<PAGE>
As filed with the Securities and Exchange Commission on May 2, 2000
REGISTRATION NO. 333-59829
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5 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] 16-0950197
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) 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
(917) 441-7841
(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.
<PAGE>
* 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/
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
---------- --- --- ----------- ---
Common Stock ($.01 par
<S> <C> <C> <C> <C> <C>
value per share) 17,272,712 $3.00 $51,818,136 $15,286.35(4)(5)(6)
</TABLE>
(1) Includes (a) 2,449,221 shares for previously issued restrictive shares
pursuant to Convertible Debentures referred to under Registration Nos.
333-50069 and 333-59829, (b) 11,406,550 shares (inclusive of 1,028,255
shares as may be issued for interest earned) 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) 3,000,000 shares being
registered pursuant to certain "piggy-back" registration rights granted
to otherwise unaffiliated purchasers pursuant to terms of subscription
agreements and registration rights agreements (see Part II, Item 15
"Recent Sales of Unregistered Securities") will be offered for resale
by certain 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"), (e) 250,000 shares being registered which
underlie certain outstanding Warrants (unrelated to aforementioned
convertible debentures and/or promissory notes) and (f) an aggregate of
81,864 shares being registered pursuant to certain "piggy-back"
registration rights granted to two otherwise unaffiliated firms in
<PAGE>
exchange for services rendered by such firms to the Company. Also
registered hereunder (and included in the 17,272,712 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 April 28,
2000, an average of $3.00.
(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 $9,628.93 was paid.
(5) Includes (a) 11,406,550 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
5,390,224 shares as indicated in footnote 1(b) through (e) inclusive.
(6) Required filing fee already paid for greater number of shares sought to
be registered under prior amendment filed September 13, 1999.
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>
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> In Prospectus
<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 MAY 2, 2000
PROSPECTUS
SWISSRAY INTERNATIONAL, INC.
17,272,712 Shares of Common Stock
This prospectus ("Prospectus") relates to the offer and sale of up to
17,272,712 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
11,406,550 shares of Common Stock which are issuable to certain persons (the
"Selling Holders") upon conversion of convertible debentures, issued in twelve
(12) separate financings from June 1998 through February 2000, (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) 2,449,221
additional shares of Common Stock heretofore issued as restrictive shares to
certain Selling Holders upon conversion of convertible debentures issued in
March 1998, June 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) 3,000,000 shares being
registered pursuant to certain "piggy- back" registrants rights granted to five
otherwise unaffiliated purchasers of Company Common Stock pursuant to terms of
Subscription and Registration Rights Agreements (see Part II, Item 15 "Recent
Sale of Unregistered Securities"), (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"), (v) 250,000 shares being registered which
underlie certain outstanding Warrants (unrelated to aforementioned convertible
debentures and/or promissory notes) and (vi) an aggregate of 81,864 shares being
registered pursuant to certain "piggy-back" registration rights granted to two
otherwise unaffiliated firms in exchange for services rendered by such firms to
the Company. The up to 17,272,712 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 4,562,229 restrictive shares already issued as indicated in (ii),
(iii), (iv) and (vi) of preceding paragraph) when added to the 23,311,782 shares
of common stock currently issued and outstanding would increase
<PAGE>
total issued and outstanding shares to 23,373,149 and would represent
approximately 10% 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 April 28, 2000 was $2.9062.
See also "Market Prices and Dividend Policy" hereinafter and in particular
footnote 1 thereto.
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 ____________, 2000.
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. Information may be obtained on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of this
material can also be obtained at prescribed rates from
-3-
<PAGE>
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.
-4-
<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 GmbH
(formerly known as Swissray (Deutschland) Rontgentechnik GmbH and 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 Medical 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 Telray 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
ddRMulti-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.
-5-
<PAGE>
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. Beginning in
1993, the Company began the development of direct digital X-ray technology for
medical diagnostic purposes.
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 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 which litigation was settled on August 31, 1999. 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.
-6-
<PAGE>
Organization Chart
SWISSRAY International, Inc.
New York
USA
<TABLE>
<CAPTION>
Swissray Information
<S> <C> <C> <C>
Swissray Medical AG Swissray America, Inc. Solutions, Inc. Swissray Healthcare, Inc.
Hochdorf Delaware Delaware Delaware
Switzerland USA USA USA
|
|
- -------------------------------
| |
Swissray GmbH Swissray Romania SRL
Wiesbaden Romania
Germany
THE OFFERING
Common Stock Offered(1) Up to 17,272,712 shares of Common Stock.
Common Stock Outstanding
Before the Offering(2)(3) 23,311,782
Common Stock Outstanding
After the Offering(4) 34,968,332
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 10 hereof.
Electronic Over-the-Counter
Bulletin Board Symbol SRMI
</TABLE>
(1) Includes an aggregate of up to 11,406,550 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 2,449,221
additional shares of Common Stock heretofore issued as restrictive
shares upon conversion of Convertible Debentures issued in March 1998,
June 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
"piggy-back" registration rights are (a) 85,077 restrictive shares
heretofore issued pursuant to terms of a convertible promissory note,
(b) 250,000 shares underlying certain outstanding Warrants (unrelated
to convertible debentures), (c) an aggregate of 3,000,000 restrictive
shares heretofore issued
-7-
<PAGE>
pursuant to terms of subscription and registration rights agreements
and (d) an aggregate of 81,864 shares pursuant to certain "piggy-back"
registration rights granted to two otherwise unaffiliated firms in
exchange for services rendered by such firms to the Company.
(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 1997 Non-Statutory Stock Option Plan (the "1997 Plan").
(3) As of the close of business on April 24, 2000 there were 23,311,782
shares issued and outstanding held by 511 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 April 25, 2000 (while
taking into account interest earned through date of mandatory
conversion).
-8-
<PAGE>
SUMMARY FINANCIAL DATA
The summary information below represents financial information of the
Registrant for the (i) six month periods ended December 31, 1999 and December
31, 1998, which information was derived from the unaudited consolidated
financial statements of the Registrant and (ii) fiscal years ended June 30,
1997, June 30, 1998 and June 30, 1999, which information was derived from the
audited consolidated financial statements of the Registrant.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, June 30,
--------------------- -----------------------------
1999 1998 1999 1998 1997
------- ------- ------- ------- -------
(in thosands, except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales ......................... 6,957 10,101 17,296 22,893 13,151
Cost of goods sold ................ 5,333 7,969 13,529 18,082 8,445
------- ------- ------- ------- -------
Gross profit ...................... 1,624 2,132 3,767 4,811 4,706
Selling, general and administrative 10,304 6,613 16,067 18,748 17,450
------- ------- ------- ------- -------
Operating loss .................... (8,680) (4,481) (12,300) (13,937) (12,744)
Other expense (income) ............ (20) 359 (40) 281 (319)
Interest expense .................. 4,168 1,413 4,639 8,590 762
------- ------- ------- ------- -------
Loss from continuing operations
before income taxes ............... (12,828) (6,253) (16,899) (22,808) (13,187)
Income tax provision (benefit) .... -- -- -- -- 110
------- ------- ------- ------- -------
Loss from continuing operations ... (12,828) (6,253) (16,899) (22,808) (13,297)
======= ======= ======= ======= =======
Loss from continuing operations
per common share ............. (0.79) (1.35) (2.59) (8.48) (8.41)
======= ======= ======= ======= =======
</TABLE>
December 31, 1999
Actual Proforma (1)
--------- ------------
BALANCE SHEET DATA:
Total assets 24,947 25,947
Long-term debt 15,474 15,474
Common stock subject to put 320 320
(1) Includes February 2000 issuance of 333,333 shares of common stock for
$999,999.
-9-
<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 Working Capital Deficiency
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
$62,186,405 ($17,732,028 of which was attributable to year ended June 30, 1999
as compared to $22,503,109 which was attributable to year ended June 30, 1998).
The Company incurred a further net loss of $12,827,434 during the six month
period ended December 31, 1999. As of December 31, 1999 the Company had a
working capital deficiency of $439,301. 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
ddRMulti-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 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 ddRMulti-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 ddRMulti-System
The Company's future performance will depend to a substantial degree
upon the continued market introduction and acceptance of the ddRMulti-System.
The Company's marketing efforts to date have generated considerable awareness
about the ddRMulti-System among radiologists. From October 1997 through June 30,
1999, the Company sold twelve ddRMulti-Systems in the United States and Europe.
