The Debentures are subject to a mandatory, 24 month conversion feature at the
end of which all Debentures outstanding will be automatically converted, upon
the terms set forth in this section ("Mandatory Conversion Date").
(e) Nothing contained in this Subscription Agreement shall be
deemed to establish or require the payment of interest to the Purchaser at a
rate in excess of the maximum rate permitted by governing law. In the event that
the rate of interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the Purchaser to the
Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Certificate of Common
Stock as provided herein, including the responsibility and cost for delivery of
an opinion letter to the transfer agent, if so required. The person in whose
name the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Purchaser a new Debenture equal to the unconverted amount, if so requested in
writing by Purchaser.
(g) Within five (5) business days after receipt of the
documentation referred to above in Section 4(b), the Company shall deliver a
certificate in accordance with Section 4(c) for the number of shares of Common
Stock issuable upon the conversion. It shall be the Company's responsibility to
take all necessary actions and to bear all such costs to issue the Common Stock
as provided herein, including the cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the certificate of
Common Stock is to be registered shall be treated as a shareholder of record on
and after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Purchaser a new Debenture
equal to the unconverted amount, if so requested in writing by Purchaser. In the
event the Company does not make delivery of the Common Stock, as instructed by
Purchaser, within 5 business days after delivery of the Notice of Conversion or,
if later, the original Debenture, then in such event the Company shall pay to
Purchaser an amount, in cash in accordance with the following schedule,
wherein "No. Business Days Late" is defined as the number of business days
beyond the 5 business days delivery period.
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
The Company acknowledges that its failure to deliver the Common Stock
within 5 business days after the Conversion Date will cause the Purchaser to
suffer damages in an amount that will be difficult to ascertain. Accordingly,
the parties agree that it is appropriate to include in this Agreement a
provision for liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents the parties'
good faith effort to qualify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and will not constitute a
penalty. The payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms of this
Agreement.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 4(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 4(g) shall not
apply but instead the provisions of Section 4(h) shall apply.
The Company shall make any payments incurred under this Section 4(g) in
immediately available funds within five (5) business days from the Conversion
Date if late. Nothing herein shall limit a Purchaser's right to pursue actual
damages or cancel the conversion for the Company's failure to issue and deliver
Common Stock to the Holder within 5 business days after the Conversion Date.
(h) The Company shall at all times reserve (or make
alternative written arrangements for reservation) and have available all Common
Stock necessary to meet conversion of the Debentures by all Purchasers of the
entire amount of Debentures then outstanding. If, at any time Purchaser submits
a Notice of Conversion and the Company does not have sufficient authorized but
unissued shares of Common Stock (or alternative shares of Common Stock as may be
contributed by stockholders) available to effect, in full, a conversion of the
Debentures (a "Conversion Default", the date of such default being referred to
herein as the "Conversion Default Date"), the Company shall issue to the
Purchaser all of the shares of Common Stock which are available, and the Notice
of Conversion as to any Debentures requested to be converted but not converted
(the "Unconverted Debentures" ), upon Purchaser's sole option, may be deemed
null and void. The Company shall provide notice of such Conversion Default
("Notice of Conversion Default") to all existing Purchasers of outstanding
Debentures, by facsimile, within three (3) business day of such default (with
the original delivered by overnight or two day courier), and the Purchaser shall
give notice to the Company by facsimile within five business days of receipt of
the original Notice of Conversion Default (with the original delivered by
overnight or two day courier) of its election to either nullify or confirm the
Notice of Conversion.
The Company agrees to pay to all Purchasers of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Purchaser where N = the
number of days from the Conversion Default Date to the date (the "Authorization
Date") that the Company authorizes a sufficient number of shares of Common Stock
to effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Purchaser of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Purchaser's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Purchaser's option, payable as follows: (i)
in the event Purchaser elects to take such payment in cash, cash payments shall
be made to such Purchaser of outstanding Debentures by the fifth day of the
following calendar month, or (ii) in the event Purchaser elects to take such
payment in stock, the Purchaser may convert such payment amount into Common
Stock at the conversion rate set forth in section 4(d) at anytime after the 5th
day of the calendar month following the month in which the Authorization Notice
was received, until the expiration of the mandatory 24 month conversion period.
The Company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect in full a
conversion of the Debentures will cause the Purchaser to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Agreement a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its obligations to deliver
the Common Stock pursuant to the terms of this Agreement. Nothing herein shall
limit the Purchaser's right to pursue actual damages for the Company's failure
to maintain a sufficient number of authorized shares of Common Stock.
Deliberately Deleted.
(j) Redemption: Company reserves the right, at its sole
option, to call a mandatory redemption of any percentage of the balance on the
Debentures during the two year period following the Closing Date. In the event
the Company exercises such right of redemption it shall pay the Purchaser, in
U.S. currency One Hundred Twenty Percent (120%) of the face amount of the
Debentures to be redeemed, plus accrued interest. The date by which the
Debentures must be delivered to the Escrow Agent shall not be later than 5
business days following the date the Company notifies the Purchaser by facsimile
of the redemption. The Company shall give the Purchaser at least 5 business
day's advance notice of its intent to redeem and shall honor all Conversion
Notices received by the Company prior to the time that the Purchaser receives a
redemption notice from the Company. If the Company does not timely pay the
redemption amount, then the Purchaser shall be entitled to cancel the redemption
and the Company shall not have the right to redeem under this section (j)
anytime thereafter.
(k) The Company shall furnish to Purchaser such number of
prospectuses and other documents incidental to the registration of the shares of
Common Stock underlying the Debentures, including any amendment of or
supplements thereto.
5. LIMITS ON AMOUNT OF CONVERSION AND OWNERSHIP.
Notwithstanding the provisions hereof or of the Debenture(s), in no
event except (i) with respect to a conversion pursuant to redemption by the
Company, or on maturity of the Debentures or (ii) if there is (a) a public
announcement that 50% or more of the Company is being acquired, (b) a public
announcement that the Company is being merged, or (c) a public announcement that
there is a change in control, shall the Purchaser be entitled to convert any
Debentures to the extent that, after such conversion, the sum of (1) the number
of shares of Common Stock beneficially owned by the Purchaser and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Debentures), and (2) the
number of shares of Common Stock issuable upon the conversion of the Debentures
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Purchaser and its affiliates of more than
4.99% of the outstanding shares of Common Stock (after taking into account the
shares to be issued to the Purchaser upon such conversion). For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), except as otherwise provided in clause (1) of
such proviso. The Purchaser further agrees that if the Purchaser transfers or
assigns any of the Debentures to a party who or which would not be considered
such an affiliate, such assignment shall be made subject to the transferee's or
assignee's specific agreement to be bound by the provisions of this Section as
if such transferee or assignee were a signatory to the Subscription Agreement.
6. DELIVERY INSTRUCTIONS.
Prior to or on the Closing Date the Company shall deliver to the Escrow
Agent an opinion letter signed by counsel for the Company in the form attached
hereto as Exhibit E. Also, prior to or on the Closing Date the Company shall
deliver to the Escrow Agent a signed Registration Rights Agreement in the form
attached hereto as Exhibit B. The Debentures being purchased hereunder shall be
delivered to Joseph B. LaRocco, Esq. as Escrow Agent, who will hold them in
escrow until funds have been wired to the Company or its Counsel at which time
the Escrow Agent shall then have the Debentures delivered to the Purchaser, per
the Purchaser's instructions.
7. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company
as follows:
FOR ALL SUBSCRIBERS:
(a) This Subscription may be rejected, in whole or in part, by the
Company in its sole and absolute discretion at any time before the date set for
closing unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement.
(b) No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures.
(c) The representations, warranties and agreements of the undersigned
and the Company contained herein and in any other writing delivered in
connection with the transactions contemplated hereby shall be true and correct
in all material respects on and as of the date of the sale of the Debentures,
and as of the date of the conversion and exercise thereof, as if made on and as
of such date and shall survive the execution and delivery of this Subscription
Agreement and the purchase of the Debentures.
(d) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON
THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING
THE MERITS AND RISKS INVOLVED. THE DEBENTURES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF ANY MEMORANDUM OR THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(e) The Regulation D Offering is intended to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act and the provisions of Regulation D thereunder, which is in part
dependent upon the truth, completeness and accuracy of the statements made by
the undersigned herein and in the Questionnaire.
(f) It is understood that in order not to jeopardize the Offering's
exempt status under Section 4(2) of the Securities Act and Regulation D, any
transferee may, at a minimum, be required to fulfill the investor suitability
requirements thereunder.
(g) THE DEBENTURES MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE DISPOSED
OF EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE
AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
(h) NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933 AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
9. LITIGATION.
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of New York. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal courts of the
State of New York for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of New York. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction. Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the State of New York and the parties hereby
irrevocably submit to the non-exclusive jurisdiction of such courts for the
purpose of any such action or proceeding.
10. MISCELLANEOUS.
(a) All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
(b) Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked or canceled,
except by an instrument in writing signed by the party effecting the same
against whom any change, discharge or termination is sought.
(c) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, addressed: (i) if to the
Company, at SWISSRAY International, Inc., 200 East 32nd Street, Suite 34B, New
York, New York 10017 with a copy by facsimile and mail to Gary B. Wolff, P.C.,
747 Third Avenue, 25th Floor, New York, NY 10017and (ii) if to the undersigned,
at the address for correspondence set forth in the Questionnaire, or at such
other address as may have been specified by written notice given in accordance
with this paragraph 10(c).
(d) This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of New York,
as such laws are applied by New York courts to agreements entered into, and to
be performed in, New York by and between residents of New York, and shall be
binding upon the undersigned, the undersigned's heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company, its successors and assigns. If any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statue or rule of
law, then such provisions shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof that may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(e) This Subscription Agreement, together with Exhibits A, B, C, D and
E attached hereto and made a part hereof, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties hereto. An executed facsimile
copy of the Subscription Agreement shall be effective as an original.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
SWISSRAY INTERNATIONAL, INC.
CORPORATION QUESTIONNAIRE
Investor Name: _______________
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned CORPORATION'S Subscription to
purchase the Debentures described in the Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned CORPORATION understands, however, that the
Company may present this Questionnaire to such parties as it deems appropriate
if called upon to establish that the proposed offer and sale of the Debentures
is exempt from registration under the Securities Act of 1933, as amended.
Further, the undersigned CORPORATION understands that the offering is required
to be reported to the Securities and Exchange Commission, NASDAQ and to various
state securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, THE UNDERSIGNED CORPORATION
MUST COMPLETE FORM W-9 ATTACHED HERETO.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES TO THE
CORPORATION.
1. The undersigned CORPORATION: (a) has total assets in
excess of $5,000,000; (b) was not formed for the specific purpose of acquiring
the Debentures and (c) has its principal place of business in ___________.
2. Each of the shareholders of the undersigned CORPORATION is
able to certify that such shareholder meets at least one of the following three
conditions:
the shareholder is a natural person whose individual
net worth* or joint net worth with his or her spouse exceeds $1,000,000; or
the shareholder is a natural person who had an
individual income* in excess of $200,000 in each of 1997 and 1998 and who
reasonably expects an individual income in excess of $200,000 in 1999; or
Each of the shareholders of the undersigned
CORPORATION is able to certify that such shareholder is a natural person who,
together with his or her spouse, has had a joint income in excess of $300,000
in each of 1997 and 1998 and who reasonably expects a joint income in excess of
$300,000 during 1999; and the undersigned CORPORATION has its principal place
of business in ___________________.
* For purposes of this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In determining income, an investor should
add to his or her adjusted gross income any amounts attributable to tax-exempt
income received, losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to IRA or Keogh retirement plan,
alimony payments and any amount by which income from long-term capital gains has
been reduced in arriving at adjusted gross income.
3. The undersigned CORPORATION is:
(a) a bank as defined in Section 3(a)(2) of the
Securities Act; or
(b) a savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; or
(c) a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934; or
(d) an insurance company as defined in Section 2(13)
of the Securities Act; or
(e) An investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of the Investment Company Act of 1940; or
(f) a small business investment company licensed by
the U.S. Small Business Administration under Section 301 (c) or (d) of the Small
Business Investment Act of 1958; or
(g) a private business development company as
defined in Section 202(a) (22) of the Investment Advisors Act of 1940.
II. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a) That the CORPORATION'S purchase of the Debentures will be solely
for the CORPORATION'S own account and not for the account of any other person or
entity; and
(b) that the CORPORATION'S name, address of principal place of
business, place of incorporation and taxpayer identification number as set forth
in this Questionnaire are true, correct and complete.
III. GENERAL INFORMATION
(a) PROSPECTIVE PURCHASER (THE CORPORATION)
Name:
Principal Place of Business: ________________________________________
- ----------------------------------------------------------------
Address for Correspondence (if different): SAME
(Number and Street)
- ----------------------------------------------------------------
(City) (State) (Zip Code)
Telephone Number:________________________________________________
(Area Code) (Number)
Jurisdiction of Incorporation:__________________________________
Date of Formation:_________________________________________________
Taypayer Identification Number:______________________________________
Number of Shareholders:____________________________________________
(b) INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
CORPORATION.
Name:___________________________________________________________
Position or Title:__________________________________________________
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the
agreement by the Purchaser to be bound by the Questionnaire and the Subscription
Agreement.
1. The undersigned hereby represents that (a) the information contained
in the Questionnaire is complete and accurate and (b) the Purchaser will notify
SWISSRAY INTERNATIONAL, INC. immediately if any material change in any of the
information occurs prior to the acceptance of the undersigned Purchaser's
subscription and will promptly send SWISSRAY INTERNATIONAL, INC. written
confirmation of such change.
2. The undersigned officer of the Purchaser hereby certifies that he
has read and understands this Subscription Agreement.
3. The undersigned officer of the Purchaser hereby represents and
warrants that he has been duly authorized by all requisite action on the part of
the Corporation to acquire the Debentures and sign this Subscription Agreement
on behalf of _______________ and, further, that ____________________ has all
requisite authority to purchase the Debentures and enter into this Subscription
Agreement.
- -------------------------- --------------------------
Amount of Debentures subscribed for Date
(Purchaser)
By: _______________________
(Signature)
Name: ____________________
(Please Type or Print)
Title:_____________________
(Please Type or Print)
THE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS SUCH SECURITIES ARE INCLUDED IN AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT.
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted
and agreed to this ____ day of __________, 1999
SWISSRAY INTERNATIONAL, INC.
BY______________________________________
Ruedi G. Laupper, its Chairman and President
duly authorized
<PAGE>
Exhibit C
A. On or about October 3, 1997, the Registrant and Swissray Healthcare, Inc.
were served with a complaint by a company engaged in the business of providing
services related to imaging equipment alleging that defendant received benefits
from breach of fiduciary duties and contract obligations and misappropriation of
trade secrets by certain former employees of such competitor. Such company also
obtained a temporary restraining order against the Registrant and Swissray
Healthcare, Inc. On November 10, 1997, the Court denied a Motion for a
preliminary injunction and the temporary restraining order was vacated. On
December 1, 1997 and January 30, 1998 the Registrant answered the Complaint and
Amended Complaint respectively by denying the allegations contained therein. The
Plaintiff in such action (on December 2, 1997) filed a Motion to reargue and
renew its prior denied Motion for a Preliminary Injunction and such Motion was
(by Order and Decision dated June 17, 1998) denied. The Company denied the
allegations, vigorously defended the litigation and thereafter settled such
litigation and all outstanding matters with respect thereto in July 1998 for
$60,000.
B. Dispute with Gary J. Durday ("Durday"), Kenneth R. Montler ("Montler") and
Michael E. Harle ("Harle"). On July 17, 1998, two legal proceedings were
commenced by Swissray, and two of its subsidiaries against Durday, Montler and
Harle. Harle and Montler are former Chief Executive Officers of Swissray Medical
Systems Inc. and Swissray Healthcare Inc., respectively, and Durday is the
former Chief Financial Officer of both of those companies. Each of them was
employed pursuant to an Employment Agreement dated October 17, 1997. In
addition, these three individuals were owners of a company by the name of
Service Support Group LLC ("SSG"), the assets of which were sold to Swissray
Medical Systems Inc. pursuant to an Asset Purchase Agreement dated as of October
17, 1997. whereby Messrs. Durday, Montler and Harle received, among other
consideration, 33,333 shares of Swissray's common stock, together with a put
option entitling these individuals to require Swissray to purchase any or all of
such shares at a purchase price equal to $45.00 per share (on or after June 30,
1998 and until April 16, 1999, subject to certain adjustments set forth in the
Asset Purchase Agreement).
On July 17, 1998, Swissray and its subsidiaries, Swissray Medical
Systems Inc. and Swissray Healthcare Inc. commenced an arbitration proceeding
before the American Arbitration Association in Seattle, Washington (Case No. 75
489 00196 98) alleging that Messrs. Durday, Montler and Harle fraudulently
induced Swissray and its subsidiaries to enter into the above referenced Asset
Purchase Agreement and otherwise breached that Agreement. The relief sought in
the arbitration proceeding was the recovery of damages suffered as a result of
this alleged wrongful conduct and a rescission of the put option provided for in
the Asset Purchase Agreement. Messrs. Durday, Montler and Harle responded to the
allegations made in the arbitration proceeding and asserted counterclaims
against Swissray and its subsidiaries claiming a breach by them of their
obligations under the Asset Purchase Agreement and other relief. The arbitration
took place in Seattle on January 8-10, 1999; the proceeding concluded on January
27, 1999 after the submission of post-hearing briefs. On February 23, 1999, the
Arbitrator issued his ruling, awarding Messrs. Durday, Montler and Harle
$1,500,000 and ordering them to surrender all rights to 33,333 shares of
Swissray common stock. On February 26, 1999, Swissray and Swissray Medical
Systems Inc. filed a petition in Supreme Court, New York County (Index No.
99/104017) to vacate the above referenced arbitration award.
In addition to the above referenced arbitration proceeding, Swissray
and its subsidiaries commenced an action against Messrs. Durday, Montler and
Harle which is currently pending in the Supreme Court of the State of New York,
County of New York, alleging that these individuals breached the obligations
undertaken by them in their respective Employment Agreements. Further, Messrs.
Durday, Montler and Harle commenced an action in state court in Pierce County,
Washington, and asked that Court to adjudicate the issues raised in the above
referenced New York State Court action. Swissray filed applications in both the
Washington and New York litigations urging that, because the action was first
filed in New York, the New York court, rather than the Washington court, should
decide where the litigation should proceed. Messrs. Durday, Montler and Harle
initially opposed that position and urged the Washington State court to
adjudicate all issues, but subsequently withdrew their opposition to Swissray's
application and consented to a stay of all further proceedings in the Washington
State court action until after the New York court had reached a decision as to
whether it or the Washington court is the proper forum for litigation of the
parties' dispute. The New York court has not yet rendered a decision on this
issue.
It is Swissray's management's intention to contest these matters
vigorously since Swissray believes that its claims are meritorious, and that it
has meritorious defenses to the claims asserted against them, notwithstanding
the above referenced arbitration ruling.
<PAGE>
Exhibit D
NOTICE OF CONVERSION
(To be Executed by the Registered owner in order to Convert
the Debentures
The undersigned hereby irrevocably elects, as of ______________, 199_
to convert $__________ of Convertible Debentures into Common Stock of SWISSRAY
INTERNATIONAL, INC.(the "Company") according to the conditions set forth in the
Subscription Agreement dated May____, 1999.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
- ------------------------------------------------------------
Phone______________________ Fax___________________________
<PAGE>
Exhibit 10.55
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of May ___, 1999, ("this
Agreement"), is made by and between SWISSRAY INTERNATIONAL, INC. a New York
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Subscription Agreement, dated as of May ___, 1999, between the Initial Investor
and the Company (the "Subscription Agreement"), the Company has agreed to issue
and sell to the Initial Investor Convertible Debentures of the Company (the
"Debentures"), which will be convertible into shares of the common stock, $.01
par value (the "Common Stock"), of the Company (the "Conversion Shares") upon
the terms and subject to the conditions of such Debentures; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agrees as follows:
I. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meaning:
(i) "Closing Date" means the date funds are received by the
Company or its designated attorney pursuant to the
Subscription Agreement.
(ii) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(iii) "Register," "Registered" and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iv) "Registrable Securities" means the Conversion Shares issued to
the Investor by the Company and any shares which might be
issued to the Investor in lieu of interest through the
maturity date of the Debentures.
(v) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a
permitted transferee or assignee of the Registrable Securities
pursuant to Section 9 of this Agreement.
(c) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Subscription Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, no later than forty-five (45) calendar days after the Closing Date, an
amendment to the Registration Statement on Form S-1 filed by the Company but not
yet declared effective (hereinafter referred to as the "Registration Statement")
covering a sufficient number of shares of Common Stock for the Initial Investor
into which the Debentures, plus accrued interest, in the total offering would be
convertible. In the event the Registration Statement is not filed within
forty-five (45) calendar days after the Closing Date, then in such event the
Company shall pay the Investor 2% of the face amount of each Debenture for each
30 day period, or portion thereof, after forty-five (45) calendar days following
the Closing Date that the Registration Statement is not filed. The Investor is
also granted additional Piggy-back registration rights on any other Registration
Statement filings made by the Company excepting S-8 Registration Statement. Such
Registration Statement shall state that, in accordance with the Securities Act,
it also covers such indeterminate number of additional shares of Common Stock as
may become issuable to prevent dilution resulting from Stock splits, or stock
dividends) if permissible under applicable 1933 Act Rules and Regulations. If at
any time the number of shares of Common Stock into which the Debenture(s) may be
converted exceeds the aggregate number of shares of Common Stock then
registered, the Company shall, within ten (10) business days after receipt of
written notice from any Investor, either (i) amend the Registration Statement
filed by the Company pursuant to the preceding sentence, if such Registration
Statement has not been declared effective by the SEC at that time, to register
all shares of Common Stock into which the Debenture(s) may be converted, or (ii)
if such Registration Statement has been declared effective by the SEC at that
time, file with the SEC an additional Registration Statement on such form as is
applicable to register the shares of Common Stock into which the Debenture may
be converted that exceed the aggregate number of shares of Common Stock already
registered. The above damages shall continue until the obligation is fulfilled
and shall be paid within 5 business days after each 30 day period, or portion
thereof, until the Registration Statement is filed. Failure of the Company to
make payment within said 5 business days shall be considered a default.
The Company acknowledges that its failure to file with the SEC, said
Registration Statement no later than forty-five (45) calendar days after the
Closing Date will cause the Initial Investor to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement a provision for liquidated damages. The
parties acknowledge and agree that the liquidated damages provision set forth in
this section represents the parties' good faith effort to qualify such damages
and, as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
(b) Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors acting by majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
to represent their interests, and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company. The
Investors who hold the Registrable Securities to be included in such
underwriting shall pay all underwriting discounts and commissions and other fees
and expenses of such investment banker or bankers and manager or managers so
selected in accordance with this Section 2(b) (other than fees and expenses
relating to registration of Registrable Securities under federal or state
securities laws, which are payable by the Company pursuant to Section 5 hereof)
with respect to their Registrable Securities and the fees and expenses of such
legal counsel so selected by the Investors.
(c) Payment by the Company. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not declared effective within one hundred twenty (120) calendar
days following the Closing Date or, if after the effective date Investor's right
to sell is suspended, then the Company shall pay the Initial Investor 2% of the
purchase price paid by the Initial Investor for the Registrable Securities
pursuant to the Subscription Agreement for every thirty day period, or portion
thereof, following the one hundred twenty (120) calendar day period until the
Registration Statement is declared effective or such suspension is released.
Notwithstanding the foregoing, the amounts payable by the Company pursuant to
this provision shall not be payable to the extent any delay in the effectiveness
of the Registration Statement occurs because of an act of, or a failure to act
or to act timely by the Initial Investor or its counsel. The above damages shall
continue until the obligation is fulfilled and shall be paid within 5 business
days after each 30 day period, or portion thereof, until the Registration
Statement is declared effective or such suspension is released. Failure of the
Company to make payment within said 5 business days shall be considered a
default.
The Company acknowledges that its failure to have the Registration
Statement declared effective within said one hundred twenty (120) calendar day
period or to permit the suspension of the effectiveness of the Registration
Statement, will cause the Initial Investor to suffer damages in an amount that
will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement a provision for liquidated damages. The
parties acknowledge and agree that the liquidated damages provision set forth in
this section represents the parties' good faith effort to quantify such damages
and, as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
3. Obligation of the Company. In connection with the registration
of the Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC within forty-five (45) days
of the Closing Date, a Registration Statement (or amendment to any existing but
not yet declared effective Registration Statement; hereinafter collectively
referred to as "Registration Statement") with respect to not less than the
number of Registrable Securities provided in Section 2(a), above, and thereafter
use its best efforts to cause such Registration Statement relating to
Registrable Securities to become effective the earlier of (i) five business days
after notice from the Securities and Exchange Commission that the Registration
Statement may be declared effective, or (b) one hundred twenty (120) days after
the Closing Date, and keep the Registration Statement effective at all times
until the earliest (the "Registration Period") of (i) the date that is two years
after the Closing Date (ii) the date when the Investors may sell all Registrable
Securities under Rule 144 without volume or other limitation or (iii) the date
the Investors no longer own any of the Registrable Securities, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement and the Company shall give
Investor's counsel a copy of any amendments or supplements at least three (3)
business days prior to the date of filing and the Company shall not file any
amendments or supplements in a form to which the Investor's counsel reasonable
objects;
(c) Furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel identified to the Company,
(i) promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualification in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions:
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to the
Company or (E) make any change in its articles of incorporation or by-laws or
any then existing contracts, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes any untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and uses its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any notice of effectiveness or any stop order or other suspension of
the effectiveness of the Registration Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("NASDAQ") "Small Capitalization" within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on the The Nasdaq Stock
Market or if, despite the Company's commercially reasonable efforts to satisfy
the preceding clause (i) or (ii), the Company is unsuccessful in doing so, to
secure NASD authorization and quotation for such Registrable Securities on the
over-the-counter bulletin board and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such registrable securities;
(h) Provide a transfer agent for the Registrable Securities not later
than the effective date of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request and registration in such names as the Investors may request; and, within
five (5) business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) a form of appropriate
instruction and opinion of such counsel acceptable for use for each conversion;
and
(j) Take all other reasonable actions necessary to expedite and
facilitate distribution to the Investor of the Registrable Securities pursuant
to the Registration Statement.
4. Obligations of the Investors. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations;
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall timely
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall timely execute such
documents in connection with such registration as the Company may reasonably
request. At least five (5) days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions incurred in connection with
registrations, filing or qualifications pursuant to Section 3, but including,
without limitations, all registration, listing, and qualifications fees,
printers and accounting fees, the fees and disbursements of counsel for the
Company and a fee for a single counsel for the Investor not exceeding $3,500,
shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations of the
Registration Statement or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or any prospectus included therein or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). The
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any reasonable legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (i) apply to
a Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (ii) with respect to any preliminary
prospectus, inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (iii) be available to the extent such Claim is based on a failure
of the Investor to deliver or cause to be delivered the prospectus made
available by the Company; or (iv) apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Each Investor will
indemnify the Company, its officers, directors and agents (including Counsel)
against any claims arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company, by or on behalf of such Investor, expressly for use in connection with
the preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell the Registrable Securities to the public without registration
("Rule 144"), the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of in excess of fifty
(50%) percent or more of the Registrable Securities (or all or any portion of
any Debenture of the Company which is convertible into such securities) only if:
(a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof.
10. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and investors who hold a 75% majority in interest
of the Registrable Securities. Any amendment or waiver effected in accordance
with this Section 10 shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company received conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid (i) if to the Company,
SWISSRAY International, Inc., 200 East 32nd Street, Suite 34B, New York, New
York 10016 with copy by fax and mail to Gary B. Wolff, P.C., 747 Third Avenue,
25th Floor, New York, NY 10017; (ii) if to the Initial Investor, at the address
set forth under its name in the Subscription Agreement, with a copy to its
designated attorney and (iii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company, or at such other address
as each such party furnishes by notice given in accordance with this Section
11(b), and shall be effective, when personally delivered, upon receipt and, when
so sent by certified mail, four (4) business days after deposit with the United
States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the state and federal courts of the State of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not effect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing
signed by the party to be charged with enforcement.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
SWISSRAY INTERNATIONAL, INC.
By: ____________________________________
Name: Ruedi G. Laupper
Title: Chairman and President
---------------------------------------
(Name of Initial Investor)
By: ____________________________________
Name:
Title:
<PAGE>
Exhibit 10.56
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
ISSUANCE DATE MAY , 1999
CONVERTIBLE DEBENTURE DUE MAY , 2001
$ 000,000
Number MAY-1999-101
FOR VALUE RECEIVED, SWISSRAY INTERNATIONAL, INC., a New York
corporation (the "Company"), hereby promises to pay
________________________________ or registered assigns (the "Holder")
on May __, 2001, (the "Maturity Date"), the principal amount of ____
HUNDRED THOUSAND Dollars ($000,000) U.S., and to pay interest on the
principal amount hereof, in such amounts, at such times and on such
terms and conditions as are specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (the "Debenture") at the time of each conversion until the principal
amount hereof is paid in full or has been converted. The Debentures shall pay 5%
cumulative interest, in cash or in freely trading Common Stock of the Company,
at the Company's option, at the time of each conversion. If paid in Common
Stock, the number of shares of the Company's Common Stock to be received shall
be determined by dividing the dollar amount of the interest by the then
applicable Market Price as of the interest payment date. "Market Price" shall
mean 80% of the average of the 10 day closing bid prices, as reported by
Bloomberg, LP for the ten (10) consecutive trading days immediately preceding
the date of conversion. If the interest is to be paid in cash, the Company shall
make such payment within 5 business days of the date of conversion. If the
interest is to be paid in Common Stock, said Common Stock shall be delivered to
the Holder, or per Holder's instructions, within 5 business days of the date of
conversion. The Debentures are subject to automatic conversion at the end of two
years from the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 3.2. The
closing shall be deemed to have occurred on the date the funds are received by
the Company or its Counsel (the "Closing Date").
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order for the
Holder to receive payment of the principal amount hereof. The Company shall have
the option of paying the interest on this Debenture in United States dollars or
in common stock upon conversion pursuant to Article 1 hereof. The Company may
draw a check for the payment of interest to the order of the Holder of this
Debenture and mail it to the Holder's address as shown on the Register (as
defined in Section 7.2 below). Interest and principal payments shall be subject
to withholding under applicable United States Federal Internal Revenue Service
Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at its option,
to convert it into shares of common stock, par value $0.01 per share, of the
Company ("Common Stock") at any time following the Closing Date and which is
before the close of business on the Maturity Date, except as set forth in
Section 3.1(c) below. The number of shares of Common Stock issuable upon the
conversion of this Debenture is determined pursuant to Section 3.2 and rounding
the result to the nearest whole share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains
outstanding on the second anniversary of the date hereof, the unconverted
portion of such Debenture will automatically be converted into shares of Common
Stock on such date in the manner set forth in Section 3.2.
Section 3.2. Conversion Procedure.
(a) Debentures. Upon receipt by the Company or its designated
attorney of a facsimile or original of Holder's signed Notice of Conversion
preceded by, together with or followed by receipt of the original Debenture to
be converted in whole or in part in the manner set forth in 3.2(b) below, the
Company shall instruct its transfer agent to issue one or more Certificates
representing that number of shares of Common Stock into which the Debenture is
convertible in accordance with the provisions regarding conversion set forth in
Exhibit A hereto. The Seller's transfer agent or attorney shall act as Registrar
and shall maintain an appropriate ledger containing the necessary information
with respect to each Debenture.
(b) Conversion Procedures. The face amount of this Debenture
may be converted anytime following the Closing Date excepting as hereinafter set
forth in this Article 3. Such conversion shall be effectuated by surrendering to
the Company, or its attorney, this Debenture to be converted together with a
facsimile or original of the signed Notice of Conversion which evidences
Holder's intention to convert the Debenture indicated. The date on which the
Notice of Conversion is effective ("Conversion Date") shall be deemed to be the
date on which the Holder has delivered to the Company or its designated attorney
a facsimile or original of the signed Notice of Conversion, as long as the
original Debenture(s) to be converted are received by the Company or its
designated attorney within 5 business days thereafter. Unless otherwise notified
by the Company in writing via facsimile the Company's designated attorney is
Gary B. Wolff, Esq., 747 Third Avenue, 25th Floor, New York, New York 10017, (P)
212-644-6446, (F) 212-644-6498.
(c) Common Stock to be Issued. Upon the conversion of any
Debentures and upon receipt by the Company or its attorney of a facsimile or
original of Holder's signed Notice of Conversion Seller shall instruct Seller's
transfer agent to issue Stock Certificates without restrictive legend or stop
transfer instructions, if at that time the Registration Statement has been
deemed effective (or with proper restrictive legend if the Registration
Statement has not as yet been declared effective), in the name of Holder (or its
nominee) and in such denominations to be specified at conversion representing
the number of shares of Common Stock issuable upon such conversion, as
applicable. Seller warrants that no instructions, other than these instructions,
have been given or will be given to the transfer agent and that the Common Stock
shall otherwise be freely transferable on the books and records of Seller,
except as may be set forth herein.
(d) (i) Conversion Rate. Holder is entitled, at its option to
convert the face amount of this Debenture, plus accrued interest, anytime
following the Closing Date, at 80% of the 10 day average closing bid price, as
reported by Bloomberg LP, for the ten (10) consecutive trading days immediately
preceding the applicable Conversion Date (the "Conversion Price"). No fractional
shares or scrip representing fractions of shares will be issued on conversion,
but the number of shares issuable shall be rounded up or down, as the case may
be, to the nearest whole share.
(ii) The Holder shall not be allowed to convert any portion of
the Debentures for 120 days from the Closing Date, unless the closing bid price
of the Company's common stock on the day prior to the Conversion Date is greater
than $5.50. Every 30-day period after the Closing Date, until the expiration of
300 days following the Closing Date, the Holder shall be allowed to convert and
sell based upon the following terms: So long as the closing bid price of the
Company's common stock on the day prior to the Conversion Date is over $1.50,
the Holder shall be allowed to convert up to 15% of the original face amount of
its Debentures; so long as the closing bid price of the Company's common stock
on the day prior to the Conversion Date is over $7.50, the Holder shall be
allowed to convert up to 20% of the original face amount of its Debentures. The
Holder shall not be allowed to convert any of its Debentures for 300 days from
the Closing Date if the bid price of the Company's common stock is below $1.50.
None of the foregoing restrictions shall apply after the 300th day following the
Closing Date.
(iii) Most Favored Financing. If after the Closing Date, but
prior to the Holder's conversion of all the Debentures, the Company raises money
under either Regulation D or Regulation S on terms that are more favorable than
those terms set forth in this Debenture, then in such event, the Holder at its
sole option shall be entitled to completely replace the terms of this Debenture
with the terms of the more beneficial Debenture as to that balance, including
accrued interest and any accumulated liquidated damages, remaining on Holder's
original investment. The Debentures are subject to a mandatory, 24 month
conversion feature at the end of which all Debentures outstanding will be
automatically converted, upon the terms set forth in this section ("Mandatory
Conversion Date").
(e) Nothing contained in this Debenture shall be deemed to
establish or require the payment of interest to the Holder at a rate in excess
of the maximum rate permitted by governing law. In the event that the rate of
interest required to be paid exceeds the maximum rate permitted by governing
law, the rate of interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing law and such excess
shall be returned with reasonable promptness by the Holder to the Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Certificate of Common
Stock as provided herein, including the responsibility and cost for delivery of
an opinion letter to the transfer agent, if so required. The person in whose
name the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Holder a new Debenture equal to the unconverted amount, if so requested in
writing by Holder.
(g) Within five (5) business days after receipt of the
documentation referred to above in Section 3.2(b), the Company shall deliver a
certificate, in accordance with Section 3(c) for the number of shares of Common
Stock issuable upon the conversion. It shall be the Company's responsibility to
take all necessary actions and to bear all such costs to issue the Common Stock
as provided herein, including the cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the certificate of
Common Stock is to be registered shall be treated as a shareholder of record on
and after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Holder a new Debenture equal
to the unconverted amount, if so requested in writing by Holder.
In the event the Company does not make delivery of the Common Stock, as
instructed by Holder, within 5 business days after delivery of this original
Debenture, then in such event the Company shall pay to Holder an amount, in cash
in accordance with the following schedule, wherein "No. Business Days Late" is
defined as the number of business days beyond the 5 business days delivery
period.
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
The Company acknowledges that its failure to deliver the Common Stock
within 5 business days after the Conversion Date will cause the Holder to suffer
damages in an amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this Debenture a provision
for liquidated damages. The parties acknowledge and agree that the liquidated
damages provision set forth in this section represents the parties' good faith
effort to qualify such damages and, as such, agree that the form and amount of
such liquidated damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its obligations
to deliver the Common Stock pursuant to the terms of this Debenture.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3.2(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 3.2(g) shall not
apply but instead the provisions of Section 3.2(h) shall apply.
The Company shall make any payments incurred under this Section 3.2(g)
in immediately available funds within five (5) business days from the Conversion
Date if late. Nothing herein shall limit a Holder's right to pursue actual
damages or cancel the conversion for the Company's failure to issue and deliver
Common Stock to the Holder within 5 business days after the Conversion Date.
(h) The Company shall at all times reserve (or make
alternative written arrangements for reservation or contribution of shares) and
have available all Common Stock necessary to meet conversion of the Debentures
by all Holders of the entire amount of Debentures then outstanding. If, at any
time Holder submits a Notice of Conversion and the Company does not have
sufficient authorized but unissued shares of Common Stock (or alternative shares
of Common Stock as may be contributed by Stockholders) available to effect, in
full, a conversion of the Debentures (a "Conversion Default", the date of such
default being referred to herein as the "Conversion Default Date"), the Company
shall issue to the Holder all of the shares of Common Stock which are available,
and the Notice of Conversion as to any Debentures requested to be converted but
not converted (the "Unconverted Debentures"), upon Holder's sole option, may be
deemed null and void. The Company shall provide notice of such Conversion
Default ("Notice of Conversion Default") to all existing Holders of outstanding
Debentures, by facsimile, within three (3) business day of such default (with
the original delivered by overnight or two day courier), and the Holder shall
give notice to the Company by facsimile within five business days of receipt of
the original Notice of Conversion Default (with the original delivered by
overnight or two day courier) of its election to either nullify or confirm the
Notice of Conversion.
The Company agrees to pay to all Holders of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N = the number
of days from the Conversion Default Date to the date (the "Authorization Date")
that the Company authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Holder's option, payable as follows: (i) in
the event Holder elects to take such payment in cash, cash payments shall be
made to such Holder of outstanding Debentures by the fifth day of the following
calendar month, or (ii) in the event Holder elects to take such payment in
stock, the Holder may convert such payment amount into Common Stock at the
conversion rate set forth in section 4(d) at anytime after the 5th day of the
calendar month following the month in which the Authorization Notice was
received, until the expiration of the mandatory 24 month conversion period.
The Company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect in full a
conversion of the Debentures will cause the Holder to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Agreement a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its obligations to deliver
the Common Stock pursuant to the terms of this Debenture.
Nothing herein shall limit the Holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock.
(i) The Company shall furnish to Holder such number of
prospectuses and other documents incidental to the registration of the shares of
Common Stock underlying the Debentures, including any amendment of or
supplements thereto.
(j) Notwithstanding the provisions hereof or of the
Debenture(s), in no event except (i) with respect to a conversion pursuant to
redemption by the Company, or on maturity of the Debentures or (ii) if there is
(a) a public announcement that 50% or more of the Company is being acquired, (b)
a public announcement that the Company is being merged, or (c) a public
announcement that there is a change in control, shall the Holder be entitled to
convert any Debentures to the extent that, after such conversion, the sum of (1)
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the Debentures), and
(2) the number of shares of Common Stock issuable upon the conversion of the
Debentures with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock (after taking into
account the shares to be issued to the Holder upon such conversion). For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), except as otherwise provided
in clause (1) of such proviso. The Holder further agrees that if the Holder
transfers or assigns any of the Debentures to a party who or which would not be
considered such an affiliate, such assignment shall be made subject to the
transferee's or assignee's specific agreement to be bound by the provisions of
this Section as if such transferee or assignee were a signatory to the
Subscription Agreement.
(k) Redemption. Company reserves the right, at its sole
option, to call a mandatory redemption of any percentage of the balance on the
Debentures during the two year period following the Closing Date. In the event
the Company exercises such right of redemption it shall pay the Holder, in U.S.
currency One Hundred Twenty Percent (120%) of the face amount of the Debentures
to be redeemed, plus accrued interest. The date by which the Debentures must be
delivered to the Escrow Agent shall not be later than 5 business days following
the date the Company notifies the Holder by facsimile of the redemption. The
Company shall give the Holder at least 5 business day's notice of its intent to
redeem and shall honor all Conversion Notices received by the Company prior to
the time that the Holder receives a redemption notice from the Company. If the
Company does not timely pay the redemption amount, then the Holder shall be
entitled to cancel the redemption and the Company shall not have the right to
redeem under this section (k) anytime thereafter.
Section 3.3. Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon the
conversion of this Debenture. Instead, the Company shall round up or down, as
the case may be, to the nearest whole share.
Section 3.4. Taxes on Conversion.The Company shall pay any documentary
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion of this Debenture. However, the Holder shall pay any
such tax which is due because the shares are issued in a name other than its
name.
Section 3.5. Company to Reserve Stock. The Company shall reserve the
number of shares of Common Stock required pursuant to and upon the terms set
forth in Section 3(a) of the Subscription Agreement dated May of 1999, to permit
the conversion of this Debenture. All shares of Common Stock which may be issued
upon the conversion hereof shall upon issuance be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
Section 3.6. Restrictions on Transfer. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Act") and is
being issued under Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. This Debenture and the Common Stock issuable upon the
conversion thereof may only be offered or sold pursuant to registration under or
an exemption from the Act.
Section 3.7. Mergers, Etc. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its assets
to another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then as a condition of such merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee shall amend this Debenture to
provide that it may thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable to adjustments provided for in this Article 3.
Article 4. Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes in
writing the obligations of the Company under this Debenture and immediately
after such transaction no Event of Default exists. Any reference herein to the
Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption.
Article 5. Reports
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or current report that it files
with the Securities and Exchange Commission promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that it
gives to its shareholders generally at the time such report or statement is sent
to shareholders.
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b) the
Company does not make a payment, other than a payment of principal, for a period
of 5 business days thereafter, (c) the Company fails to comply with any of its
other agreements in this Debenture and such failure continues for the period and
after the notice specified below, (d) the Company pursuant to or within the
meaning of any Bankruptcy Law (as hereinafter defined): (i) commences a
voluntary case; (ii) consents to the entry of an order for relief against it in
an involuntary case; (iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of its creditors or (v) a court
of competent jurisdiction enters an order or decree under any Bankruptcy Law
that: (A) is for relief against the Company in an involuntary case; (B) appoints
a Custodian of the Company or for all or substantially all of its property or
(C) orders the liquidation of the Company, and the order or decree remains
unstayed and in effect for 60 days, (e) the Company's Common Stock is no longer
listed on any recognized exchange including electronic over-the-counter bulletin
board. As used in this Section 6.1, the term "Bankruptcy Law" means Title 11 of
the United States Code or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law. A default under clause (c) above
is not an Event of Default until the holders of at least 25% of the aggregate
principal amount of the Debentures outstanding notify the Company of such
default and the Company does not cure it within five (5) business days after the
receipt of such notice, which must specify the default, demand that it be
remedied and state that it is a "Notice of Default".
Section 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
remaining principal amount of this Debenture to be due and payable. Upon such
declaration,the remaining principal amount shall be due and payable immediately.
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered series of
Debentures which are identical except as to the principal amount and date of
issuance thereof and as to any restriction on the transfer thereof in order to
comply with the Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are referred to
herein collectively as the "Debentures". The Debentures shall be issued in whole
multiples of $5,000.
Section 7.2. Record Ownership. The Company, or its attorney, shall
maintain a register of the holders of the Debentures (the "Register") showing
their names and addresses and the serial numbers and principal amounts of
Debentures issued to or transferred of record by them from time to time. The
Register may be maintained in electronic, magnetic or other computerized form.
The Company may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of this Debenture is
the person exclusively entitled to receive payments of interest on this
Debenture, receive notifications with respect to this Debenture, convert it into
Common Stock and otherwise exercise all of the rights and powers as the absolute
owner hereof.
Section 7.3. Registration of Transfer. Transfers of this Debenture may
be registered on the books of the Company maintained for such purpose pursuant
to Section 7.2 above (i.e., the Register). Transfers shall be registered when
this Debenture is presented to the Company with a request to register the
transfer hereof and the Debenture is duly endorsed by the appropriate person,
reasonable assurances are given that the endorsements are genuine and effective,
and the Company has received evidence satisfactory to it that such transfer is
rightful and in compliance with all applicable laws, including tax laws and
state and federal securities laws. When this Debenture is presented for transfer
and duly transferred hereunder, it shall be canceled and a new Debenture showing
the name of the transferee as the record holder thereof shall be issued in lieu
hereof. When this Debenture is presented to the Company with a reasonable
request to exchange it for an equal principal amount of Debentures of other
denominations, the Company shall make such exchange and shall cancel this
Debenture and issue in lieu thereof Debentures having a total principal amount
equal to this Debenture in such denominations as agreed to by the Company and
Holder.
Section 7.4. Worn or Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company orits agent may issue a new Debenture in lieu hereof upon its surrender.
Where the Holder of this Debenture claims that the Debenture has been lost,
destroyed or wrongfully taken, the Company shall issue a new Debenture in place
of the original Debenture if the Holder so requests by written notice to the
Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of the
Debenture at its address as it appears on the Register or if to the Company to
its principal executive offices, with a copy by fax to Gary B. Wolff, Esq. 747
Third Avenue, New York, NY 10017. The time when such notice is sent shall be the
time of the giving of the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A "business day" shall
mean a day on which the banks in New York are not required or allowed to be
closed.
Article 10. Waivers
The holders of a majority in principal amount of the Debentures may
waive a default or rescind the declaration of an Event of Default and its
consequences except for a default in the payment of principal or conversion into
Common Stock.
Article 11. Rules of Construction
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this Debenture
shall be governed and construed by the provisions hereof and in accordance with
the laws of the State of New York applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of New York.
Article 13. Litigation
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of New York. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal courts of the
State of New York for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of New York. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction . Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the State of New York and the parties hereby
irrevocably submit to the non-exclusive jurisdiction of such courts for the
purpose of any such action or proceeding.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first written above.
SWISSRAY INTERNATIONAL, INC.
By
Name: Ruedi G. Laupper
Title:Chairman and President
<PAGE>
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debentures.)
The undersigned hereby irrevocably elects, as of ______________, 199_
to convert $_________________ of the Debentures into Shares of Common Stock (the
"Shares") of SWISSRAY INTERNATIONAL, INC. (the "Company") according to the
conditions set forth in the Subscription Agreement dated _________________,
1999.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
- ------------------------------------------------------------
Phone______________________ Fax___________________________
<PAGE>
Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
(name, address and SSN or EIN of assignee)
Dollars ($ )
- --------------------------------------------------------------------------------
(principal amount of Debenture, $5,000 or integral multiples of $5,000)
of principal amount of this Debenture together with all accrued and unpaid
interest hereon.
Date: Signed:
(Signature must conform in all respects to
name of Holder shown o2 face of Debenture)
Signature Guaranteed:
<PAGE>
Exhibit 10.57
PROMISSORY NOTE
$1,100,000.00 Switzerland
July, 9, 1999
FOR VALUE RECEIVED, the undersigned, SWISSRAY INTERNATIONAL INC., a New
York corporation (the "Borrower"), hereby promises to pay to the order of
SOUTHSHORE CAPITAL, LTD. (the "Lender"), the principal amount of $1,100,000.00
in lawful money of the United States of America in same day or other immediately
available funds, together with interest, payable on or before August 23, 1999.
In the event that this note is paid off on or before August 9, 1999, then the
Borrower shall pay the principal amount of 1,100,000 together with accrued
interest of three percent (3.0%) for a total of $1,133,000.
In the event that this note is paid off after August 9, 1999, the
Borrower shall still be responsible for the $33,000 of accrued interest. Also,
any principal amount still outstanding on August 23, 1999, shall bear interest
at a rate equal to three percent (3.0%) per thirty calendar period on a pro rata
basis until August 23, 1999.
The obligations of Borrower under this Note are secured under the
provisions of that certain Security Agreement dated July 9, 1999, by the
"Collateral" and all "proceeds" as those terms are defined in the Security
Agreement. The Collateral shall be purchase orders copies of which are attached
hereto as Exhibit A.