During the first six months of its current fiscal year the Company has already
contracted sales of 46 ddRMulti-Systems which represents an approximate 500%,
increase in sales of such Systems over the entire preceding fiscal year (when
eight Systems were sold). The 500% increase referred to primarily relates to
orders not yet shipped and revenues may not be recognized by the Company prior
to order fulfillment. As of April 17, 2000 the Company has contracted for the
sale of an additional 11 ddRMulti-Systems since commencement of calendar 2000.
The extent of, and rate at which, the market introduction, acceptance and
penetration can be achieved by the
-10-
<PAGE>
ddRMulti-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 ddRMulti-System will continue to achieve or maintain
acceptance in its target markets. Additionally, and notwithstanding the
significant increase in contracted sales of ddRMulti-Systems as referred to in
this paragraph, there can be no assurance whatsoever that sale of such systems
will continue to grow at such a large rate or at any significant rate. Similar
risks may confront other products developed by the Company in the future. See
"Business -- Products" and "-- Regulatory Matters."
Reliance on a Single Product
The Company has concentrated its efforts primarily on the development
of the ddRMulti-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 ddRMulti-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 (46) have been contracted for sale during the first six months of the
Company's current fiscal year than were sold for the entire preceding fiscal
year. Percentage of Company revenues directly attributable to sales of its
ddRMulti-Systems for the fiscal year ended June 30, 1999 and the six month
period ended December 31, 1999 were 13.6% and 31.4% respectively. 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 ddRMulti-System. See "Business -- Products" and "-- Competition."
As net revenues attributable to ddRMulti-System sales increased, sales
attributed to conventional x-ray equipment and OEM business decreased. See
"Management's Discussion and Analysis - Results of Operations" for six month
period ended December 31, 1999.
During fiscal year ended June 30, 1999 11 ddRMulti-Systems were
contracted for sale in the U.S. while 1 ddRMulti-System was contracted for sale
outside the U.S. During the six month period ended December 31, 1999 11
ddRMulti-Systems were contracted for sale in the U.S. while 32 ddRMulti-Systems
were contracted for sale outside the U.S.
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.
-11-
<PAGE>
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 February 2000) or that absent such financing the
Company will have sufficient cash flow to maintain operations in the manner
contemplated and be able to market its ddRMulti-System as currently
contemplated. See also risk factor directly below regarding shares issued since
May of 1995 as a result of debt or equity financing.
Potential Adverse Effect Upon Stock Price as a Result of Registration of
Significant Number of Shares Issued as a Result of Equity and Debt Financings
Pursuant to Regulation S and Regulation D
From May 1995 through February 18, 2000 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 financings.
<PAGE>
<TABLE>
<CAPTION>
Type of Date of Closing Discount Number Of Proceeds Outstanding
FINANCING (7)(8) FINANCING BID PRICE FROM MARKET SHARES ISSUED(4) RECEIVED BALANCE
- ---------------- ------------ ------------ ----------- ---------------- -------------------- --------------
GROSS NET
----- ---
<S> <C> <C> <C> <C> <C> <C>
REG S- OFF-SHORE MAY 20, 1995 (5) 2,000,000 $4,250,000 $4,000,000 $ -0-
REG S- OFF-SHORE DEC. 10, 1995 (5) 1,000,000 $________ $4,500,000 $ -0-
Reg S- Convertible Sept. 11, 1996 $4.125 1,872,707 $3,800,000 $2,774,000 $ -0-
Reg S- Convertible Jan. 10, 1997 $3.00 2,395,709 $3,500,000 $3,085,000 $ -0-
Reg S - Off-Shore Mar. 5, 1997 $2.6875 1,000,000 $2,000,000 $1,925,000 $ -0-
Reg S - Prom. Note Apr. 28, 1997 $1.96875 800,00 $2,000,000 $1,822,500 $ -0-
Reg S- Convertible May 15, 1997 $2.40625 -- $2,000,000} $3,458,890} $ -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 $4,262,500 $ -0- (includes May
and June 1997)(6)
Reg D- Convertible Aug. 19, 1997 $2.6875 20% 3,643,053 $5,000,000 $4,318,750 $1,850,000 rolled
over
Reg D- Convertible Nov. 26, 1997 $1.84375 25% 4,397,081 $2,158,285 $2,158,285 $ -0-
Reg D- Convertible Dec. 11, 1997 $1.375 25% 7,735,099 $3,690,000 $3,000,000 $ -0-
Reg D- Convertible Mar. 16, 1998 $1.00 20% 7,075,138 $5,500,000 $4,915,000 $ -0-
REG D- CONVERTIBLE JUNE 15, 1998 $.578 20% (1)(3) $2,000,000 $1,760,000 $ -0-
REG D- CONVERTIBLE AUG. 31, 1998 $.281 18% (1)(3) $6,143,849 $5,832,849 $4,980,594
REG D- CONVERTIBLE OCT. 6, 1998 $.188 18% (1)(3) $2,940,000 $2,100,000 $2,940,000
REG D- CONVERTIBLE MAY 13, 1999 $.500 18% (1)(2)(3) $1,080,000 $1,080,000 $1,119,600
REG D- CONVERTIBLE JAN. 29, 1999 $.375 18% (1)(3) $1,170,000 $1,020,000 $1,170,000
REG D- CONVERTIBLE MAY 31, 1999 $.437 18% (1)(2)(3) $1,110,000 $1,110,000 $1,132,200
REG D- CONVERTIBLE MAY 14, 1999 $2.875 20% (1)(3) $ 500,000 $ 500,000 $ 500,000
MAY 21, 1999 $3.00 20% (1)(3) $ 200,000 $ 200,000 $ 200,000
JUNE 9, 1999 $2.625 20% (1)(3) $ 150,000 $ 150,000 $ 150,000
REG D- CONVERTIBLE JUNE 24, 1999 $.59375 18% (1)(2)(3) $ 550,000 $ $ 561,000
REG D- CONVERTIBLE AUG. 23, 1999 $3.750 20% (1)(2)(3) $1,100,000 $1,100,000 $1,148,400
Sale of Securities Sept. 7, 1999 $2.50 -- 1,000,000 $1,000,000 $1,000,000 $ -0-
SALE OF SECURITIES}(10) Oct. 19, 1999 $2.75 -- 500,000 $ 750,000 $ 750,000 $ -0-
Nov. 1, 1999 $3.312 -- 500,000 $ 750,000 $ 750,000 $ -0-
REG D-CONVERTIBLE NOV. 11, 1999 $2.625 20% 1,526,000 $1,400,000 $1,260,000 $1,526,000
SALE OF SECURITIES (10) DEC. 13, 1999 $7.40625 -- 666,667 $1,000,000 $1,000,000 $ -0-
SALE OF SECURITIES (11) FEB. 18, 2000 $6.375 -- 333,333 $ 999,999 $ 976,499 $ -0-
</TABLE>
(1) Utilizing the April 28, 2000 bid price for the Company's common stock
($3.00) and assuming indicated discount from market, if all convertible
debentures were converted the number of shares
-12-
<PAGE>
required to be issued (inclusive of 1,028,255 shares as may be issued for
interest earned) would amount to 11,406,550 shares. However, since (as indicated
in risk factor entitled "Inability to Currently Determine Number of Shares .."
appearing hereinafter) 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 significant decline in the bid price of the
Company's common stock. As of April 25, 2000 the Company has not been able to
negotiate any debenture agreements which contain any "floor" provisions.
(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, July 9, 1999 and August 11, 1999".
(3) With respect to the number of shares as may be issued regarding financings
from August 31, 1998 to February 18, 2000, which number of shares is determined
based upon indicated discount from market on date of conversion. See chart
appearing hereinafter which quantifies the number of shares as may be issued
based upon a reasonable range of high and low prices. (4) In accordance with the
terms of the debentures and related agreements, 2,449,221 of these shares have
been issued with restrictive legends and are included in the number of shares
being registered pursuant to this Registration Statement. If the closing bid
price for the Company's common stock had remained the same as it was at the time
that these debentures were entered into the number of restrictive shares that
would have been issued would have been 43,387,069 exclusive of interest as
opposed to 2,449,221 issued shares.
(5) Date precedes initial NASDAQ listing when securities traded in "pink
sheets". Attempts to obtain closing bid prices on such dates from the National
Quotation Bureau as well as from broker-dealers have been unsuccessful. While
bid prices existed on the dates indicated such prices are not currently known
nor available to the Company. Transactions referred to were determined in
arms-length negotiations at the time of such financings.
(6) 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).
(7) 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" with a substantial majority (approximately 95%) of such funds being
allocated to working capital and with the balance being utilized to extinguish
outstanding indebtedness and for repurchase of Company securities.
(8) Pursuant to terms of Convertible Debentures, the holders thereof may not
beneficially own more than 4.9% of outstanding Company shares (other than as a
result of mandatory conversion provisions). The 4.9% limitation is only
contractual in nature and applies to holders, affiliates or non-affiliates, who
may acquire the debentures. The 4.9% limitation does not apply and, accordingly,
would not limit beneficial ownership in any manner in the event that (a) 50% or
more of the Company is acquired, (b) the Company is merged into another company
or (c) a change of control occurs.
(9) This transaction resulted in the sale of 1,000,000 restrictive shares of
Company common stock at $1.00 per share with the purchaser being given certain
"piggy-back" registration rights requiring
-13-
<PAGE>
the Company to register such shares.
(10) This transaction resulted in the sale of an aggregate of 1,666,667
restrictive shares of Company common stock at $1.50 per share with the
purchasers being given certain "piggy-back" registration rights requiring the
Company to register such shares.
(11) This transaction resulted in the sale of an aggregate of 333,333
restrictive shares of Company common stock at $3.00 per share with the
purchasers being given certain "piggy-back" registration rights requiring the
Company to register such shares.
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.
There continues to exist the potential adverse effect on the market
price of the Company's securities as a result of the registering of the
significant number of additional shares being registered under this Registration
Statement.
As indicated in the chart directly below the number of shares to be
issued upon conversion of debentures issued from August 31, 1998 through
February 18, 2000 is only determinable upon actual conversion date. Accordingly,
the chart appearing below quantifies the number of shares which would be issued
upon conversion based upon a reasonable range of high and low prices as if the
debentures indicated above were converted based upon such reasonable range of
prices.
Chart to show range of high and low prices.
<TABLE>
<CAPTION>
^
Financing Range of Prices
Financing Amount Date $2.50 $5.00 $10.00
Date Outstanding Bid Price/Shares Bid Price/Shares Bid Price/Shares Bid Price/Shares
<S> <C> <C> <C> <C> <C> <C> <C>
8-31-98 $3,930,594 $0.281/13,987,879 1,572,238 786,119 393,059
10-6-98 $2,940,000 $0.188/15,638,298 1,176,000 588,000 294,000
5-13-99 $1,119,600 $0.50/2,239,200 447,840 223,920 111,960
1-29-99 $1,170,000 $0.375/3,120,000 468,000 234,000 117,000
5-31-99 $1,132,200 $0.437/2,590,847 452,880 226,440 113,220
5-14-99 $500,000 $2.875/173,913 200,000 100,000 50,000
5-21-99 $200,000 $3.00/66,667 80,000 40,000 20,000
6-24-99 $561,000 $0.593/946,037 224,400 112,200 56,100
8-23-99 $1,148,400 $3.75/306,240 459,360 229,680 114,840
11-11-99 $1,526,000 $2.625/581,333 610,400 305,200 152,600
</TABLE>
Sale of Restrictive Shares
On September 2, 1999 the Company entered into an agreement whereby an
investor was given the right to purchase 1,000,000 shares at $1.00 per share
(for $1,000,000) and 2,000,000 shares
-14-
<PAGE>
at $1.50 (for $3,000,000) - as long as investor purchased 1,000,000 shares on or
before September 30, 1999 and further as long as it purchased at least an
additional 1,000,000 shares within 60 days of the purchase of the first
1,000,000 shares. As long as the purchase requirements indicated were met (and
they were) investor had the right until March 1, 2000 to purchase the balance of
the unpurchased shares remaining (at the $1.50 price indicated above) up to
March 1, 2000. On September 2, 1999 (the date of the agreement) the closing bid
price on the Company's common stock was $2.125 per share. Accordingly, the right
to purchase shares at $1.00 per share represented a 53% discount from market
while the right to purchase shares at $1.50 per share represented 29% discount
from market based upon September 2, 1999 closing bid price. See chart to risk
factor entitled "Potential Adverse Effect Upon Stock Price.." with respect to
actual dates of purchase and closing bid prices on dates of purchase which would
indicate discounts from market ranging from 45% to 80% if closing bid price on
date of purchase (as opposed to September 2, 1999 agreement) were utilized.
Past History of Debt (Debenture) Fund Raising to Retire Existing Indebtedness
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 including
interest (from August 19, 1997 financing) were 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 an August 31,
1998 debenture financing. $3,000,000 of such outstanding balances as rolled over
including interest (from the March 16, 1998 financing) was 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.
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 April 25, 2000 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 11,406,550 shares of its common stock thereby increasing total outstanding
from 23,311,782 to 34,968,332 and reducing percentage of all current
stockholders from 100% to approximately 67%. 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
-15-
<PAGE>
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 "Potential
Adverse Effect Upon Stock as a Result of Registration of Significant Number ..")
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."
Authority to Issue Preferred Stock With Terms That May Not Be Beneficial to
Common Stock Holders
In accordance with stockholder approval received at Annual Meeting of
Stockholders held July 23, 1999, the Company amended its certificate of
incorporation pursuant to which it now is authorized to issue up to 1,000,000
shares of preferred stock, par value $.01 per share.
The designations, preferences, conversions rights, cumulative,
relative, participating, optional or other rights including voting rights,
qualifications, limitations or restrictions thereof of the preferred stock has
not, as yet, been determined by the Board of Directors. Thus, the Board of
Directors is entitled to authorize the issuance of up to 1,000,000 shares of
preferred stock in one or more series with such limitations and restrictions as
may be determined in its sole discretion, with no further authorization by
security holders required for the issuance thereof.
The issuance of preferred stock could adversely affect the voting power
and other rights of the holders of common stock. Preferred stock may be issued
quickly with terms calculated to discourage, make more difficult, delay or
prevent a change in control of the Company or make removal of management more
difficult. As a result, the Board of Directors' ability to issue preferred stock
may discourage the potential hostility of an acquirer, possibly resulting in
beneficial negotiations. Negotiating with an unfriendly acquirer may result in,
amongst other things, terms more favorable to the Company and its stockholders.
Conversely, the issuance of preferred stock may adversely affect the market
price of, and the voting and other rights of the holders of the Common Stock.
The Company presently has no plans to issue preferred stock. See also
"Description of Capital Stock - Preferred Stock".
Issuance of Significant Percentage of Securities Pursuant to Consulting
Agreement With Corresponding Dilution to Current Stockholders
In March of 1999 the Registrant issued an aggregate of 3,800,000 shares
of restrictive fully vested, and non-forfeitable common stock pursuant to two
separate consulting agreements and in lieu
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<PAGE>
of cash payment. At the time of such issuance these shares represented
approximately 32% of all outstanding shares and currently represent
approximately 16% 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 excepting as same may
relate to extensions and renegotiations regarding the above referenced
consulting agreements. For further information regarding terms and conditions
relating to such consulting agreements, reference is herewith made to "Business
- - Recent Developments".
Company's President Controls in Excess of One-Third of all Voting Securities
Ruedi G. Laupper, the Company's President, owns of record and
beneficially (and/or through corporations over which he exercises control; see
footnote 3 to "Principal Stockholders") approximately 12% of all issued and
outstanding shares of Company common stock. Additionally, in accordance with the
terms and conditions of a March 29, 1999 Consulting Agreement with Liviakis
Financial Communications, Inc. ("LFC"), pursuant to which LFC was issued and
owns 3,000,000 fully vested, and non-forfeitable shares of Company common stock,
the Company's President has sole voting rights with respect to such 3,000,000
shares without any limitation thereon so long as same are owned by LFC. LFC in
turn may not sell any of such shares for a period of one year subsequent to
commencement of ownership and then only in accordance and subject to volume
limitations imposed in accordance with the applicable provisions of Rule 144
under the Securities Act of 1933. In March 2000 the Company and LFC entered into
a further 1 year consulting agreement pursuant to which an aggregate of 526,000
restrictive shares (490,000 of which are fully vested and non-forfeitable) were
required to be issued upon execution (and have been issued). The Company's
President has the same voting rights with respect to such shares as he has to
the 3,000,000 shares indicated above. By virtue of the above the Company's
President has voting control over approximately 27% of all Company common stock.
See "Business - Consulting Agreement with Liviakis Financial Communications,
Inc."