In the event the Promissory Note is not paid in full on or before its
due date, then in such event the terms of the Contingent Subscription Agreement,
Debenture and Registration Rights Agreement, which are incorporated herein by
reference and made a part hereof, shall apply and control. The "Due Date" of the
Promissory Note shall mean August 23, 1999.
Borrower hereby waives presentment, protest, notice of protest and
notice of dishonor of this Note. The non-exercise by the Lender of any rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any other subsequent instance. The Borrower shall no create any class
of indebtedness that ranks senior to this Note.
Nothing contained herein shall be deemed to establish or require the
payment of a rate of interest in excess of the maximum rate permitted by
applicable law. In the event that the rate of interest required to be paid
hereunder exceeds the maximum rate permitted by such law, such rate shall
automatically be reduced to the maximum rate permitted by such law.
The Borrower and any endorsers hereof, for themselves and their
respective representatives, successors and assigns expressly (a) waive
presentment, demand, protest, notice of dishonor, notice of non-payment, notice
of maturity, notice of protest, diligence in collection, and the benefit of any
applicable exemptions, including, but not limited to, exemptions claimed under
insolvency laws, and (b) consent that the Lender may release or surrender,
exchange or substitute any property or other collateral or security now held or
which may hereafter be held as security for the payment of this Promissory Note,
or may release any guarantor, or may extend the time for payment or otherwise
modify the terms of payment of any part or the whole of the debt evidenced
hereby.
Borrower hereby grants to Lender a security interest in the Collateral
to secure the payment of the entire Note balance. As to any Collateral, Lender
shall have the rights of a secured party under the Uniform Commercial Code as in
effect in the State of New York.
SECURED CREDITORS. Borrower represents and warrants that it shall not create or
incur any indebtedness or obligation for borrowed money except for indebtedness
with respect to trade obligations and other normal accruals in the ordinary
course of business not yet due and payable, and shall not grant any other
security interests until payment and performance in full of the obligations
hereunder, unless Lender otherwise consents in writing. Borrower represents,
warrants and covenants that the Collateral and proceeds are not subject to any
security interest, lien, prior assignment, or other encumbrance of any nature
whatsoever except for the security interest created by this Note.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees that from the
date hereof until payment and performance in full of the obligations hereunder,
unless Lender otherwise consents in writing:
(a) Use of Proceeds. The proceeds disbursed under the Note shall be
used solely for working capital and/or costs related to assembly and delivery of
Borrower's ddR-Multi System.
(b) Borrower represents and warrants that there are no actions, suits,
investigations or proceedings pending or threatened against or affecting the
validity or enforceability of this Note and there are no outstanding orders or
judgments of any court or governmental authority or awards of any arbitrator or
arbitration board against the Borrower, except as may be indicated in Borrower's
current Registration Statement on Form S-1 as filed with the SEC under File No.
333-59829.
DEFAULT. If any of the following events occur (a "default"), Lender may declare
the entire Note balance, together with any other amounts that Borrower owes
Lender, to be immediately due and payable:
(a) Borrower fails to pay when due any principal or interest under
the terms of this Note;
(b) Borrower fails to observe or perform any covenant or agreement
set forth in this Note or in any instrument, document or agreement concerning
the Collateral;
(c) Borrower makes a general assignment for the benefit of its
creditors, files or become the subject of a petition in bankruptcy, for an
arrangement with its creditors or for reorganization under any federal or state
bankruptcy or other insolvency law;
(d) Borrower files or becomes the subject of a petition for the
appointment of a receiver, custodian, trustee or liquidator of the party or of
all or substantially all of its assets under any federal or state bankruptcy or
other insolvency law;
(e) Borrower is voluntarily or involuntarily terminated or
dissolved;
(f) Borrower or any accommodation maker, endorser or guarantor enters
into any merger or consolidation, or sale, lease, liquidation or other
disposition of all or substantially all of its assets or any transaction outside
the ordinary course of its business or for less than fair consideration or
substantially equivalent value without Lender's prior written consent; or
(g) Any written representation or written statement made herein
or any other written representation or written statement made or furnished to
Lender by Borrower was materially incorrect or misleading at the time it was
made or furnished.
LITIGATION.
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
on or arising out of, under, or in connection with, this Promissory Note shall
be brought and maintained exclusively in the federal courts of the State of New
York. The parties hereby expressly and irrevocably submit to the jurisdiction of
the federal courts of the State of New York for the purpose of any such
litigation as set forth above and irrevocably agrees to be bound by any final
judgment rendered thereby in connection with such litigation. The Borrower
further irrevocably consents to the service of process by registered mail,
postage prepaid, or by personal service within or without the State of New York.
The Borrower hereby expressly and irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter may have to the
laying of venue of any such litigation brought in any such court referred to
above and any claim that any such litigation has been brought in any
inconvenient forum. To the extent that the Borrower has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, the Borrower
hereby irrevocably waives such immunity in respect of its obligations under this
agreement and the other loan documents.
(b) Waiver of Jury Trial. The Lender and the Borrower hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Lender or the Borrower.
The Borrower acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Lender entering into this agreement.
MISCELLANEOUS.
(a) All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
(b) Neither this Promissory Note nor any provision hereof shall be
waived, modified, changed, discharged, terminated, revoked or canceled, except
by an instrument in writing signed by the party effecting the same against whom
any change, discharge or termination is sought.
(c) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, addressed: (i) if to the
Borrower, c/o Gary B. Wolff 747 Third Avenue, 25th Floor, New York, NY 10017 and
(ii) if to Lender c/o Joseph B. LaRocco, Esq. 49 Locust Avenue, Suite 107, New
Canaan, CT 06840.
(d) This Promissory Note shall be enforced, governed and construed in
all respects in accordance with the laws of the State of New York, as such laws
are applied by New York courts to agreements entered into, and to be performed
in New York by and between residents of New York, and shall be binding upon the
undersigned, the undersigned's heirs, estate, legal representatives, successors
and assigns and shall inure to the benefit of the Lender, its successors and
assigns. If any provision of this Promissory Note is invalid or unenforceable
under any applicable statue or rule of law, then such provisions shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof that
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
THE BORROWER ACKNOWLEDGES THAT THE TRANSACTIONS IN CONNECTION WITH
WHICH THIS NOTE WAS EXECUTED AND DELIVERED AND WHICH ARE CONTEMPLATED BY THE
TERMS OF THE AGREEMENT ARE, IN ALL CASES, COMMERCIAL TRANSACTIONS; AND THE
BORROWER HEREBY EXPRESSLY WAIVES ANY AND ALL CONSTITUTIONAL RIGHTS IT MAY HAVE
AS NOW CONSTITUTED OR HEREAFTER AMENDED, WITH REGARD TO NOTICE, ANY JUDICIAL
PROCESS AND ANY AND ALL OTHER RIGHTS IT MAY HAVE, AND THE LENDER MAY INVOKE ANY
PREJUDGMENT REMEDY AVAILABLE TO IT OR ITS SUCCESSORS OR ASSIGNS.
SWISSRAY INTERNATIONAL INC.
By___________________________________
Ruedi G. Laupper its Chairman and President
duly authorized
<PAGE>
Exhibit 10.59
----------------------------------
SWISSRAY INTERNATIONAL, INC.
----------------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Maximum Offering: $1,148,400
This offering consists of $1,148,400 of Convertible Debentures of Swissray
International, Inc.
--------------------
CONTINGENT SUBSCRIPTION AGREEMENT
-------------------
SUBSCRIPTION PROCEDURES
Convertible Debentures of SWISSRAY INTERNATIONAL, INC.. (the "Company")
are being offered in an aggregate amount not to exceed $2,000,000 The
Debentures will be transferable to the extent that any such transfer is
permitted by law. This offering is being made in accordance with the exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended
(the "Act") and Rule 506 of Regulation D promulgated under the Act (the
"Regulation D Offering").
The Investor Questionnaire is designed to enable the Investor
to demonstrate the minimum legal requirements under federal and state securities
laws to purchase the Debentures. The Signature Page for the Investor
Questionnaire and the Subscription Agreement contain representations relating to
the subscription.
Also included is an Internal Revenue Service Form W-9: "Request for
Taxpayer Identification Number and Certification" for U.S. citizens or residents
of the U.S. for U.S. federal income tax purposes only. (Foreign investors should
consult their tax advisors regarding the need to comple Internal Revenue Service
Form W-9 and any other forms that may be required).
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to 30% of any dividends paid by the Company. In order to
eliminate or reduce such withholding tax you may submit a properly executed
I.R.S. Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States) or
I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate), claiming
exemption from withholding or eligibility for treaty benefits in the form of a
lower rate of withholding tax on interest or dividends.
If and to the extent that there are any discrepancies or differences
between the Term Sheet and the underlying documents consisting of the Promissory
Note, Contingent Subscription Agreement, Convertible Debenture, Registration
Rights Agreement and Warrants, the terms contained in the Term Sheet shall take
precedence over those contained in the underlying documents. For instance (but
by no means limited to) if the Term Sheet indicates interest at the rate of 8%
per annum and the underlying documents refer to interest at a different rate or
on a different basis, then those terms contained in the Term Sheet shall
control. In the event that the Term Sheet is silent as to any specific terms and
conditions, then in that event the terms and conditions in the underlying
documents (absent any contradictions in the aforesaid Term Sheet) shall control.
<PAGE>
CONTINGENT SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
To: Swissray International, Inc.
This Subscription Agreement is made between Swissray International,
Inc., ("Company" or "Seller") a New York corporation, and the undersigned
prospective purchaser ("Purchaser") who is subscribing hereby for the Company's
Convertible Debentures (the "Debentures"). The Debentures being offered will be
separately transferable, to the extent that any such transfer is permitted by
law. The conversion terms of the Debentures are set forth in Section 4. This
subscription is submitted to you in accordance with and subject to the terms and
conditions described in this Subscription Agreement together with any Exhibits
thereto, relating to an offering (the "Offering") of up to $1,148,400 of
Debentures. This Offering is comprised of an offering of the Debentures to
accredited investors (the "Regulation D Offering") in accordance with the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), and Rule 506 of Regulation D promulgated under the Act
("Regulation D").
1. SUBSCRIPTION.
(a) The undersigned hereby irrevocably subscribes for and agrees to
purchase $1,148,400 of the Company's Debentures. The Purchaser entering into
this Contingent Subscription Agreement shall pay the purchase price for the
Debentures by delivering immediately available good funds in United States
Dollars to the escrow agent. (Said amount shall be deemed to have been delivered
to the Company upon non-payment of the full amount of principal and interest due
on the Promissory Note dated July 9, 1999 between the Company and the Purchaser.
The fully executed Contingent Subscription Agreement, Registration Rights
Agreement and Debenture shall be held by the escrow agent and shall only be
delivered to the Purchaser upon non-payment of the full amount of principal and
interest due on the Promissory Note on its "Due Date". The "Due Date" of the
Promissory Note assuming non-payment of the Promissory Note, shall mean August
24, 1999. The Debentures shall pay a 5% cumulative interest payable annually, in
cash or in freely trading Common Stock of the Company, at the Company's option,
at the time of each conversion. If paid in Common Stock, the number of shares of
the Company's Common Stock to be received shall be determined by dividing the
dollar amount of the dividend by the then applicable Market Price, as of the
interest payment date. "Market Price" shall mean 80% of the 10-day average
closing bid price, as reported by Bloomberg, LP, for the ten (10) consecutive
trading days immediately preceding the date of conversion (the "Conversion
Price"). If the interest is to be paid in cash, the Company shall make such
payment within 5 business days of the date of conversion. If the interest is to
be paid in Common Stock, said Common Stock shall be delivered to the Purchaser,
or per Purchaser's instructions, within 5 business days of the date of
conversion. The Debentures are subject to automatic conversion at the end of two
years from the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 4(d). The
closing shall be deemed to have occurred on the Due Date, as that term is
defined above.
(b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased the Debentures so purchased will be forwarded by the
Escrow Agent, Joseph B. LaRocco, to the Purchaser and the name of such Purchaser
will be registered on the Debenture transfer books of the Company as the record
owner of such Debentures. The Escrow Agent shall not be liable for any action
taken or omitted by him in good faith and in no event shall the Escrow Agent be
liable or responsible except for the Escrow Agent's own gross negligence or
willful misconduct. The Escrow Agent has made no representations or warranties
in connection with this transaction and has not been involved in the negotiation
of the terms of this Agreement or any matters relative thereto. Seller and
Purchaser each agree to indemnify and hold harmless the Escrow Agent from and
with respect to any suits, claims, actions or liabilities arising in any way out
of this transaction including the obligation to defend any legal action brought
which in any way arises out of or is related to this Agreement. The Escrow Agent
is not rendering securities advice to anyone with respect to this proposed
transaction; nor is the Escrow Agent opining on the compliance of the proposed
transaction under applicable securities law.
2. REPRESENTATIONS AND WARRANTIES.
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
(a) The undersigned has been furnished with, and has carefully read the
applicable form of Debenture included herein as Exhibit A and the form of
Registration Rights Agreement annexed hereto as Exhibit B (the "Registration
Rights Agreement"), and is familiar with and understands the terms of the
Offering. With respect to tax and other economic considerations involved in his
investment, the undersigned is not relying on the Company. The undersigned has
carefully considered and has, to the extent the undersigned believes such
discussion necessary, discussed with the undersigned's professional legal, tax,
accounting and financial advisors the suitability of an investment in the
Company, by purchasing the Debentures, for the undersigned's particular tax and
financial situation and has determined that the investment being made by the
undersigned is a suitable investment for the undersigned.
(b) The undersigned acknowledges that all documents, records, and books
pertaining to this investment which the undersigned has requested includes Form
10-KSB for the fiscal year ended June 30, 1997 and 10K for fiscal year ended
June 30, 1998 inclusive of any and all amendments thereto and Form 10-Q for the
quarters ended December 31, 1997, March 31, 1998, September 30, 1998 and
December 31, 1998 inclusive of any and all amendments thereto (the "Disclosure
Documents") have been made available for inspection by the undersigned or the
undersigned has access to the Disclosure Documents.
(c) The undersigned has had a reasonable opportunity to ask questions
of and receive answers from a person or persons acting on behalf of the Company
concerning the Offering and all such questions have been answered to the full
satisfaction of the undersigned.
(d) The undersigned will not sell or otherwise transfer the Debentures
without registration under the Act or applicable state securities laws or an
exemption therefrom. The Debentures have not been registered under the Act or
under the securities laws of any states. The Common Stock underlying the
Debentures is to be registered by the Company pursuant to the terms of the
Registration Rights Agreement attached hereto as Exhibit B and incorporated
herein and made a part hereof. Without limiting the right to convert the
Debentures and sell the Common Stock pursuant to the Registration Rights
Agreement, the undersigned represents that the undersigned is purchasing the
Debentures for the undersigned's own account, for investment and not with a view
to resale or distribution except in compliance with the Act. The undersigned has
not offered or sold any portion of the Debentures being acquired nor does the
undersigned have any present intention of dividing the Debentures with others or
of selling, distributing or otherwise disposing of any portion of the Debentures
either currently or after the passage of a fixed or determinable period of time
or upon the occurrence or non-occurrence of any predetermined event or
circumstance in violation of the Act. Except as provided in the Registration
Rights Agreement, the Company has no obligation to register the Common Stock
issuable upon conversion of the Debentures.
(e) The undersigned recognizes that an investment in the Debentures
involves substantial risks, including loss of the entire amount of such
investment. Further, the undersigned has carefully read and considered the
schedule entitled Pending Litigation matters attached hereto as Exhibit C.
(f) Legends.
(i) The undersigned acknowledges that each
certificate representing the Debentures unless registered pursuant to the
Registration Rights Agreement, shall be stamped or otherwise imprinted with a
legend substantially in the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT
(OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) IF AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
NOTWITHSTANDING THE FOREGOING, THE COMMON STOCK INTO WHICH THE
SECURITIES EVIDENCED BY THIS CERTIFICATE ARE CONVERTIBLE ARE
ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN EACH OF
THAT CERTAIN SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE COMPANY, A
COPY OF EACH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
(ii) The Common Stock issued upon conversion shall
contain the following legend if converted prior to effectiveness of Registration
Statement:
"No sale, offer to sell or transfer of the securities
represented by this certificate shall be made unless a
registration statement under the Federal Securities Act of
1933, as amended, with respect to such securities is then in
effect or an exemption from the registration requirement of
such Act is then in fact applicable to such securities."
(iii)Common Stock issued upon conversion and
subsequent to effective date of Registration Statement (pursuant to which shares
underlying conversion are registered) shall not bear any restrictive legend.
(g) If this Subscription Agreement is executed and delivered on behalf
of a corporation, (i) such corporation has the full legal right and power and
all authority and approval required (a) to execute and deliver, or authorize
execution and delivery of, this Subscription Agreement and all other instruments
(including, without limitation, the Registration Rights Agreement) executed and
delivered by or on behalf of such corporation in connection with the purchase of
the Debentures and (b) to purchase and hold the Debentures: (ii) the signature
of the party signing on behalf of such corporation is binding upon such
corporation; and (iii) such corporation has not been formed for the specific
purpose of acquiring the Debentures, unless each beneficial owner of such entity
is qualified as an accredited investor within the meaning of Rule 501(a) of
Regulation D and has submitted information substantiating such individual
qualification.
(h) The undersigned shall indemnify and hold harmless the Company and
each stockholder, executive, employee, representative, affiliate, officer,
director, agent (including Counsel) or control person of the Company, who is or
may be a party or is or may be threatened to be made a party to any threatened,
pending or contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of or arising from any actual or
alleged misrepresentation or misstatement of facts or omission to represent or
state facts made or alleged to have been made by the undersigned to the Company
or omitted or alleged to have been omitted by the undersigned, concerning the
undersigned or the undersigned's subscription for and purchase of the Debentures
or the undersigned's authority to invest or financial position in connection
with the Offering, including, without limitation, any such misrepresentation,
misstatement or omission contained in this Subscription Agreement, the
Questionnaire or any other document submitted by the undersigned, against
losses, liabilities and expenses for which the Company, or any stockholder,
executive, employee, representative, affiliate, officer, director, agent
(including Counsel) or control person of the Company has not otherwise been
reimbursed (including attorneys' fees and disbursements, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by the Company, or
such officer, director stockholder, executive, employee, agent (including
Counsel), representative, affiliate or control person in connection with such
action, suit or proceeding.
(i) The undersigned is not subscribing for the Debentures as a result
of, or pursuant to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or meeting.
(j) The undersigned or the undersigned's representatives, as the case
may be, has such knowledge and experience in financial, tax and business matters
so as to enable the undersigned to utilize the information made available to the
undersigned in connection with the Offering to evaluate the merits and risks of
an investment in the Debentures and to make an informed investment decision with
respect thereto.
(k) The Purchaser is purchasing the Debentures for its own account for
investment, and not with a view toward the resale or distribution thereof.
Purchaser is neither an underwriter of, nor a dealer in, the Debentures or the
Common Stock issuable upon conversion thereof and is not participating in the
distribution or resale of the Debentures or the Common Stock issuable upon
conversion thereof.
(l) There has never been represented, guaranteed, or warranted to the
undersigned by any broker, the Company, its officers, directors or agents, or
employees or any other person, expressly or by implication (i) the percentage of
profits and/or amount of or type of consideration, profit or loss to be
realized, if any, as a result of the Company's operations; and (ii) that the
past performance or experience on the part of the management of the Company, or
of any other person, will in any way result in the overall profitable operations
of the Company.
3. SELLER REPRESENTATIONS.
(a) Concerning the Securities. The issuance, sale and delivery of the
Debentures have been duly authorized by all required corporate action on the
part of Seller, and when issued, sold and delivered in accordance with the terms
hereof and thereof for the consideration expressed herein and therein, will be
duly and validly issued and enforceable in accordance with their terms, subject
to the laws of bankruptcy and creditors' rights generally. At least 200% of the
number of shares of Common Stock issuable upon conversion of all the Debentures
issued pursuant to this Offering have been duly and validly reserved for
issuance, or alternative arrangements agreed to in writing to cover the
contingency of their being insufficient reserved shares and, upon issuance shall
be duly and validly issued, fully paid, and non-assessable (the "Reserved
Shares"). From time to time, the Company shall keep such additional shares of
Common Stock reserved so as to allow for the conversion of all the Debentures
issued pursuant to this offering.
Prior to conversion of all the Debentures, if at anytime the conversion
of all the Debentures outstanding would result in an insufficient number of
authorized shares of Common Stock being available to cover all the conversions,
then in such event, the Company will move to call and hold a shareholder's
meeting within 60 days of such event, or such greater period of time if
statutorily required or reasonabilly necessary as regards standard brokerage
house and/or SEC requirements and/or procedures, for the purpose of authorizing
additional shares of Common Stock to facilitate the conversions. In such an
event the Company shall recommend to all shareholders to vote their shares in
favor of increasing the authorized number of shares of Common Stock. Seller
represents and warrants that under no circumstances will it deny or prevent
Purchaser's right to convert the Debentures as permitted under the terms of this
Subscription Agreement or the Registration Rights Agreement. Nothing in this
Section shall limit the obligation of the Company to make the payments set forth
in Section 4(h).
(b) Authority to Enter Agreement. This Agreement ha been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principals of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(c) Non-contravention. The execution and delivery of this Agreement
and the consummation of the issuance of the Debentures, and the transactions
contemplated by this Agreement do not and will not conflict with or result in a
breach by Seller of any of the terms or provisions of, or constitute a default
under, the articles of incorporation or by-laws of Seller, or any indenture,
mortgage, deed of trust, or other material agreement or instrument to which
Seller is a party or by which it or any of its properties or assets are bound,
or any existing applicable law, rule, or regulation of the United States or any
State thereof or any applicable decree, judgment, or order of any Federal or
State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over Seller or any of its
properties or assets.
(d) Company Compliance. The Company represents and warrants that the
Company and its subsidiaries are: (i) in full compliance, to the extent
applicable, with all reporting obligations under either Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; excepting that the Company acknowledges
that it did not timely file its Form 10-K for its fiscal year ended June 30,
1998, and its Form 10-Q for the fiscal quarter ended September 30, 1998, both of
which were subsequently filed on December 3, 1998, (ii) not in violation of any
term or provision of its Certificate of Incorporation or by-laws; (iii) not in
default in the performance or observance of any obligation, agreement or
condition contained in any bond, debenture (excepting for reservation of number
of shares required if all Debentures were to be converted and excepting for
registration of underlying shares as same relates to preexisting debentures),
note or any other evidence of indebtedness or in any mortgage, deed of trust,
indenture or other instrument or agreement to which they are a party, either
singly or jointly, by which it or any of its property is bound or subject.
Furthermore, the Company is not aware of any other facts, which it has not
disclosed which could have a material adverse effect on the business, condition,
(financial or otherwise), operations, earnings, performance, properties or
prospects of the Company and its subsidiaries taken as a whole.
(e) Pending Litigation. Except as otherwise disclosed in Exhibit C,
there is (i) no action, suit or proceeding before or by any court, arbitrator or
governmental body now pending or, to the knowledge of the Company, threatened or
contemplated to which the Company or any of its subsidiaries is or may be a
party or to which the business or property of the Company or any of its
subsidiaries is or may be bound or subject, (ii) no law, statute, rule,
regulation, order or ordinance that has been enacted, adopted or issued by any
Governmental Body or that, to the knowledge of the Company, has been proposed by
any Governmental Body adversely affecting the Company or any of its
subsidiaries, (iii) no injunction, restraining order or order of any nature by a
federal, state or foreign court or Governmental Body of competent jurisdiction
to which the Company or any of its subsidiaries is subject issued that, in the
case of clauses (i), (ii) and (iii) above, (x) is reasonably likely, singly or
in the aggregate, to result in a material adverse effect on the business,
condition, (financial or otherwise), operations, earnings, performance,
properties or prospects of the Company, and its subsidiaries taken as a whole or
(y) would interfere with or adversely affect the issuance of the Debentures or
would be reasonably likely to render this Subscription Agreement or the
Debentures, or any portion thereof, invalid or unenforceable.