Issuance in June of 1999 of Substantial Number of Shares to Company's President
In June of 1999 the Company issued 2,000,000 fully vested, and
non-forfeitable shares of its common stock to its President in exchange for
extinguishment of certain bonus rights contained in his employment agreement
(see "Management - Employment Agreement") thereby increasing his percentage of
ownership from 3% to 17%. Such increase in percentage of interest created a
corresponding decrease in percentage of ownership of all other stockholders
thereby diluting their percentage of interest.
In addition to the above, 48,259 post split shares of restrictive
common stock were issued to the Company's President who surrendered his shares
for less than three months and then received a number of shares equal to 30%
more than the number of shares he surrendered to meet convertible debenture
provisions and avoid default. Such surrender was necessitated due to the fact
that the Company was required to issue shares upon debenture conversion but the
Company did not have authorized and unissued shares to meet its obligations and
avoid default absent its President surrendering his shares (and absent increase
in its authorized shares which required stockholder
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<PAGE>
approval, which approval was subsequently obtained in October 1997).
Recent Issuance in October, 1999 of 875,000 Shares to Certain Officers and
Directors
In accordance with Board of Directors resolution adopted on October 19,
1999, an aggregate of 875,000 shares of restrictive common stock were issued to
five of the Company's officers and directors as partial consideration for
services as per agreement.
NAME POSITION NO. OF SHARES
Ruedi G. Laupper Chairman, President & 275,000
Principal Executive
Officer (1)
Josef Laupper Secretary, Treasurer 150,000
& a Director (1)
Michael Laupper Chief Financial Officer, 150,000
Controller (1)
Ueli Laupper Vice President & a 250,000
Director (1)
Erwin Zimmerli Director (1) 50,000
(1) It is possible that one or more officers or directors of the Company
may, in the future, receive material amounts of common stock as opposed
to regular monetary compensation and, accordingly, the potential for
further stockholder dilution exists; notwithstanding the fact that
neither the Company 's officers nor its Board of Directors have any
current intentions to issue further material amounts of common stock to
officers or board members.
Significant Portion of Company Assets Are Intangible Assets
As of December 31, 1999, and for the six months then ended, the
Company's licensing agreement, patents and goodwill (aggregating approximately
$4,700,000) are all intangibles and account for approximately 19.7% of all
Company assets. Amortization of such intangibles amounts to approximately
$205,000 or approximately 2.0% 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 the
Company's ^ largest customer for fiscal year ended June 30, 1999 (Philips) 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
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the Company's sales until such time, if ever, as significant sales to other
customers can be made. Philips accounted for 41.48% of Company sales during the
six month period ended December 31, 1999. The Company considers the relationship
with its largest customers to be satisfactory. The Company expects that as sales
of its ddRMulti-System continues to increase, the Company's revenue will be less
dependent on one or a few large customers. Such expectations have recently been
realized (although there is no assurance that it will continue) as a result of
the Company entering into the October 1999 $13,800,000 agreement for the sale of
32 of its ddRMulti-Systems to the Government of Romania. See also "Recent
Developments". See Notes to the Consolidated Financial Statements of June 30,
1999, 1998 and 1997 and "Business -- Sales and Marketing."
Risk of Currency Fluctuations, If Not Adequately Hedged Can Adversely Effect
Company Financial Condition
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)
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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.
Company International Operations Subject to Foreign Legal Regulatory
Requirements
The Company does business in the United States, Switzerland and Germany
which accounted for approximately 23%, 73% and 4% respectively 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 (a) new and different legal and regulatory requirements in local
jurisdictions, (b) tariffs and trade barriers, (c) potential difficulties in
staffing and managing local operations, (d) credit risk of local customers and
distributors, (e) potential inability to obtain regulatory approvals, (f)
different requirements as to product standards, (g) potential difficulties in
protecting intellectual property, (h) risk of nationalization of private
enterprises, (i) potential imposition of restrictions on investments or transfer
of funds and (j) potentially adverse tax consequences. 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 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. As a result of certain
recent economic problems 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.
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
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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.
Company Activities Subject to Government Regulation and Approvals
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.
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On November 21, 1997, the AddOn Bucky(R), the direct digital detector
of the ddRMulti-System received FDA approval. The Company also submitted the
ddRMulti-System for Section 510(k) approval with the FDA and such approval was
obtained on December 18, 1997 so that the ddRMulti-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:
USA 510(k) market clearance
UL/CSA (ENTELA)
- electrical and x-ray safety
- national regulations of Ministry of Health -
Quality System 21 CFR Part 820 and Part 820.72
(inspection) - identification (general labeling) 21
CFR Part 801.4 and 801.6
Canada CSA, ENTELA
- electrical and x-ray safety
- national regulations of Ministry of Health
Czech Republic - national regulations of Ministry of Health
EU (United Europe) (EWG 93/42 Appendix II class II B)
- CE MDD 0124 market clearance incl. electrical and
x-ray safety - national regulations of Ministry of
Health (RoV Rontgenverordnung) - national system ISO
9001 / EN 46001 (Medical)
Switzerland - national regulations of Ministry of Health (BAG)
Market clearance
- quality system ISO 9001 / EN 46001 (Medical)
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Sales to Highly Regulated Health Care Industry With Potential For Cost Reduction
Pressures Upon Company
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
payers. 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 ddRMulti-System
The Company has limited experience with the manufacture and assembly of
the ddRMulti-System in the volumes that will be necessary for the Company to
generate significant revenues from the sale of the ddRMulti-System. The Company
may encounter difficulties in scaling up its production or in hiring and
training additional personnel to manufacture the ddRMulti-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 ddRMulti-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 occurred.
The percentage of Company revenues derived from products which included
components then
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only currently available from a single source supplier amounted to 13.6% as of
June 30, 1999 of which 13.6% related to the single source supplier of certain
camera electronics while 13.6% related to the single source supplier of optics
(both items are included in the same product).
(A) Information With Respect to In-house Production of Camera
Electronics
The agreement with the single source supplier of certain camera
electronics terminated December 31, 1999 due to the fact that its manufacturing
plant where the camera electronics had been manufactured permanently closed on
such date and Company management was not satisfied with proposals submitted to
it by such supplier regarding the latters intentions of establishing a new
manufacturing plant. Company agreement with its then new supplier of camera
electronics provided for availability of such camera electronics to the Company
commencing January 1, 2000.^ On January 13, 2000 the Company entered into a new
arms-length agreement with its CCD camera supplier Laboratories d'Electronique
Philips S.A.S. whereby the Company has purchased, from available working
capital, the production facility (including necessary tools, equipment, diagrams
and related knowhow) for approximately 250,000 Swiss Francs (US$161,290) and it
is management's intention through such purchase to have a sufficient number of
CCD cameras on hand (four per system) to cover in excess of those immediately
required to cover orders. Through in-house production of key camera components
the Company has eliminated its reliance upon its former supplier, looks forward
to reduction in camera costs because at a minimum the Company will no longer
have to fund its former supplier's profit margin and does not expect any
material business interruptions to occur regarding CCD camera availability in a
timely manner nor does it anticipate that such in-house production will have any
affect upon quality of its ddR-Systems. The Company currently has 104 CCD
cameras in stock which will be used for the next 26 ddR-Systems, which can be
used for deliveries over the next two months.
(B) Agreement With Single Source Supplier of Optics
The agreement with the single source supplier of optics expires in July
2002, may not be terminated by either party without cause and is subject to
renegotiations which are expected to occur assuming contract fulfillment
continues to be concluded in a timely and satisfactory manner with price and
payment terms being comparable to those currently being utilized and meeting
Company capacity requirements. While management has no current expectation or
need to replace this supplier it does not envision encountering any material
difficulties in replacing such supplier (with a different optics manufacturer
having the ability to timely deliver comparable optic quality) if necessary in
the event of any unforeseen circumstances which may require replacement.
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
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a negative impact upon the trading price of the Company's common stock. Further,
since there is no "floor" in the debt 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 time of conversion and, accordingly, a
decline in common stock price will necessarily result in the requirement to
issue additional shares due to there being no "floor" or "minimum" conversion
price in their existing convertible debenture agreements. Additionally,
debenture conversion may result in a larger number of new significant
stockholders to the Company. The Company has continued to issue convertible
securities without a minimum price thereby continuing to subject itself to the
risks indicated herein, especially with respect to potential decline in common
stock price. With respect to the number of shares as may be issued regarding
financings from August 31, 1998 to February 18, 2000, which number of shares is
determined based upon indicated discount from market on date of conversion, see
chart appearing at end of risk factor entitled "Potential Adverse Effect Upon
Stock Price .." which chart quantifies the number of shares as may be issued
based upon a reasonable range of high and low prices.