(f) Issuance of the Debentures. No action has been taken and no law,
statute, rule, regulation, order or ordinance has been enacted, adopted or
issued by any Governmental Body that prevents the issuance of the Debentures or
the Common Stock issuable upon conversion or exercise thereof; no injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction has been issued that prevents the issuance of the
Debentures or the Common Stock issuable upon conversion or exercise thereof or
suspends the sale of the Debentures or the Common Stock issuable upon conversion
thereof in any jurisdiction; and no action, suit or proceeding is pending
against or, to the best knowledge of the Company, threatened against or
affecting, the Company, any of its subsidiaries or, to the best knowledge of the
Company, before any court or arbitrator or any Governmental Body that, if
adversely determined, would prohibit, materially interfere with or adversely
affect the issuance or marketability of the Debentures or the Common Stock
issuable upon conversion or exercise thereof or render the Subscription
Agreement or the Debentures, or any portion thereof, invalid or unenforceable.
(g) The Company shall indemnify and hold harmless the Purchaser and
each stockholder, executive, employee, representative, affiliate, officer,
director or control person of the Purchaser, who is or may be a party or is or
may be threatened to be made a party to any threatened, pending or contemplated
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of or arising from any actual or alleged
misrepresentation or misstatement of facts or omission to represent or state
facts made or alleged to have been made by the Company to the Purchaser or
omitted or alleged to have been omitted by the Company, concerning the Purchaser
or the Purchaser's subscription for and purchase of the Debentures or the
Purchaser 's authority to invest or financial position in connection with the
Offering, including, without limitation, any such misrepresentation,
misstatement or omission contained in this Subscription Agreement, the
Questionnaire or any other document submitted by the Company, against losses,
liabilities and expenses for which the Purchaser, or any stockholder, executive,
employee, representative, affiliate, officer, director or control person of the
Purchaser has not otherwise been reimbursed (including attorneys' fees and
disbursements, judgments, fines and amounts paid in settlement) actually and
reasonably incurred by the Purchaser, or such officer, director, stockholder,
executive, employee, representative, affiliate or control person in connection
with such action, suit or proceeding.
(h) No Change. Other than filings required by the Blue Sky or federal
securities law and/or NASDAQ Rules and Regulations, no consent, approval or
authorization of or designation, declaration or filing with any governmental or
other regulatory authority on the part of the Company is required in connection
with the valid execution, delivery and performance of this Agreement. Any
required qualification or notification under applicable federal securities laws
and state Blue Sky laws of the offer, sale and issuance of the Debentures, has
been obtained on or before the date hereof or will have been obtained within the
allowable period thereafter, and a copy thereof will be forwarded to Counsel for
the Purchaser.
(i) True Statements. Neither this Agreement nor any of the "Disclosure
Documents", as hereinafter defined, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading in the light of the
circumstances under which such statements are made. There exists no fact or
circumstances which, to the knowledge of the Company, materially and adversely
affects the business, properties or assets, or conditions, financial or
otherwise, of the Company, which has not been set forth in this Subscription
Agreement or disclosed in such documents.
(j) The Purchaser has been advised that the Company has not retained
any independent professionals to review or comment on this Offering or otherwise
protect the interests of the Purchaser. Although the Company has retained its
own counsel, neither such counsel nor any other firm, including Joseph B.
LaRocco, Esq., has acted on behalf of the Purchaser, and the Purchaser should
not rely on the Company's legal counsel or Joseph B. LaRocco, Esq. with respect
to any matters herein described.
(k) Prior Shares Issued Under Regulation S or Regulation D. In the past
nine months the Company raised $17,043,449 in Regulation S and Regulation D
offerings, including redemptions and rollovers.
(l) Current Authorized Shares. As of July 9, 1999 there were 50,000,000
authorized shares of Common Stock of which approximately 5,051,722 shares of
Common Stock were deemed issued and outstanding on a fully diluted basis.
(m) Disclosure Documents. The Disclosure Documents are all the
documents (other than preliminary materials) that the Company has been required
to file with the SEC from June 30, 1997, to the date hereof, exclusive of such
registration statements as have been filed in accordance with certain
registration rights agreeements. As of their respective dates, and/or dates of
amended filings with respect thereto, none of the Disclosure Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and no material event has occurred since the Company's filing on
Form 10-K and 10-K/A for the year ended June 30, 1998 and Form 10-Q for quarters
ended September 30, 1998 and December 31, 1998 which could make any of the
disclosures contained therein (as subsequently amended and/or restated)
misleading The financial statements of the Company included in the Disclosure
Documents have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the audit adjustments) the consolidated financial position
of the Company and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and changes in financial position for
the periods then ended.
(n) Information Supplied. The information supplied by the Company to
Purchaser in connection with the offering of the Debentures does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements, in the light of the circumstances in which they were
made, not misleading. There exists no fact or circumstances which, to the
knowledge of the Company, materially and adversely affects the business,
properties, assets, or conditions, financial or otherwise, of the Company, which
has not been set forth in this Agreement or disclosed in such documents.
(o) Delivery Instructions. On the Due Date, assuming non-payment of the
Promissory Note, the Debentures being purchased hereunder which are being held
in escrow by Joseph B. LaRocco, Esq. as Escrow Agent, at which time shall be
delivered to the Purchaser, per the Purchaser's instructions.
(p) Non-contravention. The execution and delivery of this Agreement by
the Company, the issuance of the Debentures, and the consummation by the Company
of the other transactions contemplated by this Agreement, and the Debentures do
not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under, the (i) certificate
of incorporation or by-laws of the Company, (ii) any indenture, mortgage, deed
of trust, or other material agreement or instrument to which the Company is a
party or by which it or any of its properties or assets are bound, (iii) any
material existing applicable law, rule, or regulation or any applicable decree,
judgment, or (iv) order of any court, United States federal or state regulatory
body, administrative agency, or other governmental body having jurisdiction over
the Company or any of its properties or assets, except such conflict, breach or
default which would not have a material adverse effect on the transactions
contemplated herein.
(q) No Default. Except as may be set forth in the Company's report on
form 10-K for the fiscal year ending June 30, 1998, the Company is not in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust or
other material instrument or agreement to which it is a party or by which it or
its property is bound, and neither the execution of, nor the delivery by the
Company of, nor the performance by the Company of its obligations under, this
Agreement or the Debentures, other than the conversion provision thereof, will
conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under, (i) any
material indenture, mortgage, deed of trust or other material agreement
applicable to the Company or instrument to which the Company is a party or by
which it is bound, (ii) any statute applicable to the Company or its property,
(iii) the Certificate of Incorporation or By-Laws of the Company, (iv) any
decree , judgment, order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, or (v) the
Company's listing agreement, if any, for its Common Stock.
(r) Use of Proceeds. The Company represents that the net proceeds of
this offering will be primarily used for working capital.
(s) The Company hereby represents that it shall be paying consultant a
fee of $80,000 from the gross proceeds of this Offering, which fee shall be paid
out of escrow by the Escrow Agent
4. TERMS OF CONVERSION.
(a) Debentures. Upon receipt by the Company or its designated attorney
of a facsimile or original of Purchaser's signed Notice of Conversion followed
by receipt of the original Debenture to be converted in whole or in part (within
5 business days as indicated in 4(b) below), the Company shall instruct its
transfer agent to issue one or more Certificates representing that number of
shares of Common Stock into which the Debenture is convertible in accordance
with the provisions regarding conversion set forth in Exhibit D hereto. The
Seller's transfer agent or attorney shall act as Registrar and shall maintain an
appropriate ledger containing the necessary information with respect to each
Debenture.
(b) Conversion Procedures. The face amount of each Debenture may be
converted anytime following the Due Date. Such conversion shall be effectuated
by surrendering to the Company, or its attorney, the Debentures to be converted
together with a facsimile or original of the signed Notice of Conversion which
evidences Purchaser's intention to convert those Debentures indicated. The date
on which the Notice of Conversion is effective ("Conversion Date") shall be
deemed to be the date on which the Purchaser has delivered to the Company a
facsimile or original of the signed Notice of Conversion, as long as the
original Debentures to be converted are received by the Company or its
designated attorney within 5 business days thereafter. Unless otherwise notified
by the Company in writing via facsimile, the Company's designated attorney is
Gary B. Wolff, Esq., 747 Third Avenue, New York, NY 10017 (P) 212-644-6446 (f)
212-644-6498.
(c) Common Stock to be Issued.Upon the conversion of any Debentures and
upon receipt by the Company or its designated attorney of a facsimile or
original of Purchaser's signed Notice of Conversion (see Exhibit D) Seller shall
instruct Seller's transfer
agent to issue Stock Certificates without restrictive legend or stop transfer
instructions, if at that time the Registration Statement has been deemed
effective (or with proper restrictive legend if the Registration Statement has
not as yet been declared effective), in the name of Purchaser (or its nominee)
and in such denominations to be specified at conversion representing the number
of shares of Common Stock issuable upon such conversion, as applicable. Seller
warrants that no instructions, other than these instructions, have been given or
will be given to the transfer agent and that the Common Stock shall otherwise be
freely transferable on the books and records of Seller, except as may be set
forth herein.
(d) (i) Conversion Rate. Purchaser is entitled, at its option, to
convert the face amount of each Debenture, plus accrued interest, anytime
following the Due Date, at 80% of the 10 day average closing bid price, as
reported by Bloomberg, LP for the 10 consecutive trading days immediately
preceding the applicable Conversion Date (the "Conversion Price"). No fractional
shares or scrip representing fractions of shares will be issued on conversion,
but the number of shares issuable shall be rounded up or down, as the case may
be, to the nearest whole share.
(ii) Most Favored Financing. If after the Closing Date, but
prior to the Purchaser's conversion of all the Debentures, the Company raises
money under either Regulation D or Regulation S on terms that are more favorable
than those terms set forth in this Subscription Agreement, then in such event,
the Purchaser at its sole option shall be entitled to completely replace the
terms of this Subscription Agreement with the terms of the more beneficial
Subscription Agreement as to that balance, including accrued interest and any
accumulated liquidated damages, remaining on Purchaser's original investment.
The Debentures are subject to a mandatory, 24 month conversion feature at the
end of which all Debentures outstanding will be automatically converted, upon
the terms set forth in this section ("Mandatory Conversion Date").
(e) Nothing contained in this Subscription Agreement shall be deemed to
establish or require the payment of interest to the Purchaser at a rate in
excess of the maximum rate permitted by governing law. In the event that the
rate of interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the Purchaser to the
Company.
(f) It shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the Certificate of Common Stock as
provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person in whose name
the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Purchaser a new Debenture equal to the unconverted amount, if so requested in
writing by Purchaser.
(g) Within five (5) business days after receipt of the documentation
referred to above in Section 4(b), the Company shall deliver a certificate in
accordance with Section 4(c) for the number of shares of Common Stock issuable
upon the conversion. It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Common Stock as
provided herein, including the cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the certificate of
Common Stock is to be registered shall be treated as a shareholder of record on
and after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Purchaser a new Debenture
equal to the unconverted amount, if so requested in writing by Purchaser.
In the event the Company does not make delivery of the Common Stock, as
instructed by Purchaser, within 8 business days after delivery of the original
Debenture, then in such event the Company shall pay to Purchaser an amount, in
cash in accordance with the following schedule, wherein "No. Business Days Late"
is defined as the number of business days beyond the 8 business days delivery
period.
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
The Company acknowledges that its failure to deliver the Common Stock
within 8 business days after the Conversion Date will cause the Purchaser to
suffer damages in an amount that will be difficult to ascertain. Accordingly,
the parties agree that it is appropriate to include in this Agreement a
provision for liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents the parties'
good faith effort to qualify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and will not constitute a
penalty. The payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms of this
Agreement.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 4(g) is due to the unavailability of
authorized but unissued shares of Common Stock, the provisions of this
Section 4(g) shall not apply but instead the provisions of Section 4(h)
shall apply. The Company shall make any payments incurred under this
Section 4(g) in immediately available funds within five (5) business
days from the Conversion Date if late. Nothing herein shall limit a
Purchaser's right to pursue actual damages or cancel the conversion for
the Company's failure
to issue and deliver Common Stock to the Holder within 8 business days after the
Conversion Date.
(h) The Company shall at all times reserve (or make alternative written
arrangements for reservation or contribution of shares) and have available all
Common Stock necessary to meet conversion of the Debentures by all Purchasers of
the entire amount of Debentures then outstanding. If, at any time Purchaser
submits a Notice of Conversion and the Company does not have sufficient
authorized but unissued shares of Common Stock (or alternative shares of Common
Stock as may be contributed by stockholders) available to effect, in full, a
conversion of the Debentures (a "Conversion Default", the date of such default
being referred to herein as the "Conversion Default Date"), the Company shall
issue to the Purchaser all of the shares of Common Stock which are available,
and the Notice of Conversion as to any Debentures requested to be converted but
not converted (the " Unconverted Debentures"), upon Purchaser's sole option, may
be deemed null and void. The Company shall provide notice of such Conversion
Default ("Notice of Conversion Default") to all existing Purchasers of
outstanding Debentures, by facsimile, within three (3) business day of such
default (with the original delivered by overnight or two day courier), and the
Purchaser shall give notice to the Company by facsimile within five business
days of receipt of the original Notice of Conversion Default (with the original
delivered by overnight or two day courier) of its election to either nullify or
confirm the Notice of Conversion.
The Company agrees to pay to all Purchasers of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Purchaser where N = the
number of days from the Conversion Default Date to the date (the "Authorization
Date") that the Company authorizes a sufficient number of shares of Common Stock
to effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Purchaser of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Purchaser's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Purchaser's option, payable as follows: (i)
in the event Purchaser elects to take such payment in cash, cash payments shall
be made to such Purchaser of outstanding Debentures by the fifth day of the
following calendar month, or (ii) in the event Purchaser elects to take such
payment in stock, the Purchaser may convert such payment amount into Common
Stock at the conversion rate set forth in section 4(d) at anytime after the 5th
day of the calendar month following the month in which the Authorization Notice
was received, until the expiration of the mandatory 24 month conversion period.
The Company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect in full a
conversion of the Debentures will cause the Purchaser to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Agreement a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its obligations to deliver
the Common Stock pursuant to the terms of this Agreement. Nothing herein shall
limit the Purchaser's right to pursue actual damages for the Company's failure
to maintain a sufficient number of authorized shares of Common Stock.
(i) The Purchaser shall be entitled to convert any or all of the
Debentures, even though the Registration Statement covering those Debentures may
not have been declared effective at that time, in which case the Purchaser shall
receive legended Common Stock until the Registration Statement is declared
effective or in the written opinion of legal counsel the legend may be removed.
(j) Right of First Refusal: The Purchaser is granted the Right of First
Refusal on any subsequent financing the Company may seek during the next twelve
months.
(k) Redemption: Company reserves the right, at its sole option, to call
a mandatory redemption of any percentage of the balance on the Debentures during
the two year period following the Due Date. In the event the Company exercises
such right of redemption up to and including the last day of the fourth (4th)
month following the Due Date it shall pay the Purchaser, in U.S. currency One
Hundred Fifteen (115%) of the face amount of the Debentures to be redeemed, plus
accrued interest. In the event the Company exercises such right of redemption at
anytime during the fifth (5th) or sixth (6th) months following the Due Date it
shall pay the Purchaser, in U.S. currency One Hundred Twenty (120%) of the face
amount of the Debentures to be redeemed, plus accrued interest. In the event the
Company exercises such right of redemption at anytime after the last day of the
sixth (6th) month following the Due Date it shall pay the Purchaser, in U.S.
currency One Hundred Twenty-five (125%) of the face amount of the Debentures to
be redeemed, plus accrued interest. The date by which the Debentures must be
delivered to the Escrow Agent shall not be later than 5 business days following
the date the Company notifies the Purchaser by facsimile of the redemption. The
Company shall give the Purchaser at least 5 business day's notice of its intent
to redeem.
(l) The Company shall furnish to Purchaser such number of prospectuses
and other documents incidental to the registration of the shares of Common Stock
underlying the Debentures, including any amendment of or supplements thereto.
5. LIMITS ON AMOUNT OF CONVERSION AND OWNERSHIP.
Notwithstanding the provisions hereof or of the Debenture(s), in no
event except (i) with respect to a conversion pursuant to redemption by the
Company or (ii) if there is (a) a public announcement that 50% or more of the
Company is being acquired, (b) a public announcement that the Company is being
merged, or (c) a change in control, shall the Purchaser be entitled to convert
any Debentures to the extent that, after such conversion, the sum of (1) the
number of shares of Common Stock beneficially owned by the Purchaser and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the Debentures), and
(2) the number of shares of Common Stock issuable upon the conversion of the
Debentures with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the Purchaser and its affiliates
of more than 4.99% of the outstanding shares of Common Stock (after taking into
account the shares to be issued to the Purchaser upon such conversion). For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), except as otherwise provided
in clause (1) of such proviso. The Purchaser further agrees that if the
Purchaser transfers or assigns any of the Debentures to a party who or which
would not be considered such an affiliate, such assignment shall be made subject
to the transferee's or assignee's specific agreement to be bound by the
provisions of this Section as if such transferee or assignee were a signatory to
the Subscription Agreement. Furthermore, the Company shall not permit such
conversions that would violate the provisions of this Section 5, unless amended
in writing upon mutual consent of the parties.
6. DELIVERY INSTRUCTIONS.
Prior to or on the Due Date the Company shall deliver to the Escrow
Agent an opinion letter signed by counsel for the Company in the form attached
hereto as Exhibit E. Also, prior to or on the Due Date the Company shall deliver
to the Escrow Agent a signed Registration Rights Agreement in the form attached
hereto as Exhibit B. The Debentures being purchased hereunder shall be delivered
to Joseph B. LaRocco, Esq. as Escrow Agent, who will hold them in escrow and if
Promissory Note is not paid, credit outstanding principal and interest towards
Debentures at which time the Escrow Agent shall then have the Debentures
delivered to the Purchaser, per the Purchaser's instructions.
7. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company
as follows:
FOR ALL SUBSCRIBERS:
(a) This Subscription may be rejected, in whole or in part, by the
Company in its sole and absolute discretion at any time before the date set for
closing unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement.
(b) No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures.
(c) The representations, warranties and agreements of the undersigned
and the Company contained herein and in any other writing delivered in
connection with the transactions contemplated hereby shall be true and correct
in all material respects on and as of the date of the sale of the Debentures,
and as of the date of the conversion and exercise thereof, as if made on and as
of such date and shall survive the execution and delivery of this Subscription
Agreement and the purchase of the Debentures.
(d) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE DEBENTURES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF ANY
MEMORANDUM OR THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
(e) The Regulation D Offering is intended to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act and the provisions of Regulation D thereunder, which is in part
dependent upon the truth, completeness and accuracy of the statements made by
the undersigned herein and in the Questionnaire.
(f) It is understood that in order not to jeopardize the Offering's
exempt status under Section 4(2) of the Securities Act and Regulation D, any
transferee may, at a minimum, be required to fulfill the investor suitability
requirements thereunder.
(g) THE DEBENTURES MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE DISPOSED
OF EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE
AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
(h) NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933 AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
9. Litigation.
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of New York. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal courts of the
State of New York for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of New York. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction . Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the State of New York and the parties hereby
irrevocably submit to the non-exclusive jurisdiction of such courts for the
purpose of any such action or proceeding.
10. MISCELLANEOUS.
(a) All pronouns and any variations thereof used herein shall be deemed
to refe to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require. Wherever the term "Closing Date"
is used herein it shall have the same meaning as "Due Date".
(b) Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked or canceled,
except by an instrument in writing signed by the party effecting the same
against whom any change, discharge or termination is sought.
(c) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, addressed: (i) if to the
Company, at SWISSRAY International, Inc., 200 East 32nd Street, Suite 34B, New
York, New York 10017 with a copy by facsimile and mail to Gary B. Wolff, P.C.,
747 Third Avenue, 25th Floor, New York, NY 10017and (ii) if to the undersigned,
at the address for correspondence set forth in the Questionnaire, or at such
other address as may have been specified by written notice given in accordance
with this paragraph 10(c).
(d) This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of New York,
as such laws are applied by New York courts to agreements entered into, and to
be performed in, New York by and between residents of New York, and shall be
binding upon the undersigned, the undersigned's heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company, its successors and assigns. If any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statue or rule of
law, then such provisions shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof that may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(e) This Subscription Agreement, together with Exhibits A, B, C, D and
E attached hereto and made a part hereof, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties hereto. An executed facsimile
copy of the Subscription Agreement shall be effective as an original.
11. SIGNATURE.
The signature of this Subscription Agreement is contained as part of
the applicable Subscription Package, entitled "Signature Page."
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CORPORATION QUESTIONNAIRE
Investor Name: _______________
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned CORPORATION'S Subscription to
purchase the Debentures described in the Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned CORPORATION understands, however, that the
Company may present this Questionnaire to such parties as it deems appropriate
if called upon to establish that the proposed offer and sale of the Debentures
is exempt from registration under the Securities Act of 1933, as amended.
Further, the undersigned CORPORATION understands that the offering is required
to be reported to the Securities and Exchange Commission, NASDAQ and to various
state securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, THE UNDERSIGNED CORPORATION
MUST COMPLETE FORM W-9 ATTACHED HERETO.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES TO THE
CORPORATION.
1. The undersigned CORPORATION: (a) has total assets in
excess of $5,000,000; (b) was not formed for the specific purpose of acquiring
the Debentures and (c) has its principal place of business in ___________.
2. Each of the shareholders of the undersigned CORPORATION is
able to certify that such shareholder meets at least one of the following three
conditions:
the shareholder is a natural person whose individual net
worth* or joint net worth with his or her spouse exceeds $1,000,000; or
the shareholder is a natural person who had an
individual income* in excess of $200,000 in each of 1997 and 1998 and who
reasonably expects an individual income in excess of $200,000 in 1999; or
Each of the shareholders of the undersigned CORPORATION
is able to certify that such shareholder is a natural person who, together with
his or her spouse, has had a joint income in excess of $300,000 in each of 1997
and 1998 and who reasonably expects a joint income in excess of $300,000 during
1999; and the undersigned CORPORATION has its principal place of business in
___________________.
* For purposes of this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In determining income, an investor should
add to his or her adjusted gross income any amounts attributable to tax-exempt
income received, losses claimed as a limited partner in any limited partnership,
deductions claimed for depletion, contributions to IRA or Keogh retirement plan,
alimony payments and any amount by which income from long-term capital gains has
been reduced in arriving at adjusted gross income.
3. The undersigned CORPORATION is:
(a) a bank as defined in Section 3(a)(2) of the
Securities Act; or
(b) a savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; or
(c) a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934; or
(d) an insurance company as defined in Section 2
(13) of the Securities Act; or
(e) An investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of the Investment Company Act of 1940; or
(f) a small business investment company licensed
by the U.S. Small Business Administration under Section 301 (c) or (d) of the
Small Business Investment Act of 1958; or
(g) a private business development company as
defined in Section 202(a) (22) of the Investment Advisors Act of 1940.
II. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a) That the CORPORATION'S purchase of the Debentures will be solely
for the CORPORATION'S own account and not for the account of any other person or
entity; and
(b) that the CORPORATION'S name, address of principal place of business
place of incorporation and taxpayer identification number as set forth in this
Questionnaire are true, correct and complete.
III. GENERAL INFORMATION
(a) PROSPECTIVE PURCHASER (THE CORPORATION)
Name:
Principal Place of Business: ________________________________________
- ----------------------------------------------------------------
Address for Correspondence (if different):
(Number and Street)
- ----------------------------------------------------------------
(City) (State) (Zip Code)
Telephone Number:________________________________________________
(Area Code) (Number)
Jurisdiction of Incorporation:_________________________________________
Date of Formation:_________________________________________________
Taypayer Identification Number:______________________________________
Number of Shareholders:____________________________________________
(b) INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
CORPORATION.
Name:___________________________________________________________
Position or Title:__________________________________________________
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the
agreement by the Purchaser to be bound by the Questionnaire and the Subscription
Agreement.
1. The undersigned hereby represents that (a) the information contained
in the Questionnaire is complete and accurate and (b) the Purchaser will notify
SWISSRAY INTERNATIONAL, INC. immediately if any material change in any of the
information occurs prior to the acceptance of the undersigned Purchaser's
subscription and will promptly send SWISSRAY INTERNATIONAL, INC. written
confirmation of such change.
2. The undersigned officer of the Purchaser hereby certifies that he
has read and understands this Subscription Agreement.
3. The undersigned officer of the Purchaser hereby represents and
warrants that he has been duly authorized by all requisite action on the part of
the Corporation to acquire the Debentures and sign this Subscription Agreement
on behalf of _______________ and, further, that ____________________ has all
requisite authority to purchase the Debentures and enter into this Subscription
Agreement.