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 has
been volatile and has fluctuated significantly and may continue to 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. In fact since
October 26, 1998 Nasdaq delisting (referred to below) when the Company's common
stock traded at $.188, the bid price for the Company's common stock has
fluctuated from a low of $.125 to a high of $10.00 on January 10, 2000.
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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 Company filed such Form 10-K on December 3, 1998.
Since delisting the Company has had an ongoing appeal with the Nasdaq
Listing Qualifications Panel ("Panel") and the Nasdaq Listing and Hearing and
Review Council ("Council"). The Panel has rejected the Company's appeal
indicating, in part, its subjective belief that the Company has demonstrated a
continued disregard for shareholders' rights thereby raising public interest
concerns. The Company wholly disagrees with such subjective determination. The
matter is now pending before the Council with Nasdaq having advised that the
Council will likely issue its decision after its meeting in May 2000. For
further information with respect to the above, reference is herewith made to
"Continued Nasdaq Delisting".
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." Year 2000 Issue
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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 complies with the Year 2000. 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.
With respect to 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. As of April 25, 2000 the Company has
not been made aware of any material adverse facts relating to "Y2K" which in any
manner could have had any material adverse effect upon its business, financial
condition or 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 GmbH
(formerly known as Swissray (Deutschland) Rontgentechnik GmbH and 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 Medical 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 Telray 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
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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 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, to wit: J. Douglas Maxwell. 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 ddRMulti-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
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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 other related matters became the subject of dispute and litigation
which was recently settled on August 31, 1999. See "Legal Proceedings". 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
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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 $0.750
4th June 30, 1998 $1.000 $0.500
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 $1.375 $0.875
3rd March 31, 1999 $1.25 $0.375
4th June 30, 1999 $2 $2.437
Fiscal Year Ended June 30, 2000 Quarterly Common Stock Price
By Quarter Ranges (1)(2)
Quarter Date High Low
1st September 30, 1999 $4.062 $1.875
2nd December 31, 1999 $7.40625 $2.71875
3rd March 31, 2000 $9.937 $3.375
(1) The Registrant's Common Stock began trading on the Nasdaq SmallCap market on
March 20, 1996 with an opening bid of $4.75. The following statement
specifically refers to the Common Stock activity, if any, prior to March 20,
1996 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
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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 but 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 April 24, 2000 there were 511
stockholders of the Registrant's Common Stock and 23,311,782 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.
Continued NASDAQ Delisting
Initial Delisting
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 Company filed such Form 10-K on December 3, 1998 and
attributed its entire delay to the fact that its former auditors failed and
refused to complete the necessary audit in a timely (or otherwise) manner
necessitating the Company's engagement of new auditors. See also "Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure". The
aforesaid October 26, 1998 delisting letter further indicated that the Panel
lacked confidence in the Company's ability to sustain compliance with the per
share bid price requirement and further raised concerns, based upon the
Company's history of losses, as to its ability to satisfy net tangible asset
requirements.
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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.
Prior to the above referenced delisting and (a) on May 6, 1998 Nasdaq
advised the Company that its common stock had failed to maintain a closing bid
price of at least $1 for the previous 30 consecutive trading days and that the
Company had 90 days, until August 6, 1998, to comply with the bid price
requirement (b) on October 1, 1998 the Company effected a one for ten reverse
stock split which resulted in a bid price of at least $1 for a period of 17
consecutive trading days. The bid price for the Company's common stock on the
date before the reverse stock split was $.118.
Company Appeal From Delisting Decision
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
Council's consideration. The Company understands that the 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 consisted of the fact
that current bid price for common stock met NASDAQ standards, 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. The Company further advised that it anticipated that it could meet
and sustain long term compliance with applicable maintenance criteria based
principally upon anticipated sales of 73 radiographic ddRMulti-Systems.
Contracted for sales of ddRMulti-Systems during the first half of fiscal year
ending June 30, 2000 have amounted to 46 Systems. As of April 17, 2000 the
Company has contracted for sale of an additional 11 ddRMulti-Systems since
commencement of calendar year 2000. See risk factor entitled "Need For Continued
Market Acceptance of the ddRMulti-System" as relates to revenue recognition
which may not occur prior to complete contract fulfillment. Since filing of the
above mentioned Form 10-K on December 3, 1998 and the simultaneous filing on
such date of its Form 10-Q for quarter ended September 30, 1998, the Company has
filed all forms 10-Q and its most recent 10-K for fiscal year ended June 30,
1999 in a timely manner and on or before their mandated due dates.
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.
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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).
By letter dated July 7, 1999 the Company requested that the Panel delay
in making any determination on the issues involved until July 30, 1999 so that
the Company would have ample time within which to conduct its July 23, 1999
Annual Meeting of Stockholders, at which time it anticipated that it would
receive stockholder approval (which it subsequently did receive) for the purpose
of creating a class of preferred stock. The Company further anticipated that it
would utilize such new class of preferred stock so as to convert outstanding
debentures into non-redeemable convertible preferred stock. Plans to convert
debentures into preferred stock have not gone forward as the primary purpose
therefore was to increase market capitalization (i.e., total outstanding shares
multiplied by bid price) so as to comply with the $35,000,000 minimum market
capitalization required by NASDAQ. As of April 28, 2000 Company market
capitalization amounted to $69,935,346 inclusive of $18,978,000 as a result of
the issuance of 6,326,000 shares as follows: (a) 2,000,000 shares issued to
Ruedi G. Laupper, the Company's President, as per agreement of March 29, 1999
and subsequent Board meeting of June 30, 1999, (b) 3,000,000 shares issued to
Liviakis Financial Communications, Inc. ("LFC") as per consulting agreement
effective March 29, 1999, (c) an additional 526,000 shares issued to LFC as per
new consulting agreement dated March 29, 2000 and (d) 800,000 shares issued to
Rolcan Finance Ltd. As per consulting agreement effective March 29, 1999.
Second Decision to Delist
The Panel, in its November 5, 1999 decision, opined that the Company
failed to evidence compliance with all requirements for continued listing on the
NASDAQ SmallCap Market notwithstanding its acknowledgment that the Company met
all quantitative requirements (1) for continued listing. This opinion was based
upon the Panel's subjective determination that shareholder approval should have
been obtained prior to the Company's issuance on July 6, 1999 of 2,000,000
restrictive shares of its common stock to its President for and in consideration
of his waiving certain rights to performance based bonuses as contained in his
employment agreement with the Company. The Panel cited as a basis for such
determination the NASDAQ Marketplace rules which require shareholder approval
when shares issued exceed the lesser of 1% of the total shares outstanding at
the time of issuance or 25,000 shares. The Panel decision also indicated that as
a separate matter it believed that the Company's issuance of 3,000,000 shares to
LFC which exceeded 20% of total shares outstanding and which was priced below
market violated NASDAQ Marketplace Rules based
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upon the Company's failure to obtain prior shareholder approval. Notwithstanding
the fact that the Company was not on NASDAQ at the time of security issuance,
the Panel indicated that NASDAQ corporate governance rules make specific
provision permitting review of company activities on a case by case basis even
while its securities are not listed on NASDAQ. The Panel, in its subjective
determination, also stated that it believed that the Company (a) has, since
October 1998, demonstrated a continued disregard for existing shareholders'
rights, raising public interest concerns pursuant to certain designated
Marketplace Rules and (b) had exhibited preferential treatment to Company
insiders creating an overall dilutive effect on outstanding shareholders'
interests without their prior approval and that such actions demonstrated (in
the Panel's belief) the Company's disregard for shareholders rights. The
Company, as indicated in its appeal, wholly disagrees with the Panel's
subjective determination.
As indicated above, the Council may, on its own motion, determine to
review this new Panel decision within 45 calendar days from November 5, 1999, at
which time it may affirm, modify, reverse, dismiss or remand (as the Council
previously did on April 1, 1999) the decision to the Panel and in such event the
Company would be immediately notified. Additionally, the Company is entitled to
request that the Council review the aforesaid November 5, 1999 Panel decision
and the Company perfected such request on November 12. 1999. By letter dated
January 6, 2000 NASDAQ advised that the Council ".. will likely issue its
decision after its meeting in May".
(1) Quantitative requirements refer to maintenance standards for continued
listing and primarily require at least (a) net tangible assets of
$2,000,000 or market capitalization of $35,000,000 or net income in two
of the last three years of $500,000 , (b) a public shares float of
500,000, (c) a market value of public float of $1,000,000, (d) a
minimum bid price of $1.00, (e) shareholders of 300, (f) two market
makers, (g) two independent directors and (h) an independent audit
committee. The Company currently meets each of the quantitative
requirements enumerated herein.
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CAPITALIZATION
The following table sets forth (i) the current liabilities and
capitalization of the Company as of December 31, 1999 and (ii) the pro forma
liabilities and capitalization as of December 31, 1999.
Actual Proforma(1)
Current liabilities ............................ 13,994,621 13,994,621
Long-term liabilities, net of current portion .. 15,473,934 15,473,934
Total liabilities .............................. 29,468,555 29,468,555
Common stock subject to put .................... 319,985 319,985
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 .. 206,120 209,453
shares authorized; 20,611,972 issued and
outstanding; 20,945,305 proforma
Additional paid-in-capital ................ 83,765,653 84,762,319
Treasury stock ............................ (2,040,000) (2,040,000)
Accumulated deficit ....................... (84,410,897) (84,410,897)
Accumulated other comprehensive loss ...... (1,706,191) (1,706,191)
Common stock subject to put ............... (319,985) (319,985)
Deferred compensation ..................... (336,500) (336,500)
------------ -------------
Total stockholders' equity ..................... (4,841,800) (3,841,801)
Total liabilities and stockholders' equity ..... 24,946,740 25,946,739
(1) Includes February 2000 issuance of 333,333 shares of common stock for
$999,999.
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Swissray International
SELECTED CONSOLIDATED FINANCIAL 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, June 30, 1999 and the six
months ended December 31, 1999 and December 31, 1998 are derived from the
consolidated financial statements of the Company.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, June 30,
------------------- -------------------------------------------
1999 1998 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- -------
(in thosands, except per share data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ......................... 6,957 10,101 17,296 22,893 13,151 10,899 3,806
Cost of goods sold ................ 5,333 7,969 13,529 18,082 8,445 5,793 2,484
------- ------- ------- ------- ------- ------- -------
Gross profit ...................... 1,624 2,132 3,767 4,811 4,706 5,106 1,322
Gross profit margin (%) ........... 23% 21% 22% 21% 36% 47% 35%
Selling, general and administrative 10,304 6,613 16,067 18,748 17,450 14,966 2,307
------- ------- ------- ------- ------- ------- -------
Operating loss .................... (8,680) (4,481) (12,300) (13,937) (12,744) (9,860) (985)
Other expense (income) ............ (20) 359 (40) 281 (319) (1,004) 3,054
Interest expense .................. 4,168 1,413 4,639 8,590 762 194 122
------- ------- ------- ------- ------- ------- -------
Loss from continuing operations
before income taxes ............... (12,828) (6,253) (16,899) (22,808) (13,187) (9,050) (4,161)
Income tax provision (benefit) .... -- -- -- -- 110 (365) (339)
------- ------- ------- ------- ------- ------- -------
Loss from continuing operations ... (12,828) (6,253) (16,899) (22,808) (13,297) (8,685) (3,822)
Loss from continuing operations
per common share ............. (0.79) (1.35) (2.52) (8.48) (8.41) (6.69) (4.80)
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA:
Total assets ...................... 24,947 23,511 23,761 25,915 24,788 18,793 13,027
Long-term liabilities ............. 15,474 15,501 15,751 7,771 5,635 -- 705
Common stock subject to put ....... 320 1,820 1,820 1,820 320 -- --
</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 Income Statement 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
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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 ddRMulti-System and Bucky Diagnost TS and the building and
strengthening of its organization and distribution channels in the principal
markets USA and Europe.
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 US 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 ddRMulti- Systems, both in the US and in
Europe.
During the start-up of the production of the Company's newly developed
products, the ddRMulti-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 ddRMulti-System was slowed down by certain
governmental requirements for the sale of Healthcare products, which differ from
one country to the other. On July 26, 1998 SR Medical AG, the Company's Swiss
marketing subsidiary, was ISO 9002 and EN46002 certified. 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 ddRMulti-System in July 1998. Appendix II for
CE-Certification was received November 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.
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YEAR 2000 POLICY STATEMENT
The Company has conducted an extensive program to check the status of
its equipment (information and non-information 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-information
technology) fulfill the compliance for Year 2000 and belong to Class A Systems.
The products listed have been tested on a stand alone basis and interfaced with
other products and systems in an operational environment test. 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 Eurabil 5 Eurabil C-Arm Standard
GEN-X-500 Eurabil 15 Eurabil C-Arm Plus
GEN-X-650 Eurabil 30 Eurabil C-Arm Top
GEN-X-800
GEN-X-1000 Bucky Table Systems:
GEN-X-2000 Euramove 1
GEN-X-3000 Euramove 2
GEN-X-4000 Euramove 3
MRS - GENERATOR Euramove 4
Eurastat 2
Eurastat 4
Bucky-Diagnost TS
Atlas Systems:
Atlas-U - US 2000 Special Systems
Atlas-U - US 3000 Euralem 1400
Atlas-U - US 4000 Euralem 1500
Atlas-BV-Tomo Euralem 1800
MRS Stativ Euralem Tomo
Urology Systems:
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KU-100 Digital Bucky Systems:
KU-100 H ddRMulti-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.
YEAR 2000 PROJECT COSTS
The Company has separated its cost in the following parts:
June 30, 1999
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
Neither Swissray nor any third party with whom we have material
relationships, suffered any significant adverse consequences resulting from the
transition to Year 2000. However, it is possible that companies including us and
our third-party contractors, will suffer adverse Year 2000 consequences over the
near term. In order to minimize potential adverse effects, we have designated
experienced personnel and consultants to identify, correct, test and implement
solutions to Year 2000 problems, if and when they arise. In addition, we have
purchased excess inventory of products and components, in the event that future
Year 2000 consequences causes delays in our ability to obtain component
supplies. We have also identified alternate suppliers of non-proprietary
components
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that we may approach should our inventory of components outlast third-party
vendors' Year 2000 problems. We have not established any other contingency plan
to address Year 2000 issues should they arise, and we do not intend to do so.
SIX-MONTH PERIOD ENDED DECEMBER 31, 1999 COMPARED TO SIX-MONTH PERIOD ENDED
DECEMBER 31, 1998
RESULTS OF OPERATIONS
Net sales amounted to $6,957,028 for the six-month period ended
December 31, 1999, compared to $10,101,147 for the six-month period ended
December 31, 1998 a decrease of $3,144,119 or 31.13% from the six-month period
ended December 31, 1998. The 31.13% decrease in net sales was mainly due to the
decrease in conventional x-ray of 51.55% and conventional OEM- Business of
48.39% whereas sales of ddRMulti-Systems increased by 53.6%.
In the past the Company has been substantially reliant upon Philips
Medical Systems ("Philips") but at this stage of the Company's maturation
process and as same continues to develop, reliance upon Philips has
correspondingly decreased. Additionally, the Company's agreement with Philips
relates to conventional x-ray equipment which has been a low profit margin item.
More and more this type of sale is being replaced by (a) Company sale of
conventional x-ray equipment directly to purchasing country and/or hospital
and/or to the ultimate user thereof and (b) more significantly and importantly
by Company's sales of its ddRMulti-System - its flagship product.
Gross profit amounted to $1,624,466 or 23.35% of net sales for the
six-month period ended December 31, 1999, compared to $2,131,805 or 21.1% of net
sales for the six-month period ended December 31, 1998. The increase in gross
profit as a percentage of net revenues is attributable to the fact that the
percentage of sales of ddRMulti-Systems to total sales increased to 31.36% for
the six-month period ended December 31, 1999 from 14.06% for the six-month
period ended December 31, 1998.
Operating expenses were $10,304,079 or 148.1% of net revenues, for the
six-month period ended December 31, 1999, compared to $6,613,311 or 65.5% of net
revenues for the six-month period ended December 31, 1998. The principal items
were officers and directors compensation of $2,425,390 or 34.9% of net sales for
the six-month period ended December 31, 1999 compared to $396,894 or 3.9% of net
sales for the six-month period ended December 31, 1998, salaries (net of
officers and directors compensation) of $2,423,131 or 34.8% of net sales for the
six-month period ended December 31, 1999 compared to $2,064,577 or 20.4% of net
sales for the six-month period ended December 31, 1998 and selling expenses of
$2,372,488 or 34.1% of net sales for the six-month period ended December 31,
1999 compared to $1,438,281 or 14.2% of net sales for the six-month period ended
December 31, 1998. Research and development expenses were $895,072 or 12.9% of
net sales for the six-month period ended December 31, 1999 compared to $843,589
or 8.4%% of net sales for the six-month period ended December 31, 1998 and
general and administrative expenses were $921,881 or 13.3% of net sales for the
six-month period ended December 31, 1999 compared to $710,818 or 7.0%% of net
sales for the six-month period ended December 31, 1998. The increase
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in officers and directors compensation and salaries is due to the issuance of
common stock to certain employees and directors. The increase in selling and
general administrative expenses is due to the amortization of deferred
compensation for those shares issued to consultants for services currently being
rendered.