- -------------------------- --------------------------
Amount of Debentures subscribed for Date
(Purchaser)
By: _______________________
(Signature)
Name: ____________________
(Please Type or Print)
Title: ____________________
(Please Type or Print)
THE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS SUCH SECURITIES ARE INCLUDED IN AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT.
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted
and agreed to this ____ day of __________, 1999
SWISSRAY INTERNATIONAL, INC.
BY______________________________________
Ruedi G. Laupper, its Chairman and President
duly authorized
<PAGE>
Exhibit D
NOTICE OF CONVERSION
(To be Executed by the Registered owner in order to Convert
the Debentures
The undersigned hereby irrevocably elects, as of ______________, 199_
to convert $__________ of Convertible Debentures into Common Stock of SWISSRAY
INTERNATIONAL, INC.(the "Company") according to the conditions set forth in the
Contingent Subscription Agreement dated _____________ ____, 1999.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
- ------------------------------------------------------------
Phone______________________ Fax___________________________
Exhibit E
_______________, 1999
Purchasers of [Company] [Describe Securities]
Re: [Company]
Ladies and Gentlemen:
We have acted as counsel to [Company], a corporation incorporated under
the laws of the State of _________ (the "Company"), in connection with the
proposed issuance and sale of convertible debentures (the "Securities") pursuant
to the Distribution Agreement and the related Subscription Agreement (including
all Exhibits and Appendices thereto) (collectively the "Agreements").
In connection with rendering the opinions set forth herein, we have
examined drafts of the Agreement, the Company's Certificate of Incorporation,
and its Bylaws, as amended to date [other documents - describe], the proceedings
of the Company's Board of Directors taken in connection with entering into the
Agreements, and such other documents, agreements and records as we deemed
necessary to render the opinions set forth below.
In conducting our examination, we have assumed the following: (i) that
each of the Agreements has been executed by each of the parties thereto in the
same form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and accuracy
of all documents submitted to us as originals, and the conformity to originals
of all documents submitted to us as copies, (iii) that each of the Agreements
has been duly and validly authorized, executed and delivered by the party or
parties thereto other than the Company, and (iv) that each of the Agreements
constitutes the valid and binding agreement of the party or parties thereto
other than the Company, enforceable against such party or parties in accordance
with the Agreements' terms.
Based upon the subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of __________, is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where the Company owns or leases properties, maintains employees
or conducts business, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company, and has all
requisite corporate power and authority to own its properties and conduct its
business.
2. The authorized capital stock of the Company consists of _______
shares of Common Stock, ________ par value per share, ("Common Stock") and
______________ Preferred Stock, par value $________ per share; [describe classes
if applicable]
3. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended and the Company has
timely filed all the material required to be filed pursuant to Sections 13(a) or
15(d) of such Act for a period of at least twelve months preceding the date
hereof;
4. When duly countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Agreements, the
Securities [and any Common Stock to be issued upon the conversion of the
Securities] as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;
5 The Company has the requisite corporate power and authority to enter
into the Agreements and to sell and deliver the Securities and the Common Stock
to be issued upon the conversion of the Securities as described in the
Agreements; each of the Agreements has been duly and validly authorized by all
necessary corporate action by the Company to our knowledge, no approval of any
governmental or other body is required for the execution and delivery of each of
the Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
affecting creditors rights generally, and except as to compliance with federal,
state, and foreign securities laws, as to which no opinion is expressed;
6. To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Agreements by the Company and the performance of
its obligations thereunder do not and will not constitute a breach or violation
of any of the terms and provisions of, or constitute a default under or conflict
with or violate any provision of (i) the Company's Certificate of Incorporation
or By-Laws, (ii) any indenture, mortgage, deed of trust, agreement or other
instrument to which the Company is party or by which it or any of its property
is bound, (iii) any applicable statute or regulation or as other, (iv) or any
judgment, decree or order of any court or governmental body having jurisdiction
over the Company or any of its property.
7. The issuance of Common Stock upon conversion of the debentures in
accordance with the terms and conditions of the Agreements, will not violate the
applicable listing agreement between the Company and any securities exchange or
market on which the Company's securities are listed.
8. To the best of our knowledge, after due inquiry, there is no
pending or threatened litigation, investigation or other proceedings against the
Company [except as described in Exhibit A hereto].
9. The Company complies with the eligibility requirements for the use
of Form S-3, under the Securities Act of 1933, as amended.
Note: Use this where Registration Rights were included in the offering and the
Company is S-3 eligible.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of _____________ and does not include an interpretation or statement
concerning the laws of any other state or jurisdiction. Insofar as the
enforceability of the Agreements may be governed by the laws of other states, we
have assumed that such laws are identical in all respects to the laws of the
State of ___________.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Agreements and may not be
relied upon by any other person or entity or for any other purpose without our
prior consent.
Very truly yours,
By: _____________________
<PAGE>
Exhibit 10.58
SECURITY AGREEMENT
This Security Agreement (the "Agreement") is made between Swissray
International Inc., as borrower ("Borrower"), and Southshore Capital. Ltd.
("Secured Party").
For good and valuable consideration, receipt of which is hereby
acknowledged, Borrower and Secured Party hereby agree as follows:
1. Grant of Security Interest. Borrower hereby grants to Secured Party
a security interest in each of those items as described in Exhibit A attached
hereto and made a part hereof (cumulatively being referred to as the
"Collateral") and all proceeds (as that term is defined in the New York Uniform
Commercial Code) of any and all of the property referred to in Exhibit A.
Borrower and Secured Party acknowledge their mutual intent that all
security interests contemplated herein are given as a contemporaneous exchange
for new value to Borrower.
2. Debts Secured.The security interest granted by this Agreement shall
secure the following obligation, which is a full recourse obligation of the
Borrower: Promissory Note of Swissray International, Inc. issued in favor of
Secured Party dated July 9, 1999 in the principal amount of not more than One
Million One Hundred Thousand Dollars ($1,100,000) (the "Note"), any and all
renewals, extensions, replacements, modifications and amendments thereof
(including any which increase the original principal amount).
3. Perfection and Enforcement of Assignment and Security Interest.
Borrower agrees to deliver any and all documents or similar instruments
evidencing the Collateral, to Secured Party or Secured Party's counsel, at the
time of execution of this Agreement. Borrower agrees to give good faith,
diligent cooperation to Secured Party and to perform such other acts as
reasonably requested by Secured Party for perfection and enforcement of said
security interest, including the filing of a UCC-1 Financing Statement with the
New York Secretary of State's Office, if applicable. Borrower will promptly
deliver to Secured Party all written notices, or other documents constituting or
relating to the Collateral and will promptly give Secured Party written notice
of any other notices which are received in the future by Borrower with respect
to the Collateral.
4. Secured Creditors. Borrower represents and warrants that it does not
have any outstanding security interests relating to the collateral other than
those set forth in Exhibit B attached hereto and made a part hereof and it shall
not create or incur any indebtedness or obligation for borrowed money except for
indebtedness with respect to trade obligations and other normal accruals in the
ordinary course of business not yet due and payable, and shall not grant any
other security interests in the Collateral until payment and performance in full
of the obligations hereunder, unless Secured Party otherwise consents in
writing, which consent shall not be unreasonably withheld.
5. Representations and Warranties Concerning Collateral. Borrower
represents and warrants that:
a. Borrower is the sole owner of the Collateral.
b. The Collateral is not subject to any security
interest, lien, prior assignment, or other encumbrance of any nature whatsoever
except for the security interest created by this Note and Agreement and except
as may be indicated in Exhibit B heteto.
c. Borrower's attorney shall prepare and have forwarded
by overnight courier a UCC-1 financing statement (See copy off UCC-1 attached
hereof as Exhibit C) in favor of Secured Party placing Secured Party in a first
lien position concerning the Collateral.
d. The Borrower has been duly organized, is validly
existing and is in good standing under the laws of the State of New York and is
duly qualified and in good standing in each other state in which the nature of
its activities requires it to be so qualified.
e. The Borrower has not changed its name or been the
subject of any merger, consolidation or other corporate reorganization during
the four month period immediately prior to the date of this Agreement.
f. The Borrower has all requisite power and authority to
transact the business that it now transacts and to own or lease the properties
and assets that it purports to own or lease.
g. The execution performance and delivery of this
Agreement and any promissory note or other instrument or agreement contemplated
herein by Borrower has been duly authorized by all requisite corporate action on
behalf of Borrower.
h. The Borrower will notify Secured Party in writing
not fewer than 30 days in advance of any change in the Borrower's principal
place of business or other business locations.
i. The execution, delivery and performance of this
Agreement and any promissory note or other instrument or agreement contemplated
herein by Borrower will not result in a breach of any terms or conditions of
any other contract or agreement or in the acceleration of any other obligation
of Borrower.
j. No consent or approval of any other person or entity
that has not been obtained by Borrower is required before Borrower may execute,
deliver and perform its obligations under this Agreement.
6. Covenants Concerning Collateral. Borrower covenants that:
a. Borrower covenants, represents and warrants that
there are presently no other secured creditors that are able to obtain priority
over Secured Party concerning the Collateral or any proceeds of the Collateral
except as may be indicated in Exhibit B hereto.
b. Borrower agrees to promptly execute and deliver any
UCC Financing Statements reasonably requested by Secured Party for perfection
or enforcement of this Agreement and the security interests created hereby, and
to give good faith, diligent cooperation to Secured Party and to perform such
other acts reasonably requested by Secured Party for perfection and enforcement
of said security interests.
c. Borrower will defend the Collateral against all claims and
demands of all persons. Borrower will keep the Collateral free from any lien,
security interest, assignment or other encumbrances except for the security
interest granted herein. Borrower will take all steps necessary or advisable to
preserve rights against account debtors and other parties. Borrower will
promptly and fully inform Secured Party of any matter or information that may
come to its attention which might impair the validity or collectability of the
Collateral or proceeds thereof. Borrower will not sell, transfer or further
encumber or lien the Collateral in any way whatsoever except as may be
contemplated by this Agreement.
d. Borrower will execute and deliver to Secured Party, at such
times and in such form and containing such terms as Secured Party may require,
instruments, documents and agreements evidencing all or any part of the
indebtedness and such certificates of title, financing and continuation
statements and other instruments as Secured Party may deem necessary or
desirable to protect, perfect and preserve the security interest created herein.
Borrower will pay all reasonable costs of filing and recording incurred by
Secured Party in connection with the protection, perfection and preservation of
the security interest. Furthermore, Borrower irrevocably appoints Secured Party
its attorney-in-fact in Borrower's name and on its behalf to make, execute,
deliver and file any instruments or documents and to take any action as Secured
Party deems necessary or appropriate to protect and preserve the Collateral on
behalf of and for the benefit of Secured Party.
e. Borrower will be responsible for all risk of loss and any
damage to the Collateral. Borrower will (if applicable to the type of collateral
indicated in Exhibit A) have and maintain insurance at all times with respect to
the collateral against risks of fire (including so-called extended coverage),
theft and such other risks as Secured Party may require and in the case of motor
vehicles, collision insurance. All insurance with respect to the Collateral
shall be written by such companies, on such terms, in such form and for such
periods and amounts as may be satisfactory to Secured Party, and shall be
payable to Secured Party and Borrower as their interests may appear on such
policies, with annual premiums prepaid by Borrower. Borrower shall deliver the
insurance policies to Secured Party upon request. Borrower hereby irrevocably
appoints Secured Party as its agent to collect, compromise and settle any loss
or claim payable under such policies and to endorse any loss payment or return
premium check in Borrower's name and to apply the proceeds thereof to the
satisfaction of the indebtedness in such manner as Secured Party shall
determine.
Borrower shall give immediate written notice to Secured Party and to insurers of
loss or damage to the Collateral and will promptly file proofs of loss with
insurers.
f. Borrower will permit Secured Party or its agent to
inspect and audit the Collateral, during normal business hours (or at other
times, if Secured Party shall have notified Borrower in advance). Borrower will
furnish to Secured Party copies of all records, documents and instruments which
Secured Party may reasonably request solely as same relates to the Collateral.
g. Borrower shall pay its debts promptly as they become
due.
h. Borrower shall not change its name without giving
Secured Party notice not fewer than 30 days in advance. The notice shall set
forth Borrower's new name and the date on which the new name shall first be
used.
i. Borrower shall immediately deliver to Secured Party
all certificates of title, or other such similar documents, to any Collateral
for which such certificates are used.
7. Right to Perform for Borrower. Secured Party may, in its sole
discretion and without any duty to do so, elect to discharge taxes, tax liens,
security interests, or any other encumbrance upon the Collateral, perform any
duty or obligation of Borrower, pay filing, recording, insurance and other
charges payable by Borrower, or provide insurance as provided herein if Borrower
fails to do so. Any such payments advanced by Secured Party shall be repaid by
Borrower upon demand, together with interest thereon from the date of advance
until repaid at the rate of ten percent (10%) per annum.
8. Default. Time is of the essence of thi s Agreement. The
occurrence of any of the following events shall constitute a default under this
Agreement:
a. Any representation, warranty or covenant made by or
on behalf of Borrower in this Agreement is materially false or materially
misleading when made;
b. Borrower fails in the payment or performance of any
obligation, covenant, agreement or liability created by or contemplated by this
Agreement or secured by this Agreement;
c. Any default in the payment or performance of any
amounts, obligation, covenant, agreement or liability under the Note; or
d. Any default, as that term is defined in the Note.
No course of dealing or any delay or failure to assert any default
shall constitute a waiver of that default or of any prior or subsequent default.
9. Remedies. Upon the occurrence of any default under this
Agreement, Secured Party shall have the following rights and remedies, in
addition to all other rights and remedies existing at law, in equity, or by
statute or provided in the Note:
a. Secured Party shall have all the rights and remedies
available under the Uniform Commercial Code:
b. If Borrower fails to cure any default within fifteen
(15) days after Borrower's receipt of written notice of default from Secured
Party, Secured Party may sell, assign, deliver or otherwise dispose of any or
all of the Collateral for cash and/or credit and upon such terms and at such
place or places, and at such time or times, and to such person, firms, companies
or corporation as Secured Party reasonably believes expedient, without any
advertisement whatsoever, and, after deducting the reasonable costs and
out-of-pocket expenses incurred by Secured Party, including, without limitation,
(1) reasonable attorneys fees and legal expenses, (2) advertising of sale of the
Collateral, (3) sale commissions, (4) sales tax, and (5) costs for preservation
and protection of the Collateral, apply the remainder to pay, or to hold as a
reserve against, the obligations secured by this Agreement.
c. The rights and remedies herein conferred are cumulative and
not exclusive of any other rights and remedies and shall be in addition to every
other right, power and remedy herein specifically granted or hereafter existing
at law, in equity, or by statute which Secured Party might otherwise have, and
any and all such rights and remedies may be exercised from time to time and as
often and in such order as Secured Party may deem expedient. Such remedies may
be exercised singularly or concurrently. No delay or omission in the exercise of
any such right, power or remedy or in the pursuance of any remedy shall impair
any such right, power or remedy or be construed to be a waiver thereof or of any
default or to be an acquiescence therein.
d. In the event of breach or default under the terms of this
Agreement by Borrower, Borrower agrees to pay all reasonable attorneys fees and
legal expenses incurred by or on behalf of Secured Party in enforcement of this
Agreement, in exercising any remedy arising from such breach or default, or
otherwise related to such breach or default. Borrower additionally agrees to pay
all reasonable costs and out-of-pocket expenses, including, without limitation,
(1) reasonable attorneys fees and legal expenses, (2) advertising of sale of the
Collateral, (3) sale commissions, (4) sales tax, and (5) costs for preservation
and protection of the Collateral, incurred by Secured Party in obtaining
possession of Collateral, preparation for sale, sale or other disposition, and
otherwise incurred in foreclosing upon the Collateral. Any and all such costs
and out-of-pocket expenses shall be payable by Borrower upon demand, together
with interest thereon at ten percent (10.0%) per annum.
e. Regardless of any breach or default, Borrower agrees to pay
all expenses, including reasonable attorneys fees and legal expenses, incurred
by Secured Party in any bankruptcy proceeding of any type involving Borrower,
the Collateral, or this Agreement, including, without limitation, expenses
incurred in modifying or lifting the automatic stay, determining adequate
protection, use of cash collateral, or relating to any plan of reorganization.
f. If Borrower shall be in default under this Agreement,
Secured Party, immediately and at any time thereafter, may declare all of the
indebtedness secured pursuant to this Agreement immediately due and payable,
shall have all rights available in law or at equity, including, without
limitation, specific performance of this Agreement or for an injunction against
violations of any of the terms hereof, and the rights and all the remedies of a
secured party under the New York UCC and any other applicable law.
10. Notices. All notices or demands by any party hereto shall be in
writing and may be sent by regular mail. Notices shall be deemed received when
deposited in a United States post office box, postage prepaid, properly
addressed to Borrower or Secured Party at the mailing addresses stated below or
to such other addresses as Borrower or Secured Party may from time to time
specify in writing. Any notice otherwise delivered shall be deemed to be given
when actually received by the addressee. Additionally, copies of all notices or
demands made by one party shall be faxed by such party to the other parties
attorney on the same date as mailed.
If to Borrower to:
c/o Gary B. Wolff, Esq.
747 Third Avenue, 25th Floor
New York, NY 10017
(f) 212-644-6498
If to Secured Party to:
c/o Joseph B. LaRocco, Esq.
49 Locust Avenue - Suite 107
New Canaan, CT 06840
(f) 203-966-0363
11. Indemnification. Borrower agrees to indemnify Secured Party for any
and all claims and liabilities, and for damages which may be awarded against
Secured Party and for all reasonable attorneys fees, legal expenses, and other
out-of-pocket expenses incurred in defending such claims, arising from or
related in any manner to the negotiation, execution, or performance of this
Agreement, excluding any claims and liabilities based upon breach or default by
Secured Party under this Agreement or upon the negligence or misconduct of
Secured Party. Secured Party shall have sole and complete control of the defense
of any such claims, and is hereby given the authority to settle or otherwise
compromise any such claims as Secured Party in good faith determines shall be in
its best interests.
12. Litigation. Borrower represents that there are no actions, suits,
investigations or proceedings pending or threatened against or affecting the
validity or enforceability of the Note or this Agreement, any guaranty or any
instrument, document or agreement concerning the Collateral or of which, if
adversely determined, would have a material adverse effect on the financial
condition, operations, business or properties of the Borrower, and there are no
outstanding orders or judgments of any court or governmental authority or awards
of any arbitrator or arbitration board against the Borrower except as may be
indicated in Borrower's current Registration Statement on Form S-1 as filed with
the SEC under File Number 333-59829 or in Exhibit D attached hereto.
13. Miscellaneous.
a. This Agreement is made for the sole and exclusive
benefit of Borrower and Secured Party and is not intended to benefit any third
party. No such third party may claim any right or benefit or seek to enforce any
term or provision of this Agreement.
b. In recognition of Secured Party's right to have all
its attorneys fees and expenses incurred in connection with this Agreement
secured by the Collateral, notwithstanding payment in full of the obligations
secured by the Collateral, Secured Party shall not be required to release,
reconvey, or terminate any security interest in the Collateral unless and until
Borrower and all Guarantors, if any, have executed and delivered to Secured
Party general release in form and substance satisfactory to Secured Party.
c. Secured Party and its officers, directors, employees,
representatives, agents and attorneys, shall not be liable to Borrower or any
Guarantor, if any, for consequential damages arising from or relating to any
breach of contract, tort, or other wrong in connection with or relating to this
Agreement or the Collateral.
d. Borrower waives presentment, demand for payment, notice of
dishonor, protest and any other notices or demands in connections with the
delivery, acceptance, performance, default and enforcement of any promissory
note or instrument representing all or any part of the indebtedness.
e. The provisions of this Agreement are binding on the heirs,
executors, administrators, successors and assigns of Borrower and shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
f. [Deliberately deleted.]
g. Borrower will pay to Secured Party on demand any costs,
expenses, reasonable attorneys' fees and their reasonable disbursements incurred
or paid by Secured Party in protecting or enforcing its rights in the Collateral
and in collecting any part of the indebtedness and such amounts extended
pursuant to this section shall be added to the indebtedness.
h. Any delay, failure or waiver by Secured Party to exercise
any right it may have under this Agreement is not a waiver of Secured Party's
right to exercise the same or any other right at any other time.
i. If any provision of this Agreement or the application of
any provision to any person or circumstance shall be invalid or unenforceable,
neither the balance of this Agreement nor the application of the provision to
other persons or circumstances shall be affected. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction only, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
j. In the interest of a speedy resolution of any lawsuit
which may arise hereunder, Borrower and Secured Party waive a trial by jury in
any action with respect to this Agreement and as to any issues arising relating
to this Agreement.
k. If the incurring of any debt by Borrower or the payment of
any money or transfer of property to Secured Party by or on behalf of Borrower
or any Guarantor, if any, should for any reason subsequently be determined to be
"voidable" or avoidable" in whole or in part within the meaning of any state or
federal law of the United States, (collectively "voidable transfers"),
including, without limitation, fraudulent conveyances or preferential transfers
under the United States Bankruptcy Code or any other federal or state law, and
Secured Party is required to repay or restore any voidable transfers or the
amount or any portion thereof, or upon the advise of Secured Party's counsel is
advised to do so, then, as to any such amount or property repaid or restored,
including all reasonable costs, expenses, and attorneys fees of Secured Party
related thereto, the liability of Borrower and Guarantor, if any, and each of
them, and this Agreement, shall automatically be revived, reinstated and
restored and shall exist as though the voidable transfers had never been made.
l. The parties hereto expressly agree that this Agreement
shall be governed by, interpreted under, and construed and enforced in
accordance of the laws of the State of New York. Any action to enforce, arising
out of, or relating in any way to, any provisions of this Agreement shall be
brought exclusively, in the federal courts for the State of New York.
m. All references in this Agreement to the singular shall be
deemed to include the plural if the context so requires and vice versa.Reference
in the collective or conjunctive shall also include the disjunctive unless the
context otherwise clearly requires a different interpretation.
n. All agreements, representations, warranties and covenants
made by Borrower shall survive the execution and delivery of this Agreement, the
filing and consummation of any bankruptcy proceedings, and shall continue in
effect so long as any obligation to Secured Party contemplated by this Agreement
is outstanding and unpaid, notwithstanding any termination of this Agreement.
All agreements, representations, warranties and covenants in this Agreement
shall bind the party making the same and its heirs and successors, and shall be
to the benefit of and be enforceable by each party for whom made their
respective heirs, successors and assigns.
o. This Agreement constitutes the entire agreement between
Borrower and Secured Party as to the subject matter hereof and may not be
altered or amended except by written agreement signed by Borrower and Secured
Party. All other prior and contemporaneous understandings between the parties
hereto as to the subject matter hereof are rescinded.
Dated: July 9, 1999
Secured Party: Borrower:
SWISSRAY INTERNATIONAL, INC.
________________________ By: ________________________
Ruedi G. Laupper its Chairman
and President duly authorized
<PAGE>
SCHEDULE "A"
TO FINANCING STATEMENT AND SECURITY AGREEMENT
This FINANCING STATEMENT and SECURITY AGREEMENT covers, and the undersigned
("Debtor") hereby grants Southshore Capital, Ltd. ("Secured Party") a security
interest in, the following types or items of property, as collateral for the
payment and performance of all present and future indebtedness, liabilities,
guarantees and obligations of Debtor to Secured Party: All "Receivables" and
"Inventory", (as those terms are defined below), including packaging, raw
materials and finished goods, and all money, and all property now or at any time
in the future in Secured Party's possession (including claims and credit
balances), and all proceeds of any of the foregoing, as that term is defined in
the New York Uniform Commercial Code, (including proceeds of any insurance
policies, proceeds of proceeds, and claims against third parties), all products
of any of the foregoing, and all books and records related to any of the
foregoing. Debtor agrees that said security interest may be enforced by Secured
Party in accordance with the terms and provisions of all security and other
agreements between Secured Party and Debtor, the New York Uniform Commercial
Code, or both, but this document shall be fully effective as a security
agreement, even if there is no other security or other agreement between Secured
Party and Debtor.
For purposes of this Schedule A, the following terms have the following
meanings:
"Inventory" means, with respect only to the Purchase Orders for Debtor's
Products, listed on Schedule AA, all of Debtor's now owned and hereafter
acquired goods, merchandise or other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease (including
without limitation all raw materials, work in process, finished goods and goods
in transit, and including without limitation all materials and supplies of every
kind, nature and description which are or might be used or consumed in Debtor's
business or used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise or other personal
property, and all warehouse receipts, documents of title and other documents
representing any of the foregoing.
"Receivables" means, with respect only to the Purchase Orders for Debtor's
Products, listed on Schedule AA, all of Debtor's now owned and hereafter
acquired accounts (whether or not earned by performance), letters of credit,
contract rights, chattel paper, instruments, securities, documents and all other
forms of obligations at any time owing to Debtor, all guaranties and other
security therefor, all merchandise returned to or repossessed by Debtor, an all
rights of stoppage in transit and other rights or remedies of an unpaid vendor,
lienor or secured party.
SWISSRAYINTERNATIONAL, INC.
By:_______________________________
Ruedi G. Laupper its Chairman and
President duly authorized
<PAGE>
Exhibit 10.60
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 9, 1999, ("this
Agreement"), is made by and between SWISSRAY INTERNATIONAL, INC. a New York
corporation (the "Company"), and the person named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Contingent
Subscription Agreement, dated as of July 9, 1999, between the Initial Investor
and the Company (the "Subscription Agreement"), the Company has agreed to issue
and sell to the Initial Investor 5% Convertible Debentures of the Company (the
"Debentures"), which will be convertible into shares of the common stock, $.01
par value (the "Common Stock"), of the Company (the "Conversion Shares") upon
the terms and subject to the conditions of such Debentures; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agrees as follows:
I. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meaning:
(i) "Due Date" means August 23, 1999.
(ii) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(iii) "Register," "Registered" and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iv) "Registrable Securities" means the Conversion Shares.
(v) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Subscription Agreement.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, no later than forty-five (45) calendar days after the Due Date, a
Registration Statement covering 200% of the number of shares of Common Stock for
the Initial Investors into which the $1,148,400 of Debentures, plus accrued
interest, in the total offering would be convertible. In the event the
Registration Statement is not filed within forty-five (45) calendar days after
the Due Date, then in such event the Company shall pay the Investor 2% of the
face amount of each Debenture for each 30 day period, or portion thereof, after
forty-five (45) calendar days following the Due Date that the Registration
Statement is not filed. The Investor is also granted Piggy-back registration
rights on any other Registration Statement filings made by the Company exclusive
of Registration Statements on Form S-8 and so long as permissible under the
Securities Act. Such Registration Statement shall state that, in accordance with
the Securities Act, it also covers such indeterminate number of additional
shares of Common Stock as may become issuable to prevent dilution resulting from
Stock splits, or stock dividends. If at any time the number of shares of Common
Stock into which the Debenture(s) may be converted exceeds the aggregate number
of shares of Common Stock then registered, the Company shall, within ten (10)
business days after receipt of written notice from any Investor, either (i)
amend the Registration Statement filed by the Company pursuant to the preceding
sentence, if such Registration Statement has not been declared effective by the
SEC at that time, to register all shares of Common Stock into which the
Debenture(s) may be converted, or (ii) if such Registration Statement has been
declared effective by the SEC at that time, file with the SEC an additional
Registration Statement on such form as is applicable to register the shares of
Common Stock into which the Debenture may be converted that exceed the aggregate
number of shares of Common Stock already registered which new Registration
Statement shall be filed within 45 days. The above damages shall continue until
the obligation is fulfilled and shall be paid within 5 business days after each
30 day period, or portion thereof, until the Registration Statement is filed.
Failure of the Company to make payment within said 5 business days shall be
considered a default.
The Company acknowledges that its failure to file with the SEC, said
Registration Statement no later than forty-five (45) calendar days after the Due
Date will cause the Initial Investor to suffer damages in an amount that will be
difficult to ascertain. Accordingly, the parties agree that it is appropriate to
include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to qualify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
(b) Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors acting by majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
to represent their interests, and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company. The
Investors who hold the Registrable Securities to be included in such
underwriting shall pay all underwriting discounts and commissions and other fees
and expenses of such investment banker or bankers and manager or managers so
selected in accordance with this Section 2(b) (other than fees and expenses
relating to registration of Registrable Securities under federal or state
securities laws, which are payable by the Company pursuant to Section 5 hereof)
with respect to their Registrable Securities and the fees and expenses of such
legal counsel so selected by the Investors.
(c) Payment by the Company. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not declared effective within one hundred twenty (120) calendar
days following the Due Date, then the Company shall pay the Initial Investor 2%
of the purchase price paid by the Initial Investor for the Registrable
Securities pursuant to the Subscription Agreement for every thirty day period,
or portion thereof, following the one hundred twenty (120) calendar day period
until the Registration Statement is declared effective. Notwithstanding the
foregoing, the amounts payable by the Company pursuant to this provision shall
not be payable to the extent any delay in the effectiveness of the Registration
Statement occurs because of an act of, or a failure to act or to act timely by
the Initial Investor or its counsel. The above damages shall continue until the
obligation is fulfilled and shall be paid within 5 business days after each 30
day period, or portion thereof, until the Registration Statement is declared
effective. Failure of the Company to make payment within said 5 business days
shall be considered a default.
The Company acknowledges that its failure to have the Registration
Statement declared effective within said one hundred twenty (120) calendar day
period following the Due Date, will cause the Initial Investor to suffer damages
in an amount that will be difficult to ascertain. Accordingly, the parties agree
that it is appropriate to include in this Agreement a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its obligations to
register the Common Stock and deliver the Common Stock pursuant to the terms of
this Agreement, the Subscription Agreement and the Debenture.
3. Obligation of the Company. In connection with the registration
of the Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC within forty-five (45) days
of the Due Date, a Registration Statement with respect to not less than the
number of Registrable Securities provided in Section 2(a), above, and thereafter
use its best efforts to cause such Registration Statement relating to
Registrable Securities to become effective the earlier of (i) five business days
after notice from the Securities and Exchange Commission that the Registration
Statement may be declared effective, or (b) one hundred twenty (120) days after
the Due Date, and keep the Registration Statement effective at all times until
the earliest (the "Registration Period") of (i) the date that is two years after
the Due Date (ii) the date when the Investors may sell all Registrable
Securities under Rule 144 or (iii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel identified to the Company,
(i) promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualification in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions:
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to the
Company or (E) make any change in its articles of incorporation or by-laws or
any then existing contracts, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes any untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and uses its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any notice of effectiveness or any stop order or other suspension of
the effectiveness of the Registration Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("NASDAQ") "Small Capitalization" within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on the The Nasdaq Stock
Market or if, despite the Company's commercially reasonable efforts to satisfy
the preceding clause (i) or (ii), the Company is unsuccessful in doing so, to
secure NASD authorization and quotation for such Registrable Securities on the
over-the-counter bulletin board and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such registrable securities;
(h) Provide a transfer agent for the Registrable Securities not later
than the effective date of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request and registration in such names as the Investors may request; and, within
five (5) business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) a form of appropriate
instruction and opinion of such counsel acceptable for use for each conversion;
and
(j) Take all other reasonable actions necessary to expedite and
facilitate distribution to the Investor of the Registrable Securities pursuant
to the Registration Statement.
4. Obligations of the Investors. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations;
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall timely
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall timely execute such
documents in connection with such registration as the Company may reasonably
request. At least five (5) days prior to the first anticipated filing date of
the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions incurred in connection with
registrations, filing or qualifications pursuant to Section 3, but including,
without limitations, all registration, listing, and qualifications fees,
printers and accounting fees, the fees and disbursements of counsel for the
Company, shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations of the
Registration Statement or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or any prospectus included therein or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). The
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any reasonable legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (i) apply to
a Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (ii) with respect to any preliminary
prospectus, inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (iii) be available to the extent such Claim is based on a failure
of the Investor to deliver or cause to be delivered the prospectus made
available by the Company; or (iv) apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Each Investor will
indemnify the Company, its officers, directors and agents (including Counsel)
against any claims arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company, by or on behalf of such Investor, expressly for use in connection with
the preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of in excess of fifty
(50%) percent or more of the Registrable Securities (or all or any portion of
any Debenture of the Company which is convertible into such securities) only if:
(a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof.
10. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and investors who hold a majority in interest of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company received conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid (i) if to the Company,
SWISSRAY International, Inc., 200 East 32nd Street, Suite 34B, New York, New
York 10016 with copy by fax and mail to Gary B. Wolff, P.C., 747 Third Avenue,
25th Floor, New York, NY 10017; (ii) if to the Initial Investor, at the address
set forth under its name in the Subscription Agreement, with a copy to its
designated attorney and (iii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company, or at such other address
as each such party furnishes by notice given in accordance with this Section
11(b), and shall be effective, when personally delivered, upon receipt and, when
so sent by certified mail, four (4) business days after deposit with the United
States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the state and federal courts of the State of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not effect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
SWISSRAY INTERNATIONAL, INC.
By: ____________________________________
Name: Ruedi G. Laupper
Title: Chairman and President
SOUTHSHORE CAPITAL, LTD.
By: ____________________________________
Name:
Title:
<PAGE>
Exhibit 10.61
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
CONVERTIBLE DEBENTURE DUE AUGUST 23, 1999
AUGUST 23, 2001
$ 1,148,400
Number AUG-99-101
FOR VALUE RECEIVED, SWISSRAY INTERNATIONAL, INC., a New York
corporation (the "Company"), hereby promises to pay ABERDEEN AVENUE,
LLC or registered assigns (the "Holder") on August 23, 2001, (the
"Maturity Date"), the principal amount of One Million One Hundred
Forty-Eight Thousand Four Hundred Dollars ($ 1,148,400) U.S., and to
pay interest on the principal amount hereof, in such amounts, at such
times and on such terms and conditions as are specified herein. The
purchase price for this Debenture shall be deemed to have been
delivered to the Company upon non-payment of the full amount of
principal and interest due on the Promissory Note dated July 9, 1999
between the Company and the Holder. The fully executed Contingent
Subscription Agreement, Registration Rights Agreement and this
Debenture shall be held by the escrow agent and shall only be delivered
to the Holder upon non-payment of the full amount of principal and
interest due on the Promissory Note on its "Due Date". The "Due Date"
of the Promissory Note shall mean August 23, 1999.
Article 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (the "Debenture") at the rate of Five Percent (5.0%) per year, payable
at the time of each conversion until the principal amount hereof is paid in full
or has been converted. Interest shall be computed on the basis of a 360 day year
of 12, 30 day months. Each payment shall be paid in cash or in freely trading
Common Stock of the Company, at the Company's option. If paid in Common Stock,
the number of shares of the Company's Common Stock to be received shall be
determined by dividing the dollar amount of the interest by the then applicable
Market Price as of the interest payment date. "Market Price" shall mean 80% of
the average of the 10 day closing bid prices, as reported by Bloomberg, LP for
the ten (10) consecutive trading days immediately preceding the date of
conversion. If the interest is to be paid in cash, the Company shall make such
payment within 5 business days of the date of conversion. If the interest is to
be paid in Common Stock, said Common Stock shall be delivered to the Holder, or
per Holder's instructions, within 5 business days of the date of conversion. The
Debentures are subject to automatic conversion at the end of two years from the
date of issuance at which time all Debentures outstanding will be automatically
converted based upon the formula set forth in Section 3.2. The closing shall be
deemed to have occurred on the Due Date as that term is defined above.
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order for the
Holder to receive payment of the principal amount hereof. The Company shall have
the option of paying the interest on this Debenture in United States dollars or
in common stock upon conversion pursuant to Article 1 hereof. The Company may
draw a check for the payment of interest to the order of the Holder of this
Debenture and mail it to the Holder's address as shown on the Register (as
defined in Section 7.2 below). Interest and principal payments shall be subject
to withholding under applicable United States Federal Internal Revenue Service
Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at its option,
to convert it into shares of common stock, par value $0.01 per share, of the
Company ("Common Stock") at any time following the Due Date and which is before
the close of business on the Maturity Date, except as set forth in Section 3.1
(c) below. The number of shares of Common Stock issuable upon the conversion of
this Debenture is determined pursuant to Section 3.2 and rounding the result to
the nearest whole share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains out-
standing on the second anniversary of the date hereof, the unconverted portion
of such Debenture will automatically be converted into shares of Common Stock on
such date in the manner set forth in Section 3.2.
Section 3.2. Conversion Procedure.
(a) Debentures. Upon receipt by the Company or its designated attorney
of a facsimile or original of Holder's signed Notice of Conversion and the
receipt of the original Debenture to be converted in whole or in part in the
manner set forth in 3.2(b) below, the Company shall instruct its transfer agent
to issue one or more Certificates representing that number of shares of Common
Stock into which the Debenture is convertible in accordance with the provisions
regarding conversion set forth in Exhibit A hereto. The Seller's transfer agent
or attorney shall act as Registrar and shall maintain an appropriate ledger
containing the necessary information with respect to each Debenture.
(b) Conversion Procedures. The face amount of this Debenture may be
converted anytime following the Due Date. Such conversion shall be effectuated
by surrendering to the Company, or its attorney, this Debenture to be converted
together with a facsimile or original of the signed Notice of Conversion which
evidences Holder's intention to convert the Debenture indicated. The date on
which the Notice of Conversion is effective ("Conversion Date") shall be deemed
to be the date on which the Holder has delivered to the Company or its
designated attorney a facsimile or original of the signed Notice of Conversion,
as long as the original Debenture(s) to be converted are received by the Company
or its designated attorney within 5 business days thereafter. Unless otherwise
notified by the Company in writing via facsimile the Company's designated
attorney is Gary B. Wolff, Esq., 747 Third Avenue, 25th Floor, New York, New
York 10017, (P) 212-644-6446, (F) 212-644-6498.
(c) Common Stock to be Issued. Upon the conversion of any Debentures
and upon receipt by the Company or its attorney of a facsimile or original of
Holder's signed Notice of Conversion Seller shall instruct Seller's transfer
agent to issue Stock Certificates without restrictive legend or stop transfer
instructions, if at that time the Registration Statement covering such shares
has been deemed effective (or with proper restrictive legend if the Registration
Statement has not as yet been declared effective), in the name of Holder (or its
nominee) and in such denominations to be specified at conversion representing
the number of shares of Common Stock issuable upon such conversion, as
applicable. Seller warrants that no instructions, other than these instructions,
have been given or will be given to the transfer agent and that the Common Stock
shall otherwise be freely transferable on the books and records of Seller,
except as may be set forth herein.
(d) (i) Conversion Rate. Holder is entitled, at its option to convert
the face amount of this Debenture, plus accrued interest, anytime following the
Due Date, at 80% of the 10 day average closing bid price, as reported by
Bloomberg LP, for the ten (10) consecutive trading days immediately preceding
the applicable Conversion Date (the "Conversion Price"). No fractional shares or
scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded up or down, as the case may be, to
the nearest whole share.
(ii) Most Favored Financing. If after the Due Date, but prior
to the Holder's conversion of all the Debentures, the Company raises money under
either Regulation D or Regulation S on terms that are more favorable than those
terms set forth in this Debenture, then in such event, the Holder at its sole
option shall be entitled to completely replace the terms of this Debenture with
the terms of the more beneficial Debenture as to that balance, including accrued
interest and any accumulated liquidated damages, remaining on Holder's original
investment. The Debentures are subject to a mandatory, 24 month conversion
feature at the end of which all Debentures outstanding will be automatically
converted, upon the terms set forth in this section ("Mandatory Conversion
Date").
(e) Nothing contained in this Debenture shall be deemed to
establish or require the payment of interest to the Holder at a rate in excess
of the maximum rate permitted by governing law. In the event that the rate of
interest required to be paid exceeds the maximum rate permitted by governing
law, the rate of interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing law and such excess
shall be returned with reasonable promptness by the Holder to the Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Certificate of Common
Stock as provided herein, including the responsibility and cost for delivery of
an opinion letter to the transfer agent, if so required. The person in whose
name the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Holder a new Debenture equal to the unconverted amount, if so requested in
writing by Holder.
(g) Within five (5) business days after receipt of the
documentation referred to above in Section 3.2(b), the Company shall deliver a
certificate, in accordance with Section 3(c) for the number of shares of Common
Stock issuable upon the conversion. It shall be the Company's responsibility to
take all necessary actions and to bear all such costs to issue the Common Stock
as provided herein, including the cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the certificate of
Common Stock is to be registered shall be treated as a shareholder of record on
and after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Holder a new Debenture equal
to the unconverted amount, if so requested in writing by Holder.
In the event the Company does not make delivery of the Common Stock, as
instructed by Holder, within 8 business days after delivery of this original
Debenture, then in such event the Company shall pay to Holder an amount, in cash
in accordance with the following schedule, wherein "No. Business Days Late" is
defined as the number of business days beyond the 8 business days delivery
period.
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
The Company acknowledges that its failure to deliver the Common Stock
within 8 business days after the Conversion Date will cause the Holder to suffer
damages in an amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this Debenture a provision
for liquidated damages. The parties acknowledge and agree that the liquidated
damages provision set forth in this section represents the parties' good faith
effort to qualify such damages and, as such, agree that the form and amount of
such liquidated damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its obligations
to deliver the Common Stock pursuant to the terms of this Debenture.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3.2(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 3.2(g) shall not
apply but instead the provisions of Section 3.2(h) shall apply.
The Company shall make any payments incurred under this Section 3.2(g)
in immediately available funds within five (5) business days from the Conversion
Date if late. Nothing herein shall limit a Holder's right to pursue actual
damages or cancel the conversion for the Company's failure to issue and deliver
Common Stock to the Holder within 8 business days after the Conversion Date.
(h) The Company shall at all times reserve and have available
all Common Stock necessary to meet conversion of the Debentures by all Holders
of the entire amount of Debentures then outstanding. If, at any time Holder
submits a Notice of Conversion and the Company does not have sufficient
authorized but unissued shares of Common Stock (or alternative shares of Common
Stock as may be contributed by Stockholders) available to effect, in full, a
conversion of the Debentures (a "Conversion Default", the date of such default
being referred to herein as the "Conversion Default Date"), the Company shall
issue to the Holder all of the shares of Common Stock which are available, and
the Notice of Conversion as to any Debentures requested to be converted but not
converted (the "Unconverted Debentures"), upon Holder's sole option, may be
deemed null and void. The Company shall provide notice of such Conversion
Default ("Notice of Conversion Default") to all existing Holders of outstanding
Debentures, by facsimile, within three (3) business day of such default (with
the original delivered by overnight or two day courier), and the Holder shall
give notice to the Company by facsimile within five business days of receipt of
the original Notice of Conversion Default (with the original delivered by
overnight or two day courier) of its election to either nullify or confirm the
Notice of Conversion.
The Company agrees to pay to all Holders of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N = the number
of days from the Conversion Default Date to the date (the "Authorization Date")
that the Company authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Holder's option, payable as follows: (i) in
the event Holder elects to take such payment in cash, cash payments shall be
made to such Holder of outstanding Debentures by the fifth day of the following
calendar month, or (ii) in the event Holder elects to take such payment in
stock, the Holder may convert such payment amount into Common Stock at the
conversion rate set forth in section 4(d) at anytime after the 5th day of the
calendar month following the month in which the Authorization Notice was
received, until the expiration of the mandatory 24 month conversion period.
The Company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect in full a
conversion of the Debentures will cause the Holder to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Agreement a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its obligations to deliver
the Common Stock pursuant to the terms of this Debenture.
Nothing herein shall limit the Holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock.
(i) The Company shall furnish to Holder such number of prospectuses and
other documents incidental to the registration of the shares of Common Stock
underlying the Debentures, including any amendment of or supplements thereto.
(j) The Holder is limited in the amount of this Debenture it may
convert and own. In no event except (i) with respect to a conversion pursuant to
redemption by the Company or (ii) if there is (a) a public announcement that 50%
or more of the Company is being acquired, (b) a public announcement that the
Company is being merged, or (c) a change in control, shall the Holder be
entitled to convert any Debentures to the extent that, after such conversion,
the sum of (1) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures or any of the Company's Warrants), and (2) the number of shares of
Common Stock issuable upon the conversion of the Debentures, or exercise of any
of the Company's Warrants, with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder and
its affiliates of more than 4.99% of the outstanding shares of Common Stock
(after taking into account the shares to be issued to the Holder upon such
conversion). For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), except as
otherwise provided in clause (1) of such proviso. The Holder further agrees that
if the Holder transfers or assigns any of the Debentures to a party who or which
would not be considered such an affiliate, such assignment shall be made subject
to the transferee's or assignee's specific agreement to be bound by the
provisions of this Section as if such transferee or assignee were a signatory to
the Subscription Agreement. Furthermore, the Company shall not permit such
conversions that would violate the provisions of this Section 3.2(j), unless
amended in writing upon mutual consent of the parties.
(k) Redemption. Company reserves the right, at its sole option, to call
a mandatory redemption of any percentage of the balance on the Debentures during
the two year period following the Due Date. In the event the Company exercises
such right of redemption up to and including the last day of the fourth (4th)
month following the Due Date it shall pay the Holder, in U.S. currency One
Hundred Fifteen (115%) of the face amount of the Debentures to be redeemed, plus
accrued interest.In the event the Company exercises such right of redemption at
anytime during the fifth (5th) or sixth (6th) months following the Due Date it
shall pay the Holder, in U.S. currency One Hundred Twenty (120%) of the face
amount of the Debentures to be redeemed, plus accrued interest. In the event
the Company exercises such right of redemption at anytime after the last day of
the sixth (6th) month following the Due Date it shall pay the Holder, in U.S.
currency One Hundred Twenty-five (125%) of the face amount of the Debentures
to be redeemed, plus accrued interest. The date by which the Debentures must
be delivered to the Escrow Agent shall not be later than 5 business days
following the date the Company notifies the Holder by facsimile of the
redemption. The Company shall give the Holder at least 5 business day's notice
of its intent to redeem.
Section 3.3. Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon the
conversion of this Debenture. Instead, the Company shall round up or down, as
the case may be, to the nearest whole share.
Section 3.4. Taxes on Conversion. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon the conversion of this Debenture. However, the Holder shall
pay any such tax which is due because the shares are issued name other than its
name.
Section 3.5. Company to Reserve Stock. The Company shall reserve the
number of shares of Common Stock required pursuant to and upon the terms set
forth in this Debenture. All shares of Common Stock which may be issued upon the
conversion hereof shall upon issuance be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
Section 3.6. Restrictions on Transfer. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Act") and is
being issued under Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. This Debenture and the Common Stock issuable upon the
conversion thereof may only be offered or sold pursuant to registration under or
an exemption from the Act.
Section 3.7. Mergers, Etc. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its assets
to another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then as a condition of such merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee shall amend this Debenture to
provide that it may thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable to adjustments provided for in this Article 3.
Article 4. Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes in
writing the obligations of the Company under this Debenture and immediately
after such transaction no Event of Default exists. Any reference herein to the
Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption.
Article 5. Reports
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or current report that it files
with the Securities and Exchange Commission promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that it
gives to its shareholders generally at the time such report or statement is sent
to shareholders.
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company fails to comply with any of its agreements in this Debenture and such
failure continues for the period and after the notice specified below, (b) the
Company pursuant to or within the meaning of any Bankruptcy Law (as hereinafter
defined): (i) commences a voluntary case; (ii) consents to the entry of an order
for relief against it in an involuntary case; (iii) consents to the appointment
of a Custodian (as hereinafter defined) of it or for all or substantially all of
its property or (iv) makes a general assignment for the benefit of its creditors
or (v) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (A) is for relief against the Company in an involuntary
case; (B) appoints a Custodian of the Company or for all or substantially all of
its property or (C) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for 60 days. As used in this Section 6.1,
the term "Bankruptcy Law" means Title 11 of the United States Code or any
similar federal or state law for the relief of debtors. The term " Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law. A default under clause (c) above is not an Event of Default
until the holders of at least 25% of the aggregate principal amount of the
Debentures outstanding notify the Company of such default and the Company does
not cure it within five (5) business days after the receipt of such notice,
which must specify the default, demand that it be remedied and state that it is
a "Notice of Default".
Section 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
remaining principal amount of this Debenture to be due and payable. Upon such
declaration, the remaining principal amount shall be due and payable
immediately.
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered series of
Debentures which are identical except as to the principal amount and date of
issuance thereof and as to any restriction on the transfer thereof in order to
comply with the Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are referred to
herein collectively as the "Debentures". The Debentures shall be issued in whole
multiples of $5,000.
Section 7.2. Record Ownership. The Company, or its attorney, shall
maintain a register of the holders of the Debentures (the "Register") showing
their names and addresses and the serial numbers and principal amounts of
Debentures issued to or transferred of record by them from time to time. The
Register may be maintained in electronic, magnetic or other computerized form.