Interest expenses increased to $4,168,310 for the six months ended
December 31, 1999 compared to $1,412,696 for the six months ended December 31,
1998. This increase is primarily due to the increase of interest expense for
amortization of Debenture issuance cost and Conversion Benefit.
FINANCIAL CONDITION
December 31, 1999 compared to June 30, 1999
Total assets of the Company on December 31, 1999 increased by
$1,435,552 to $24,946,740 from $23,511. 189 on June 30, 1999, primarily due to
the increase of current assets. Current assets increased $1,625,938 to
$13,555,320 on December 31, 1999 from $11,929,381 on June 30, 1999. The increase
in current assets is attributable to the increase of cash and cash equivalents
of $2,433,616 and the increase of accounts receivable of $138,008 which was
partially offset by the decrease in inventory of $785,470 and the decrease in
prepaid expenses and sundry receivables of $160,215.. Other assets decreased
$390,833 to $4,907,934 on December 31, 1999 from $5,298,768 on June 30, 1999.
The decrease is primarily attributable to the amortization of the licensing
agreement, patents & trademark, software development cost and the goodwill.
On December 31, 1999, the Company had total liabilities of $29,788,540
compared to $31,265,797 on June 30, 1999. On December 31, 1999, current
liabilities were $13,994,621 compared to $13,944,865 on June 30, 1999. Working
capital at December 31, 1999 was $(439,302) compared to $(2,015,484) at June 30,
1999.
CASH FLOW AND CAPITAL EXPENDITURES SIX-MONTH PERIOD ENDED DECEMBER 31, 1999
COMPARED TO SIX-MONTH PERIOD ENDED DECEMBER 31, 1998.
Cash used for operating activities for the six months ended December
31, 1999 was $5,451,822 compared to $5,972,737 for the six months ended December
31, 1998. Cash used for investing activities was $524,012 for the six months
ended December 31, 1999 compared to $198,115 for the six months ended December
31, 1998. Cash flow from financing activities for the six months ended December
31, 1999 was $8,327,906 compared to $6,366,092 for six months ended December 31,
1998.
YEAR ENDED JUNE 30, 1999 COMPARED 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 the year ended June 30, 1998 include sales of the film
and processor business of Empower which was sold on June
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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%. This
increase is due to the additional sales of ddRMulti-Systems.
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, 1999 from 21% for the year ended June 30, 1998. The increase in
gross profit percentage is due to production efficiencies.
Operating expenses increased by $598,210 or 3.2% to $19,345,939 or
111.9% 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 principal 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 year ended June 30, 1998 and officers compensation increasing
approximately $4,444,477, primarily from the issuance of common stock to its
President in exchange for extinguishment of certain bonus rights contained in
his employment agreement, selling expenses of $3,207,646 or 18.5% 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. The decrease of depreciation and amortization
of $471,582 primarily due to the fact that the depreciable fixed assets were
less for 1999 since many of these assets were fully depreciated at June 30,
1998. The decrease in selling expenses was a result of the closing of Empower
which totaled approximately $476,000^. 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. Other operating expenses decreased by approximately $670,000 from
the comparable period in 1998 primarily from the decrease due to the Empower
closing of $100,000 and the decrease in occupancy and insurance costs of
approximately $200,000. Principal costs associated with development of the
ddRMulti-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 the ddRMulti-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 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.
Financial Condition
June 30, 1999 compared to June 30, 1998
Total assets of the Company on June 30, 1999 decreased by $2,403,408 to
$23,511,149 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
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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 primarily from the collection of VAT receivable. Other
assets decreased $1,536,194 to $5,298,768 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 $29,445,812
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, 199 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 primarily as
a result of losses sustained from operations, exclusive of non-cash
compensation. 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 primarily
from the acquisitions of property and equipment. 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 as a result of the sale of common stock
and proceeds from the sale of debentures.
The Company does not have any material commitments for capital
expenditures as of June 30, 1999.
Liquidity
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 during the next 12 months and thereafter.
However, the availability of a sufficient future cash flow will depend
to a significant extent on the marketability of the Company's ddRMulti-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 to the following financing participants -
Atlantis Capital Fund, Ltd., Canadian Advantage Limited Partnership, Dominion
Capital Fund, Ltd. and Sovereign Partners LP. After deducting legal
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fees of $35,000, and placement 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 representations 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. All of these debentures have been
converted.
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 to the following financing participants -
Canadian Advantage Limited Partnership, Dominion Capital Fund, Ltd. and
Sovereign Partners LP. 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 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. All of these debentures have been
converted.
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
to the following financing participants - Atlantis Capital Fund, Ltd., Canadian
Advantage Limited Partnership, Dominion Capital Fund, Ltd. and Sovereign
Partners LP. 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 16, 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 82% of the average closing bid price for the ten trading days
preceding the date of the conversion or $1.00 whichever is less. 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 April 25, 2000 an unconverted balance of $3,930,594 remains
outstanding and, accordingly, the number of shares being registered for the
balance of this transaction amounts to 4,323,.653 shares.
On October 6, 1998 the Company issued $2,940,000 aggregate principal
amount of 5%
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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 to the following financing
participants - Dominion Capital Fund, Ltd. and Sovereign Partners LP. 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 82% of the
average closing bid price for the ten trading days preceding the date of the
conversion or $1.00 whichever is less. 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
convertible debentures as of April 25, 2000 have been converted and, accordingly
the number of shares being registered for this transaction amounts to 3,234,653
shares.
The Registrant received gross proceeds of $1,080,000 in December, 1998,
pursuant to promissory notes bearing interest at the rate of 5% 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 82% of the 10 day average bid price for the 10
consecutive trading days immediately preceding the conversion date or $1.00
whichever is less. 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, 1,231,560 shares are being
registered pursuant to the terms of such agreements .
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 to the following financing participants - Dominion
Capital Fund, Ltd., Dominion Investment Fund LLC and Sovereign Partners LP 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. As
further consideration for the loan, the Company issued Lenders Warrants to
purchase up to 58,500 shares of the Company's common stock exercisable, in whole
or in part, for a period of up to 5 years at $1.00 per share. After deducing
fees directly attributable to such offering the 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)
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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 as of April 25, 2000 have been
converted and, accordingly, the number of shares being registered for this
transaction amounts to 473,353 shares.
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 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 regarding December 1998 transaction. The promissory notes were not paid by
their due date and the terms of a Contingent Subscription Agreement and
Registration Rights Agreement automatically went into effect and, accordingly,
the number of shares being registered for this transaction amounts to 479,008
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 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. The promissory notes were not paid by their due date and the terms
of a Contingent Subscription Agreement and Registration Rights Agreement
automatically went into effect and, accordingly, the number of shares being
registered for this transaction amounts to 237,346 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 Debentures"), convertible into Common Stock of the Company to the
following financing participants - Endeavour Capital Fund SA, Excaliber Limited
Partnership and Carbon Mesa Partners LLC 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
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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. 63,098 shares have been already been issued with
regard to this transaction and, accordingly, the number of shares being
registered for the balance of this transaction amounts to 296,153 shares.
On July 9, 1999 the Company entered into a fourth 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: Southshore
Capital, Ltd. now assigned to Parkdale LLC (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 notes were not paid by their due date
and the terms of a 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 485,682
shares.
On August 11, 1999 the Company entered into a fifth 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 $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 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 645,615 shares.
Pursuant to an agreement entered into on September 2, 1999, the Company
authorized a purchaser to purchase 1,000,000 shares at $1.00 per share (which
occurred on September 7, 1999) and up to an additional 2,000,000 shares at $1.50
per share so long as the first 1,000,000 shares were purchased on or before
September 30, 1999 and as long as the purchaser purchased at least an additional
1,000,000 shares within 60 days of its first purchase. The first purchase, as
aforesaid, was made on September 7, 1999 (at $1.00 per share) while the next
1,000,000 shares were purchased on October 19, 1999 (500,000 shares at $1.50 per
share) and November 1, 1999 (500,000 shares at $1.50 per share). Having met the
purchase requirements, the purchaser was entitled (through March 1, 2000) to
purchase the balance of the shares referred to at $1.50 but only purchased
666,667 shares at such price in December 1999. In accordance with the terms of
such Subscription Agreements and Registration Rights Agreements all 2,666,667
shares sold are being registered herein. The Investment participants involved in
the above transactions are Parkdale LLC, Southridge Capital Management LLC,
Striker Capital, Alfred Hahnfeldt and Greenfield Investments Consultants LLC.