The Company may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of this Debenture is
the person exclusively entitled to receive payments of interest on this
Debenture, receive notifications with respect to this Debenture, convert it into
Common Stock and otherwise exercise all of the rights and powers as the absolute
owner hereof.
Section 7.3. Registration of Transfer. Transfers of this Debenture may
be registered on the books of the Company maintained for such purpose pursuant
to Section 7.2 above (i.e., the Register). Transfers shall be registered when
this Debenture is presented to the Company with a request to register the
transfer hereof and the Debenture is duly endorsed by the appropriate person,
reasonable assurances are given that the endorsements are genuine and effective,
and the Company has received evidence satisfactory to it that such transfer is
rightful and in compliance with all applicable laws, including tax laws and
state and federal securities laws. When this Debenture is presented for transfer
and duly transferred hereunder, it shall be canceled and a new Debenture showing
the name of the transferee as the record holder thereof shall be issued in lieu
hereof. When this Debenture is presented to the Company with a reasonable
request to exchange it for an equal principal amount of Debentures of other
denominations, the Company shall make such exchange and shall cancel this
Debenture and issue in lieu thereof Debentures having a total principal amount
equal to this Debenture in such denominations as agreed to by the Company and
Holder.
Section 7.4. Worn or Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has been
lost, destroyed or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice to
the Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of the
Debenture at its address as it appears on the Register or if to the Company to
its principal executive offices, with a copy by fax to Gary B. Wolff, Esq. 747
Third Avenue, New York, NY 10017. The time when such notice is sent shall be the
time of the giving of the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A "business day" shall
mean a day on which the banks in New York are not required or allowed to be
closed.
Article 10. Waivers
The holders of a majority in principal amount of the Debentures may
waive a default or rescind the declaration of an Event of Default and its
consequences except for a default in the payment of principal or conversion into
Common Stock.
Article 11. Rules of Construction
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this Debenture
shall be governed and construed by the provisions hereof and in accordance with
the laws of the State of New York applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of New York.
Article 13. Litigation
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of New York. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal courts of the
State of New York for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of New York. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction . Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the State of New York and the parties hereby
irrevocably submit to the non-exclusive jurisdiction of such courts for the
purpose of any such action or proceeding.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first written above.
SWISSRAY INTERNATIONAL, INC.
By
Name: Ruedi G. Laupper
Title: Chairman and President
<PAGE>
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debentures.)
The undersigned hereby irrevocably elects, as of ______________, 199_
to convert $_________________ of the Debentures into Shares of Common Stock (the
"Shares") of SWISSRAY INTERNATIONAL, INC. (the "Company") according to the
conditions set forth in the Contingent Subscription Agreement dated
_________________,1999.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
- ------------------------------------------------------------
Phone______________________ Fax___________________________
<PAGE>
Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
(name, address and SSN or EIN of assignee)
Dollars ($ )
- --------------------------------------------------------------------------------
(principal amount of Debenture, $5,000 or integral multiples of $5,000)
of principal amount of this Debenture together with all accrued and unpaid
interest hereon.
Date: Signed:
(Signature must conform in all respects to
name of Holder shown on face of Debenture)
Signature Guaranteed:
<PAGE>
Exhibit 10.62
PROMISSORY NOTE
$1,400,000.00 Switzerland
August , 1999
FOR VALUE RECEIVED, the undersigned, SWISSRAY INTERNATIONAL INC., a New
York corporation (the "Borrower"), hereby promises to pay to the order of
ABERDEEN AVENUE, LLC (the "Lender"), the principal amount of $1,400,000.00 in
lawful money of the United States of America in same day or other immediately
available funds, together with interest, payable on or before November __, 1999.
In the event that this note is paid off on or before September __, 1999, then
the Borrower shall pay the principal amount of $1,400,000 together with accrued
interest of three percent (3.0%) totaling $42,000.
In the event that this note is paid off after September __, 1999, the
Borrower shall still be responsible for the $60,000 of accrued interest. Also,
any principal amount still outstanding on September __, 1999, shall bear
interest at a rate equal to three percent (3.0%) per thirty calendar day period
on a pro rata basis until November __, 1999, (ie., Payment in full by the
Borrower on November __, 1999 would be $1,484,000).
Upon default in the payment of this Note when due on November __, 1999,
the principal amount of this Note shall bear interest, commencing on November
__, 1999 until paid in full, at the rate of five percent (5.0%) per thirty
calendar day period as liquidated damages, and the entire amount of this debt
shall become due and payable without the necessity for demand or notice,
together with all costs of collection, including reasonable attorney's fees.
The obligations of Borrower under this Note are secured under the
provisions of that certain Security Agreement dated August __, 1999, by the
"Collateral" and all "proceeds" as those terms are defined in the Security
Agreement. The Collateral shall be purchase orders totaling $1,400,000, copies
of which are attached hereto as Exhibit A.
The Borrower acknowledges that its failure to pay this Note in full on
November __, 1999 will cause the Lender to suffer damages in an amount that will
be difficult to ascertain. Accordingly, the parties agree that it is appropriate
to include in this Note a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to quantify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty.
Borrower hereby waives presentment, protest, notice of protest and
notice of dishonor of this Note. The non-exercise by the Lender of any rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any other subsequent instance. The Borrower shall no create any class
of indebtedness that ranks senior to this Note.
Nothing contained herein shall be deemed to establish or require the
payment of a rate of interest in excess of the maximum rate permitted by
applicable law. In the event that the rate of interest required to be paid
hereunder exceeds the maximum rate permitted by such law, such rate shall
automatically be reduced to the maximum rate permitted by such law.
The Borrower and any endorsers hereof, for themselves and their
respective representatives, successors and assigns expressly (a) waive
presentment, demand, protest, notice of dishonor, notice of non-payment, notice
of maturity, notice of protest, diligence in collection, and the benefit of any
applicable exemptions, including, but not limited to, exemptions claimed under
insolvency laws, and (b) consent that the Lender may release or surrender,
exchange or substitute any property or other collateral or security now held or
which may hereafter be held as security for the payment of this Promissory Note,
or may release any guarantor, or may extend the time for payment or otherwise
modify the terms of payment of any part or the whole of the debt evidenced
hereby.
Borrower hereby grants to Lender a security interest in the Collateral
to secure the payment of the entire Note balance. As to any Collateral, Lender
shall have the rights of a secured party under the Uniform Commercial Code as in
effect in the State of New York.
SECURED CREDITORS. Borrower represents and warrants that it shall not create or
incur any indebtedness or obligation for borrowed money except for indebtedness
with respect to trade obligations and other normal accruals in the ordinary
course of business not yet due and payable, and shall not grant any other
security interests until payment and performance in full of the obligations
hereunder, unless Lender otherwise consents in writing. Borrower represents,
warrants and covenants that the Collateral and proceeds are not subject to any
security interest, lien, prior assignment, or other encumbrance of any nature
whatsoever except for the security interest created by this Note.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees that from the date
hereof until payment and performance in full of the obligations hereunder,unless
Lender otherwise consents in writing:
(a) Use of Proceeds. The proceeds disbursed under the Note shall be
used solely for working capital and/or costs related to assembly and delivery of
Borrower's ddR-Multi System.
(b) Borrower represents and warrants that there are no actions, suits,
investigations or proceedings pending or threatened against or affecting the
validity or enforceability of this Note and there are no outstanding orders or
judgments of any court or governmental authority or awards of any arbitrator or
arbitration board against the Borrower, except as may be indicated in Borrower's
current Registration Statement on Form S-1 as filed with the SEC under File No.
333-59829.
DEFAULT. If any of the following events occur (a "default"), Lender may declare
the entire Note balance, together with any other amounts that Borrower owes
Lender, to be immediately due and payable:
(a) Borrower fails to pay when due any principal or interest under
the terms of this Note;
(b) Borrower fails to observe or perform any covenant or agreement
set forth in this Note or in any instrument, document or agreement concerning
the Collateral;
(c) Borrower makes a general assignment for the benefit of its
creditors, files or become the subject of a petition in bankruptcy, for an
arrangement with its creditors or for reorganization under any federal or state
bankruptcy or other insolvency law;
(d) Borrower files or becomes the subject of a petition for the
appointment of a receiver, custodian, trustee or liquidator of the party or of
all or substantially all of its assets under any federal or state bankruptcy or
other insolvency law;
(e) Borrower is voluntarily or involuntarily terminated or
dissolved;
(f) Borrower or any accommodation maker, endorser or guarantor enters
into any merger or consolidation, or sale, lease, liquidation or other
disposition of all or substantially all of its assets or any transaction outside
the ordinary course of its business or for less than fair consideration or
substantially equivalent value without Lender's prior written consent; or
(g) Any written representation or written statement made herein or
any other written representation or written statement made or furnished to
Lender by Borrower was materially incorrect or misleading at the time it was
made or furnished.
(h) Borrower fails to provide by November __, 1999, Purchase Orders
totaling $1,400,000.
LITIGATION.
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
on or arising out of, under, or in connection with, this Promissory Note shall
be brought and maintained exclusively in the federal courts of the State of New
York. The parties hereby expressly and irrevocably submit to the jurisdiction of
the federal courts of the State of New York for the purpose of any such
litigation as set forth above and irrevocably agrees to be bound by any final
judgment rendered thereby in connection with such litigation. The Borrower
further irrevocably consents to the service of process by registered mail,
postage prepaid, or by personal service within or without the State of New York.
The Borrower hereby expressly and irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter may have to the
laying of venue of any such litigation brought in any such court referred to
above and any claim that any such litigation has been brought in any
inconvenient forum. To the extent that the Borrower has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, the Borrower
hereby irrevocably waives such immunity in respect of its obligations under this
agreement and the other loan documents.
(b) Waiver of Jury Trial. The Lender and the Borrower hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Lender or the Borrower.
The Borrower acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Lender entering into this agreement.
MISCELLANEOUS.
(a) All pronouns and any variations thereof used herein shall be
deemed to refer to the masculine, feminine, impersonal, singular or plural, as
the identity of the person or persons may require.
(b) Neither this Promissory Note nor any provision hereof shall be
waived, modified, changed, discharged, terminated, revoked or canceled, except
by an instrument in writing signed by the party effecting the same against whom
any change, discharge or termination is sought.
(c) Notices required or permitted to be given hereunder shall be
in writing and shall be deemed to be sufficiently given when personally
delivered or sent by registered mail, return receipt requested, addressed: (i)
if to the Borrower, c/o Gary B. Wolff 747 Third Avenue, 25th Floor New York, NY
10017 and (ii) if to Lender c/o Joseph B. LaRocco, Esq. 49 Locust Avenue, Suite
107, New Canaan, CT 06840.
(d) This Promissory Note shall be enforced, governed and construed in
all respects in accordance with the laws of the State of New York, as such laws
are applied by New York courts to agreements entered into, and to be performed
in New York by and between residents of New York, and shall be binding upon the
undersigned, the undersigned's heirs, estate, legal representatives, successors
and assigns and shall inure to the benefit of the Lender, its successors and
assigns. If any provision of this Promissory Note is invalid or unenforceable
under any applicable statue or rule of law, then such provisions shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof that
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
THE BORROWER ACKNOWLEDGES THAT THE TRANSACTIONS IN CONNECTION WITH
WHICH THIS NOTE WAS EXECUTED AND DELIVERED AND WHICH ARE CONTEMPLATED BY THE
TERMS OF THE AGREEMENT ARE, IN ALL CASES, COMMERCIAL TRANSACTIONS; AND THE
BORROWER HEREBY EXPRESSLY WAIVES ANY AND ALL CONSTITUTIONAL RIGHTS IT MAY HAVE
AS NOW CONSTITUTED OR HEREAFTER AMENDED, WITH REGARD TO NOTICE, ANY JUDICIAL
PROCESS AND ANY AND ALL OTHER RIGHTS IT MAY HAVE, AND THE LENDER MAY INVOKE ANY
PREJUDGMENT REMEDY AVAILABLE TO IT OR ITS SUCCESSORS OR ASSIGNS.
SWISSRAY INTERNATIONAL INC.
By_________________________________________
Ruedi G. Laupper its Chairman and President
duly authorized
<PAGE>
Exhibit 10.63
Contract
between
Rolcan Finance Ltd., c/o Akar Verwaltungs AG, Seestrasse 17
CH-8702 Zolliken ("ROLCAN")
and
Swissray International, Inc. Turbistrasse 25-27,
CH-MO Hochdorf
The purpose of this contract entered into on April 14, 1999 is to facilitate the
endeavors of SRMI's medium and long term business plans. The services rendered
by ROLCAN include but are not limited to:
The introduction of the SRMI management group to respective financial
partners, financial brokers, and the continued development of market
awareness for the underlying common stock of SRMI. These introductions will
include an emphasis on introductions to offshore investors in Europe, the
Middle East, and the Far East. In this regard we will also be assisting the
Company in having its stock listed on various European exchanges.
ROLCAN and its associates have succeeded in introducing SRMI to a major
highly respected public relations company in the United States. Liviakis
Financial Communications. After proper due diligence, the P.R. company has
agreed to enter into long term agreement with SRMI in providing its
expertise in the market place.
ROLCAN will continue to monitor the financial requirements of SRMI and the
performance of the underlying equity.
ROLCAN, with SRMI will also develop the coordination of important pending
news announcements to be disseminated to the respective shareholders.
This contract is entered into for a period of 18 months from the date of
signing. For services rendered, in particular the introduction and co-ordination
of Liviakis Financial Communications, and additional services as described
above, ROLCAN'S one time fee is 800,000 shares of common stock in SWISSRAY
International, Inc. to be piggy-backed in the registration statement.
With the acceptance of the above and the ratification by the board of SRMI,
ROLCAN hereby requests SRMI to have the shares issued by SRMI's legal counsel,
Mr. Gary B. Wolff, and delivered physically to ROLCAN's associate, Mr. Alfred
Hahnfeldt.
Entered into this 14th day of April, 1999.
ROLCAN FINANCE LTD. SWISSRAY INTERNATIONAL, INC.
By ___________________ By _______________________
Roland Kaufmann Ruedi G. Laupper
Director Chairman and President
<PAGE>
ON LETTERHEAD
Swissray
Hrs4 In @ dhot.1 @y.
AUTHORIZED DISTRIBUTOR AGREEMENT
THIS AGREEMENT (the "Agreement") is made effective the day of,
September 10, 1998, by and between Swissray America, Inc. a Delaware
corporation, having its principal place of business at 5801 Soundview Drive,
Suite 50, Gig Harbor, Washington 983J5 (which with its successors and assigns is
hereinafter called "Swissray") and
Distributor's Full Legal Name)
an individual,.partnership or corporation
(if a corporation show name of state incorporated)
having its principal place of business at
(DBA, if different from legal name)
(street Address)
(City/Town) (State) (Zip)
(which, with its successors and permitted assigns, is hereinafter called
"Distributor").
BACKGROUND
A. Swissray is engaged in, among other things, the design, development,
manufacture, sale and distribution of high quality diagnostic imaging equipment
to the medical profession, hospitals, clinics, national accounts and government
purchasers and has established a quality image and goodwill among consumers in
the diagnostic imaging marketplace.
B. Swissray desires to appoint a limited number of Distributors to sell
certain
<PAGE>
Swissray products and accessories thereto (hereinafter individually and
collectively called "Swissray Products" or "Products"). Distributor desires to
be appointed as an authorized Swissray Distributor, and hereby warrants and
represents to Swissray that it shall at all times meet each of its requirements
and obligations set forth in this agreement.
C. Based upon the foregoing, and in reliance thereon, Swissray
and Distributor
agree as follows:
Swissray
1 Distributor APPOINTMENT
1.1 Swissray hereby appoints distributor as an authorized Swissray
Distributor for those Swissray Products listed in Exhibit A, annexed hereto.
Exhibit A may be revised from time to time at Swissray's sole, absolute
discretion upon sixty (60) days' prior written notice to Distributor. In the
event that Distributor objects to such revision, it may so notify Swissray in
writing and if within ten (10) days after such notice Swissray and Distributor
do not reach agreement with regard to such revision, Distributor may terminate
this Agreement upon fifteen (15) days' prigr written notice to Swissray.
Distributor's appointment hereunder shall not apply to any Swissray Products
except those listed in Exhibit A, as that Exhibit may be revised from time to
time.
1.2 The term of this agreement shall commence on the effective date
set forth above and shall continue in full force and effect for a period of 1
(one) year after which all terms of this agreement may be reconsidered.
1.3 Distributor hereby accepts the aforesaid appointment.
1.4 Distributor's appointment as an authorized Swissray
Distributor shall be exclusive.
1.5 Distributor's appointment as an authorized Swissray Distributor
excludes OEM agreements; both in product and territory that Swissray has
enforce. Distributor shall comply with the terms of any OEM agreement.
1.6 Distributors appointment as an exclusive distributor excludes
Yale New Haven and West Haven VA, Connecticut for 2 current Swissray
quotations.
o DISTRIBUTOR STANDARDS
Distributor agrees that it shall at all time fulfill each of
the requirements (hereinafter collectively called "Distributor Standards")
expressed in this paragraph 2 in general and, except for the Distributor
Standards at paragraph 2.04(b) and 2.08, at each of Distributor's outlets
authorized pursuant to paragraph 3, below, (hereinafter called "Authorized
Retail Outlet"):
<PAGE>
2.1 Facilities.
Distributor shall maintain both the interior and exterior of each
Distributors locations) consistent with those of other high quality medical
equipment providers.
Swissray
2.2 Sales and Promotional Efforts.
2.2.1 Distributor shall use its best efforts to promote and
sell Swissray Products through sales, advertising and other marketing programs
and promotions, which emphasize the high quality, prestige, and sophistication
of the Products. Distributor will comply with the lawful advertising policies
and guidelines issued by Swissray from time to time including, without
limitation, compliance with the requirements of any cooperative advertising
program that Swissray might have in effect.
2.2.2 Distributor shall utilize promotional materials
supplied free of charge by Swissray and shall make Swissray Product catalogues
and sales literature available to customers.
2.2.3 Distributor's promotional and sales efforts relative
to Swissray Products shall be consistent with Swissray's management business
practices.
2.3 Demonstration and Display.
All Swissray Products displayed by Distributor shall be maintained in
good condition.
2.4 Inventory and Purchase Requirements.
2.4.1 When applicable the Distributor shall maintain
reasonable quantities of back up inventory for all Swissray Products which it
displays.
2.4.2 Swissray may, from time to time, establish for
Distributor written minimum requirements (the "Requirements") to purchase
Products within specified periods of time (Exhibit F) . If 'within thirty (30)
days of the date the Requirements are provided to Distributor (sixty (60) days
if such Requirements are provided other than at the commencement of this
Agreement or renewal thereof), Distributor does not object thereto in writing,
Distributor will be deemed conclusively to have accepted the Requirements as
reasonable and such agreement will then be deemed an integral part of this
Agreement.
2.4.3 If Distributor objects to the Requirements, then,
within ten (10) days from the date thereof, Swissray may, but need not, agree
in writing to a reduction in the Requirements, and, if it does not do so, then
either party at any time thereafter may terminate this Agreement at will,
without further cause, by giving the other party fifteen (15) days' written
notice.
<PAGE>
2.4.4 In addition to its obligations to purchase the
Requirements, Distributor's inventory of the Products shall at all times be
sufficient in quantity and mix to enable Distributor to
Swissray
provide immediate delivery to customers desiring to purchase the
Products based on expected sales volumes and Product delivery dates.
2.4.5 Personnel and Training.
Distributor shall maintain at least one person at each office who is
conversant with audio and video products in general and Swissray Products in
particu - lar. To this end, Distributor shall require such persons to be
familiar with the specifications, features and technical advantages of
Swissray Products as set forth in literature and training material that may be
provided by Swissray. Distributor shall use reasonable efforts to participate
in local or regional training programs, which Swissray may run from time to
time.
2.5 Service and Warranty.
Distributor shall not make or attempt to make warranty repairs to the
Products without the advance written authorization of Swissray.
2.6 Consumer Relations and Trade Practices.
2.6.1 Distributor shall conduct its
business
operations in such manner so as to
promote good customer relations.
2.6.2 Distributor shall at no time engage
in "bait
and switch" or any other unfair or deceptive trade practice with respect to
Swissray Products, and shall make no false, misleading or disparaging
representations concerning Swissray or the Products in advertisements or
otherwise.
2.6.3 Distributor shall make no representations to customers
or to the trade with respect to the specifications or features of Swissray
Products, except such as may be approved in writing or published by Swissray.
2.6.4 Distributor shall advise Swissray promptly
concerning any information that may come to its attention as to charges,
complaints or claims about Swissray Products by Distributor's customers or
other persons.
<PAGE>
2.6.5 Distributor will not imitate Swissray products or
infringe in any way upon Swissray's trademarks, trade dress or other
intellectual property, and will not involve itself in any way in the sale of
imitations of Products or the sale of any Swissray brand products not intended
for sale in the United States (i.e., gray market goods).
2.7 Distributor Reports.
Swissray
From time to time Swissray may ask Distributor to prepare and forward
to Swissray reports relevant to Distributor's business regarding Swissray
Products. All reports submitted by Distributor will become the property of
Swissray. Swissray will use reports .submitted by Distributor only for
Swissray's internal purposes in connection with this Agreement and for no
other purpose. Swissray shall not disclose such reports to third parties
except its professional advisors and then only in connection with this
Agreement.
2.8 Compliance with Laws.
Distribu tor and Swissray shall comply with all applicable federal,
state and local laws and regulations in performing its duties hereunder and in
any of its dealings with Swissray Products.
3 SUPPORT BY SWISSRAY Swissray shall provide Distributor with
support, as
follows:
3.1 Swissray shall maintain such promotional programs as it believes
in its sole, absolute judgment will enhance the sale of
the Products.
3.2 Swissray shall, from time to time, make sales Literature and other
promotional materials available to Distributor.
3.3 Swissray shall maintain a network of authorized service
centers, which shall provide both in-warranty and out-of-warranty services to
consumers.
3.4 Swissray shall, as may be necessary or appropriate from
time to time, provide technical assistance to Distributor
concerning Swissray Products.
3.5 From time to time Swissray may suggest the level of resale
pricing of Products.
<PAGE>
However, Distributor's resale prices, and its sales policies, shall be
established solely by Distributor, and Swissray, its employees and agents
retain no control of such resale prices or sales policies.
4 GOVERNING TERMS AND CONDITIONS; PRICES, ORDERING AND
FINANC@ REQUIREMENTS
4.1 For purposes of this Agreement, "Terms of Sale" shall mean the
terms set forth in Exhibit C, annexed hereto, and found on the reverse side of
each Swissray invoice, as such Terms of Sale may be replaced, supplemented or
modified, and "Price Scbedules" shall mean the Swissray Confidential Price
Schedules as are issued and replaced, supplemented or modified from time to
time by
Swissray
Swissray. The Terms of Sale, Price Schedules are collectively referred to as the
"Terms and Prices." The terms and conditions solely and exclusively governing
the relationship of the parties to this Agreement and the sale of Products to
Distributor will be as set forth in this Agreement and in both the Swissray
Terms of Sale, and Price Schedules, as applicable. The provisions of this
Agreement and the Terms and Prices are cumulative. Nevertheless, except as
specifically stated in this Agreement to the contrary, and except with respect
to this paragraph 4.1 which shall be paramount, in the event of any
irreconcilable conflict between this Agreement and the Terms and Prices, the
latter will prevail.
4.2 From time to time, Swissray may issue policies relating to the sale
of Products including, without limitation, policies covering credit matters,
product repair or replacement or. product returns; it may also issue from time
to time special programs containing terms and conditions of sale which
temporarily add to or deviate in part or in whole from the Terms and Prices.
Such additional or different terms and conditions, while in effect, supersede
the Terms and Prices to the extent of any conflict with them. Upon their
issuance, and as replaced, supplemented or modified, such policies and such
additional or different terms and conditions will be deemed a part of the Terms
and Prices and will be binding upon Swissray and Distributor with respect to
orders accepted after their issuance.
4.3 Distributor will purchase Products at Swissray's
standard prices as set forth in the Price Schedules
in effect at
the time the order is placed, less all applicable
discounts and
allowances as set forth in the Terms and Prices. Prices, less such discounts and
allowances, shall be set forth on Swissray's invoice to Distributor.
Notwithstanding anything to the contrary, all prices, discounts and allowances
are subject to change by Swissray upon their issuance and without advance
notice.
<PAGE>
4.4 Distributor will order Products from Swissray in accordance with
ordering procedures established by Swissray from time to time. All purchase
orders must be submitted by Distributor in writing to Swissray's sales
representative or, if a sales representative is not involved, directly to
Swissray. Telephone purchase orders must be confirmed in writing. All orders are
subject to acceptance in writing at Swissray's principal place of business. Any
shipment of Products to Distributor in whole or in partial fulfillment of any
purchase order of Distributor will not be deemed to constitute an acceptance by
Swissray of any of the terms and conditions of such purchase order, except as to
identification of Products and the quantities involved, unless otherwise
expressly agreed to in writing by Swissray. Swissray reserves the right to
accept or reject orders in whole or in part in its sole, absolute discretion.
Swissray shall also have the right in its sole, absolute discretion to cancel
any backorders even if such orders have been accepted previously by
Swissray
acknowledgment, partial shipment or otherwise.
4.5 Distributor represents and warrants to Swissray that it is in good
and substantial financial condition and is able to pay all bills when due. At
Swissray's request, Distributor shall furnish financial statements or
additional information as may be necessary or appropriate to enable Swissray
to determine Distributor's creditworthiness.
4.6 Sales will be made on the credit terms in effect at the time that
an.order is accepted. Swissray shall have the -right to establish credit
limits for Distributor. If Distributor becomes delinquent in payment
obligations or other credit or financial requirements established by Swissray,
or, if in the opinion of Swissray, Distributor's credit becomes impaired,
Swissray 1, may from time to time at its sole, absolute discretion, in
addition to any rights or remedies provided by applicable law or the Terms of
Sale, alter Distributor's credit limits (or other financial requirements
established by Swissray) and take such actions as it may deem necessary to
protect its financial position. '
4.7 Swissray's standard terms and conditions shall apply to all
transactions. (See
attached Swissray Terms and Conditions)
5 CHANGES IN PRODUCTS, PARTS OR POLICIES
Unless otherwise provided by applicable laws, Swissray may at any time
add, change or cease making available any of the Products or parts without
advance notice to Distributor, and Swissray shall not be liable to Distributor
for failure to furnish the Products or parts of the
<PAGE>
model, design or type previously sold.
6 DURATION OF AGREEMNT AND TERMINATION
6.1 Unless earlier terminated as provided below, this Agreement shall
remain in effect from one (1) year next following the date upon which this
Agreement becomes effective as set forth on the first page of this Agreement.
This Agreement may be renewed for one or more one-year periods if each party
hereto gives written notice of such intent to the other party not less than
sixty (60) days prior to the expiration of the initial or any renewal term.
If, after the expiration of the initial or any renewal term, the Agreement has
not been renewed as above provided, and if the parties nonetheless continue to
do business, then the Agreement will continue in effect subject to all of its
terms and conditions except that either party shall have the right to
terminate the Agreement with or without cause, for any reason or for no
reason, upon thirty (30) days' written notice to the other party.
-7-
Swissray
6.2 This Agreement may be terminated prospectively as
follows:
6.2.1 Distributor may terminate this Agreement at any time,
with or without cause, for any reason of for no reason, on 30 days' prior
written notice to Swissray or upon 15 days' prior written notice as provided in
paragraphs 1.01, 2.04(c), above, or 11.07, below.
6.2.2 Swissray may terminate this
Agreement as follows:
6.2.2.1 Swissray may terminate this
Agreement by giving Distributor 30
days' prior written notice in the event Distributor will have failed to fulfill
or perform any one or more of the duties, obligations or responsibilities
undertaken by it pursuant to paragraphs 2, 5.06 and 11.01 of this Agreement and
paragraphs 2, 5 [except with respect to non-payment provided for in paragraph
7.02(b) (ii) (4), below] and 6(c) of the Terms 'of Sale, or in the event of any
change of which Distributor is required to notify Swissray pursuant to paragraph
11.09 of this Agreement, except that Swissray may terminate this Agreement upon
15 days' prior written notice as provided in paragraph 2.04(c), above.
6.2.2.2 Swissray may terminate this
Agreement by giving Distributor
written notice, effective immediately, in any of the following events:
6.2.2.2.1 If Distributor has
continued in default of any duty,
obligation or responsibility [other than as
<PAGE>
provided for in paragraph 7.02(b)(i), above, or other than as provided for in
this paragraph 7.02(b)(ii)) imposed on it by this Agreement, for 30 days after
Swissray gives written notice to Distributor of such default;
6. 2. 2. 2. 2 Any assignment or
attempted assignment by
Distributor of any interest in this Agreement, or any
violation of paragraph 8, below in connection with a bulk sale or transfer; (I
6.2.2.2.3 If Distributor becomes
insolvent, files or has filed
against it a petition in bankruptcy, makes a general assignment for the benefit
of its creditors or
has a
receiver or trustee appointed for its business or a substantial portion of its
properties;
6.2.2.2.4 If Distributor defaults in
the payment of any
indebtedness to Swissray when and as the same becomes due and payable, if such
default has
continued for a period
of 10 days after written notice of such default is given to
Distributor; or
6.2.2.2.5 If Distributor makes a
material false representation,
report or claim in connection with the
PA
Swissray
business relationship of the parties, or engages in fraud or criminal
misconduct.
6.3 Termination of this Agreement by Swissray for' cause or termination
by Distributor with or without cause shall automatically accelerate the due date
of all invoices for Swissray Products so that they shall become immediately due
and payable as set forth in paragraph 5 of the Terms of Sale on the effective
date of termination, even if longer terms had been previously agreed to.
6.4 Termination of this Agreement by either party shall automatically
cancel all open orders without liability., In the event of termination of this
Agreement by either party wi@h advance notice, Swissray shall, at its sole
option, be entitled to reject all or part of any orders received from
Distributor after notice but prior to the effective date of termination.
Notwithstanding any credit terms made available to Distributor prior to that
time, any Swissray Products shipped during said final period shall be paid for
by certified or cashier's check prior to shipment.
<PAGE>
6.5 Within ten (10) days following the effective date of termination of
this Agreement, Distributor shall submit to Swissray a list of all new,
undamaged and current Swissray Products owned by Distributor as of the effective
date of termination. Swissray shall have the option in its sole, absolute
discretion to repurchase (but shall not be obligated to repurchase) any or all
of the Products upon providing written notice of its intention to Distributor
within thirty (30) days after receipt of the list of the Products from
Distributor. Upon receipt of notice that Swissray intends to exercise its
repurchase option, Distributor will cause the Products selected by Swissray for
repurchase to be delivered to such place(s) in the United States as Swissray may
designate, freight pre-paid. Swissray shall have the right to inspect all
returned merchandise before establishing final disposition. Upon inspection,
Swissray shall be entitled to reject and return to Distributor, freight collect,
any of the Products which, in Swissray's sole, absolute judgment, are in
unacceptable condition. Distributor shall be credited for any accepted Swissray
Products at the lower of: (i) the net invo ice prices at which the Products were
originally purchased by Distributor, less any allowances which Swissray may have
given Distributor on arccount of the Products; or (ii) the price for such
Products prevailing at the effective date of termination of this Agreement, and,
in both cases, less the costs of repair, refurbishing or repackaging, as may be
necessary, and a minimum fee for restocking equal to 15% of the net invoice
price credited to Distributor for Returned Products.
6.6 Neither Swissray nor Distributor shall be liable to the other
because of the termination of this Agreement (regardless of the circumstances
thereof) for compensation, reimbursement or damages of any kind, including,
without limitation, damages because
-C)-
Swissra
fimlin@dhotw"ayy
of loss of prospective profits or because of expenditures, investments, leases
or any other types of commitments made in connection with the business of
either of them. In the '.event of termination, Distributor shall remain liable
for all outstanding invoices and unpaid accounts and Swissray shall remain
liable for all credits due to Distributor with respect to requests for credit
submitted by Distributor prior to termination or within ninety (90) days
thereafter.
6.7 Upon termination of this Agreement, each party shall
immediately:
6.7.i Discontinue any and all use of the trademarks of the
other party, including such use in advertising or business materials of the
other party (except as necessary to sell Products remaining in Distributor's
inventory after termination, but in no event more than one
<PAGE>
hundred twenty (120) days after termination; and
6.7.2 Remove or obliterate any and all signs which designate
Distributor as an authorized Swissray Distributor or which include any
trademark of Swissray, and cease holding itself out, in any other manner, as
an authorized Swissray Distributor; and
6.7.3 Notify and instruct publications and others which may
list or publish Distributor's name as an authorized Swissray Distributor
(including telephone directories, yellow pages and other business directories)
to discontinue such listings.
7 ASSIGNMENT
7.1 Distributor is appointed as an authorized Swissray Distributor
because of Swissray's confidence in Distributor, which confidence is personal
in nature. Distributor may not assign, transfer or sell its rights under this
Agreement (or delegate its obligations hereunder) without the prior written
consent of Swissray, and any attempted assignment, transfer or sale (whether
by transfer of stock, assets or otherwise) , absent such written consent,
shall be null and void. Subject to these restrictions, the provisions of this
Agreement shall be binding upon and shall
inure to the benefit of the parties and their
permitted assigns.
7.2 Distributor shall not sell or otherwise transfer a major part of
its materials, supplies, merchandise or other inventory or a substantial part
of its equipment in connection with a sale or transfer of inventory without
first giving Swissray prior written notice as required by the Uniform
Commercial Code and other applicable law.
7.3 Distributor shall not consummate any sale or transfer
-in-
Swissra
Fimtki@dhOtaix-rayy
as set forth in paragraph 7.2, above, unless contemporaneously therewith
Distributor pays all sums due and payable to Swissray as determined in
accordance with paragraph 5 of the Terms of Sale, even if longer payment terms
had been previously agreed to.
7.4 If Distributor shall fail to pay to Swissray a@l monies due to
Swissray as provided in paragraph 7.3, above, then proceeds or other
consideration, tangible or intangible, received by Distributor in connection
with the transfer described inrparagraph 7.2, above, shall be deemed to be held
by the recipient of such proceeds in trust for the benefit of Swissray to the
extent of the amount due and payable to Swissray as provided in paragraph 7.3,
above. If the
<PAGE>
aforesaid proceeds or other consideration from such sale or transfer are not
received directly by Distributor, then Distributor shall cause the person or
other legal entity receiving such proceeds or consideration to hold such
proceeds or consideration in trust for the benefit of Swissray to the extent of
the amount due and payable to Swissray as provided in paragraph
7.3, above. Such trust shall be subordinate to
a prior security
interest held by a person financing all or
substantially all of
Distributor's inventory. In the event that a
trust arises
hereunder, Distributor shall give written notice of such trust to the buyer or
transferee of the materials, supplies, merchandise or other inventory or
equipment described in paragraph 7.2, above, and to Swissray.
7.5 If Distributor breaches any of its obligations under this paragraph
7 and Swissray is not paid the monies due as provided in paragraph 7.3, above,
then, in the event that Swissray chooses to pursue any rights it may have in any
forum in any jurisdiction to collect such monies from the aforesaid buyer or
transferee of Distributor, Distributor will indemnify and hold Swissray harmless
from and against any and all costs and expenses, including, without limitation,
reasonable attorneys' fees in connection with such pursuit.
7.6 Swissray retains the right to assign this contract in the
event the Swissray is sold
or merged.
Swissray
nmt bi @ d;otw xivv4
8 MUTLIAL REI.EASE AND LIMITATIONS ON FUTURE CLAIMS
8.1 Except as reserved in this paragraph 9.01, upon the mutual
execution of this Agreement, and any renewal thereof, Swissray and Distributor
hereby do and shall release each other of and from all manner of action and
actions, cause and causes of action, suits, contracts, controversies, damages,
claims and demands whatsoever, known or unknown, in law or in equity, whether
under laws and regulations of federal, state or municipal governments, under the
common law or otherwise, which sutli parties or their respective successors or
assigns ever had, now have, or which they or any of them hereafter can, shall or
may have against
the other party by reason of any matter, cause or thing whatsoever from the
beginning or time until the date hereof. Swissray reserves its rights against
Distributor for payment with respect to any outstanding invoices and open
accounts and with respect to the protection of its trademarks, other
intellectual property rights and goodwill, and Distributor reserves its right
against Swissray for any unissued credits, for prior accruals for cooperative
advertising, if applicable, for matters regarding the protection of
Distributor's trademarks and other intellectual property and for matters arising
out of Swissray's Product liability. All cooperative advertising claims
<PAGE>
must be submitted in accordance with Swissray's cooperative advertising policy.
8.2 Except as provided below in this paragraph 8.2, both Swissray and
Distributor agree that any cause of action or claim hereafter arising out of the
relationship between Swissray and Distributor, including any cause of action or
claim for alleged breach of this Agreement, shall be barred unless arbitration
(as provided in paragraph 10, below) or other action (if permitted by this
Agreement) is commenced by the aggrieved party within one (1) year after the
cause of action or claim first accrues. The aforesaid one (1) year limitation is
in lieu of all other applicable statutes of limitation which may be longer in
duration; however, such one (1) year period shall not apply to any causes of
action or claim asserted against Distributor by Swissray arising from any
delinquencies in payment for Swissray Products or asserted by Distributor with
respect to third-party claims arising out of Swissray's Product liability.
9 ARBITRATION AND GOVERNING LAW
Except with respect to each party's indemnity and the other rights of
each party set forth in paragraph 10.5, b6low, the Arbitration and Governing Law
provisions of paragraph 10 of the Terms of Sale attached as Exhibit C shall also
govern any controversy or claim arising out of or relating to this )Wgreement,
to the breach thereof, to the relationship created thereby or to
Swissray
the termination thereof, with the additional provision that if Distributor shall
breach the provisions of paragraph 7 of this Agreement, it shall pay all of the
costs and expense of Swissray, including, without limitation, reasonable
attorneys' fees, in connection with such arbitration. The arbitrators award
shall include such costs and expenses. The provisions of paragraph 9(d) of the
Terms of Sale attached as Exhibit C shall govern any controversy or claim
covered by paragraph 10.5, below.
9.1 The internal law of the State of New York, exclusive of its
conflict-of-laws principles shall govern claims or controversies that are not
the subject of arbitration under these Terms, for this purpose, both DISTRIBUTOR
and SWISSRAY h"ereby.
10 MISCELLANEOUS PROVISIONS
10.1 Swissray and Distributor agree that their relationship is that of
buyer and seller only, and Distributor shall be considered an independent
contractor at all times with respect to its relationship with Swissray. Nothing
in this Agreement shall be construed as creating the relationship of employer
and employee, master and servant, franchiser and franchisee, principal and agent
or joint venturers between the parties hereto. The relationship created by this
Agreement does not create the grant by Swissray of a franchise to Distributor,
and no federal or state franchise statute, law, regulation or rule will be
deemed or construed to apply to the formation, operation, administration,
expiration or termination of this Agreement. Except as
<PAGE>
authorized in writing neither party shall have any express or implied right or
authority to assume or create any obligation on behalf of the other party, and
shall not attempt to do so. This Agreement does not grant to either party a
license to use any trade name, trademark, service mark or trade dress of the
other party. Under no circumstance shall either party, its agents or employees,
be considered the agent of the other party, its agents and employees, and
neither party shall represent themselves directly or by implication as such.
10.2 The failure or refusal by Swissray either to insist upon the
strict performance of any provision of this Agreement or to exercise any right
in any one or more instances or circumstances shall not be construed as a waiver
or relinquishment of such provision or right, nor shall such failure or refusal
be deemed a custom or practice contrary to such provision or right. A waiver of
any provision of this Agreement must be in writing, signed by the waiving party
to be effective.
10.3 In the event that any of the provisions r of this Agreement or the
application of any such provisions to the parties hereto with respect to their
obligations hereunder shall be held by a court or other tribunal of competent
jurisdiction to be Unlawful,
Swissray
invalid, or void or unenforceable, the remaining provisions of this Agreement
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated. In the event, however, that any law, order,
regulation, direction, restriction or limitation, or interpretation thereof,
shall in the judgment of either party substantially alter the relationship
between the parties under this Agreement, or the advantages derived from such
relationship, such party may request the other
party hereto to modify this Agreement, and, if, within thirty (30) days
subsequent to the making of such request, the partibs hereto are unable ' to
agree upon a mutually satisfactory modification hereof, then either party may
terminate this Agreement without further cause on fifteen (15) days' prior
written notice to the other party.
10.4 The paragraph headings contained herein are for reference
only and shall not be
considered as substantive'.parts of
this Agreement. The use of the
singular or plural form shall
include the other form, and the use
of masculine, feminine or
neuter gender shall include the other
genders.
10.5 Each party agrees to and does hereby indemnify and hold harmless
the other party and will, at the other party's request, defend the other party,
its employees and agents, with respect to any claim, demand or liability
asserted by a third party against such other party which is based upon any act
or omission by the indemnifying party including, without limitation, any breach
of this Agreement, and from any and all expenses and liabilities resulting
therefrom (including, without limitation, reasonable attorneys' fees). Each
party acknowledges that,
<PAGE>
should it breach any of its covenants with respect to trademarks or other
intellectual property rights of the other party in this Agreement or in the
Terms of Sale attached as Exhibit C, the other party will be irreparably harmed
and will be entitled to an injunction preventing the other party from further
breaching the Agreement or the Terms of Sale attached as Exhibit C without any
further or more particularized showing of irreparable injury. Such an injunction
may be applied for before any Court having jurisdiction thereof. In any such
proceeding, the aggrieved party will be entitled to recover any damages it
suffers as a result of the other's breach, including, without limitation, the
recovery of any costs and reasonable attorneys' fees incurred in enforcing its
rights under this Agreement or the Terms of Sale attached to Exhibit C.
10.6 Neither party shall be liable under the provisions of this
Agreement for direct or indirect damages (except with respect to Distributor's
obligations to pay for Products) on accou@t of its failure to perform its
obligations under this Agreement on account of reasons beyond its absolute,
exclusive and unconditional control, and in no event shall either party be
liable for any indirect, special, incidental, punitive or consequential damages,
-14-
Swissray
Fkdlndhw diotal@y.
or loss of profits or financial investments, under any legal theory, sustained
by the other party (or any person transacting business with such other party)
in connection with its obligations under this Agreement or the relationship of
the parties hereunder.
10.7 Nothing contained herein shall be deemed to limit or affect
Swissray's rights to modify, amend or change, in any way it deems to be
necessary or appropriate, any of its Terms and Prices or its policies or
procedures, regardless of whether or not such modifications, amendments or
changes relate to matters contained in this Agreement; provided that, such
modification, amendment or change is prospective in nature and Distributor has
received notice of such modification, amendment or change prior to submitting
its purchase order. In the event that Distributor objects to any such
modification, amendment or change, it may so notify Swissray in writing, and
if within ten (10) days after such notices Swissray and Distributor do not
reach agreement with regard to such modification, amendment or change,
Distributor may terminate this Agreement upon fifteen (15) days' prior written
notice to Swissray.
10.8 Unless otherwise specified in this Agreement, all notices and
demands of any kind, which either Swissray or the Distributor may be required
or desire to serve upon the
<PAGE>
other under the terms of this Agreement, shall be in writing and shall be
served by personal delivery or by mail at their respective addresses set forth
in this Agreement or at such other addresses as may be designated by the
parties in writing. If by personal delivery, service shall be deemed complete
upon such delivery. If by mail, service shall be deemed complete upon the
expiration of the third day after the date of mailing, postage prepaid.
10.9 This Agreement has been entered into by Swissray with
Distributor in reliance upon:
10.9.1 Distributor's
representation that the
following person(s)
substantially participates) in the Ownership
of Distributor:
Name Address % Interest
10.9.2 Distributor's representation that the
Swissra
nmt 1. d"d dhotal -I.Y
following person(s) will have full managerial authority and
responsibility for the operating
management of Distributor in the
performance of this Agreement:
Name Position
Richard F. Ernst President
and
10.9.3 In the event of any contemplated change of
controlling ownership,
<PAGE>
Distributor.will give Swissray prior written notice thereof (except in the
event of a change caused by.the death of any such person(s), in which case
Distributor will give Swissray immediate written notice thereof), but no such
change or notice thereof will act as a waiver of any right of Swissray under
this Agreement or at law unless and until embodied in an appropriate written
waiver duly executed by the Vice President-Sales of Swissray.
10.10 This Agreement shall be effective only after its execution by
Distributor and its subsequent execution by an officer of Swissray at the
principal office of Swissray. No other employee or representative of Swissray
shall have any right or authority to execute this Agreement or any
modification or waiver of this Agreement or to bind Swissray to any other
agreement.
10.11 This Agreement, together with its Exhibits and any other
documents incorporated herein by reference, constitutes the entire Agreement
between the parties hereto pertaining to the subject matter hereof. Any and
all written or oral agreements heretofore or contemporaneously existing
between the parties pertaining to the subject matter of this Agreement are
expressly canceled. Except as otherwise provided by this Agreeme@t, this
Agreement may not be altered, modified, amended or otherwise changed, except
by a written instrument executed by both parties.
10.12 The rights and remedies of the parties under this Agreement and
the Terms, attached as Exhibit C, and Prices are cumulative with rights and
remedies provided at law or in equity. Even if not expressly provided in the
provisions of this Agreement, the obligations of a party which, if they are to
have their stated effect must survive the termination of this Agreement, shall
so survive for the period necessary to give full effect to their stated
purpose.
10.13 This Agreement has been executed in multiple
Swissra
nm In @ dhotw @lty
counterparts, each of which shall be deemed enforceable without production of
the others.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date and year first hereinabove written.
DISTRIBUTOR Swissray America,Inc.
By:
<PAGE>
Dist .-jjDur-or s k'U.Li Legal N
Title:
SignLture
By:
Name--p.r,-nt or type
Title:
Title: By:
Corp
(indicate office)
Title:
Partner, Proprietor
Dated: Dated:
-17-
<PAGE>
Exhibit 23.3(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated August 6, 1999 of our audit
of the financial statement of Swissray International, Inc. for the years ended
June 30, 1999 and 1998 in Swissray International, Inc.'s Amendment No. 2 to
Form S-1 filed September 12, 1999.
/Feldman Sherb Horowitz & Co., P.C./
FELDMAN SHERB HOROWITZ & CO., P.C.
New York, New York
September 12, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,281,552
<SECURITIES> 0
<RECEIVABLES> 2,617,007
<ALLOWANCES> 32,356
<INVENTORY> 7,701,145
<CURRENT-ASSETS> 13,069,257
<PP&E> 6,591,455
<DEPRECIATION> 581,077
<TOTAL-ASSETS> 25,914,597
<CURRENT-LIABILITIES> 11,984,554
<BONDS> 7,771,316
0
0
<COMMON> 41,426
<OTHER-SE> 6,117,301
<TOTAL-LIABILITY-AND-EQUITY> 25,914,597
<SALES> 22,892,978
<TOTAL-REVENUES> 22,892,978
<CGS> 18,081,786
<TOTAL-COSTS> 18,081,786
<OTHER-EXPENSES> 18,614,533
<LOSS-PROVISION> 133,196
<INTEREST-EXPENSE> 8,590,268
<INCOME-PRETAX> (22,808,032)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,808,032)
<DISCONTINUED> 0
<EXTRAORDINARY> 304,923
<CHANGES> 0
<NET-INCOME> (22,503,109)
<EPS-BASIC> (8.37)
<EPS-DILUTED> (8.37)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001002137
<NAME> SWISSRAY INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,224,828
<SECURITIES> 0
<RECEIVABLES> 4,602,443
<ALLOWANCES> 34,833
<INVENTORY> 8,321,841
<CURRENT-ASSETS> 15,452,346
<PP&E> 6,798,678
<DEPRECIATION> 794,307
<TOTAL-ASSETS> 27,802,124
<CURRENT-LIABILITIES> 15,064,487
<BONDS> 12,229,818
0
0
<COMMON> 46,380
<OTHER-SE> 93,714
<TOTAL-LIABILITY-AND-EQUITY> 27,802,124
<SALES> 10,101,147
<TOTAL-REVENUES> 10,101,147
<CGS> 7,969,342
<TOTAL-COSTS> 7,969,342
<OTHER-EXPENSES> 6,613,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,412,696
<INCOME-PRETAX> (6,253,197)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,253,197)
<DISCONTINUED> 0
<EXTRAORDINARY> (832,849)
<CHANGES> 0
<NET-INCOME> (7,086,046)
<EPS-BASIC> (1.53)
<EPS-DILUTED> (1.53)
</TABLE>