In February 2000 the Company entered into an additional
separate transaction whereby it sold
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333,333 restrictive shares of its common stock at $3.00 per share to Dundurn
Street LLC. In accordance with the terms of the Subscription Agreement and
Registration Rights Agreement all 333,333 shares sold are being registered
hereunder.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
The results of operations and the financial position of the Company's
subsidiaries outside of the United States are 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
ddRMulti-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 ddRMulti-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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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 ddRMulti-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 ddRMulti-System and the development of
communication interfaces (DICOM 3.0, HL 7, Dicom Worklist etc.) to extend the
connectivity of the ddRMulti-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
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account Interest expenses, 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.
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 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
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and $4,000,000 in digital (i,e., ddRMulti-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 ddRMulti-Systems as of the fiscal
year ended June 30, 1998.
As of December 31, 1999 total backlog amounts to $19,216,900 of which
$16,794,000 represents digital with the balance representing conventional X-ray
equipment.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 103"), and No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 established standards for reporting
and displaying comprehensive income, its components and accumulated balances.
SFAS 131 establishes standards for the way that public companies report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. Both SFAS 130 and SFAS 131 are effective for
periods beginning after December 15, 1997. The Company adopted these new
accounting standards in 1998, and their adoption had no effect on the Company's
financial statements and disclosures.
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure.
Bederson & Company LLP ("Bederson") audited the books, records and
accounts of the Registrant for the fiscal year ended June 30, 1997. Bederson was
dismissed on November 7, 1997.
On November 7, 1997 the Board of Directors selected STG-Coopers &
Lybrand AG ("STG") as the Registrant's auditors for the fiscal year ending June
30, 1998 and this action was ratified by the stockholders at the Annual Meeting
held on December 23, 1997.
On November 2, 1998 (after having failed to complete the audit for
fiscal year ended June 30, 1998 in a timely manner or otherwise and alleging
that its inability to complete such audit was based upon the Company's failure
to fully cooperate with them) STG advised the Company that it had determined to
cease to represent the Company. On November 6, 1998 the Company engaged Feldman
Sherb Ehrlich & Co., P.C. ("FSE") as its new independent accountants and such
firm commenced and concluded its audit so that the Company was able to file its
Form 10-K on December 3, 1998. STG acknowledged in its required letter to the
SEC that there were no disagreements, as defined by Rule 304 of Regulation S-K
during the period that STG served as the Company's auditors through the date of
STG's resignation.
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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.
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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 Add-on
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 Psilotum 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.
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
ddRMulti-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 was completed in December 1999
thus allowing 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 ddRMulti-System/SwissVision
The ddRMulti-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 ddRMulti-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 ddRMulti-System
uses the Company's Add-on Bucky(R) as the digital detector. The Add-on 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 ddRMulti-System is the fact that a
variety of X-ray examinations can be made with the use of only
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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
ddRMulti-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
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
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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. See also risk factor entitled "Reliance on Large Customers".
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 point-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 ddRMulti-System have been made. The Company submitted both its
Add-on Bucky(R) and the ddRMulti-System to the FDA for Section 510(k) clearance.
On November 21, 1997, the Company's Add-on Bucky(R), the direct
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digital detector of the ddRMulti-System, received FDA approval and on December
18, 1997 the Company's ddRMulti-System received FDA approval; the Company thus
receiving authorization to market the ddRMulti-System in the United States.
Having obtained the required approval from the FDA, the Company intends to sell
the ddRMulti-System in the United States through its subsidiaries and other
channels. See "Risk Factors -- Government Regulation" and "Business --
Regulatory Matters."
The percentage of revenues for fiscal year ended June 30, 1999
attributed to product markets amounted to 81.84%.
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
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." The Company currently
intends to continue to concentrate its marketing efforts within Switzerland and
U.S. wherein approximately 90% of all Company sales were concluded during fiscal
year ended June 30, 1999, with Switzerland accounting for 73% of all sales and
the U.S. accounting for 23% of such sales (and with the balance of 4% of sales
being conducted in Germany). See also Note 19 to audited financial statements.
The percentage of revenues for fiscal year ended June 30, 1999
attributed to services amounted to 18.16%.
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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."
Contract with Department of Veteran Affairs
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") for its Diagnostic X-ray systems, the ddRMulti-System, with the VA
reserving its option to extend the term of the contract up to March 31, 2001;
the ddRMulti-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 sold 4
ddRMulti-Systems (through April 17, 2000) to different VA institutions.
Distribution Agreements
In October 1998 the Company entered into a distribution agreement with
X-ray Inc. ("XRI"), Warwick, RI. whereby XRI distributed the Company's
ddRMulti-System in the territories of Connecticut, Rhode Island, Vermont, New
Hampshire, Massachusetts and Maine until termination of this one year contract
in October of 1999. The Company currently is conducting its own distribution
within these areas.
In November 1998 the Company reached an agreement with Data General
Corporation of Westborough, MA, effective January 20, 1999 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 ddRMulti-System
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and Information Solutions as a package with their PACS system. This agreement
remains in effect but may be terminated by either party (with or without cause)
upon 30 day notice. Management has no current intentions to terminate such
agreement nor does it anticipate that Data General will exercise such right as
the parties continue to maintain a good working relationship with each other.
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, agreed to
distribute Swissray's direct digital radiography system, the ddRMulti-System.
H&H X-Ray, which was to oversee sales in New York, Pennsylvania and Ohio has
ceased business operations and the Company is currently conducting its own
distribution in such areas. Similarly, the Company's contract with RES has
terminated and the Company is conducting its own distribution within these
territories.
Medika, one of the largest medical equipment suppliers in the Southern
Hemisphere, will cover ddRMulti-Systems sales in Puerto Rico, the Caribbean,
Mexico and selected South American markets. The original contract with Medika
expired October 1999 and was automatically renewed through October 2000.
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.
Representative sales of ddRMulti-System
In July of 1998 the Company sold its multifunctional direct digital
radiography (ddR) system, the ddRMulti-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 February of 1999 the Company announced the sale of three of its
ddRMulti-System, to Houston, Texas - based Kelsey-Seybold Clinic and to the
Federal Maximum Security Facility in Florence, Colorado. The two Kelsey-Seybold
systems were 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.
The Hitachi Agreement
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 ddRMulti-System to end users within certain defined territories
within the United States.
The defined territories referred to consist of the entire U.S.
excepting for (a) the states of
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Alabama, Arizona, Connecticut, Mississippi, Maine, Massachusetts, New York,
Rhode Island, Vermont and New Hampshire, (b) a portion of New Jersey that
includes the Atlantic City Expressway and north, (c) certain designated counties
within the state of Pennsylvania, (d) the counties Orange and San Diego within
the state of California, and (e) the Panhandle of Florida - Tallahassee west.
Additionally, the Agreement contains provisions whereby additional
exclusions exist with respect to various identified customers reserved to the
Company principally due to the Company's prior contact with and/or dealings with
such clientele.
In addition HMA will utilize and promote the Swissray Information
Solutions services and products consisting of consulting and product solutions
for medical imaging informatics.
Additional Sales Information
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 ddRMulti-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 ddRMulti- 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 was
unable to sell the anticipated 75 ddRMulti-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 research and development of $1,808,107 (accounting for 12% of
the Company's operating expenses) compared to $3,542,149 (accounting for 19% 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
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detector, the unique Add-on-Bucky have been completed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." For
the six months ended December 31, 1999 the Company incurred additional research
and development expenses of $895,072 (accounting for approximately 9% of the
Company's operating expenses).
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 direct digital chest examination system (ddRChest-System), a
direct digital universal radiography system (ddRCombi) and a multi-functional
floating table. Both the ddRChest-System and ddRCombi were unveiled (a)
domestically in the U.S. at the scientific assembly of the Radiological Society
of North America (RSNA) held in Chicago from November 28 - December 2, 1999 and
(b) internationally at the European Congress of Radiology (ECR 2000) held in
Vienna, Austria in early March 2000.. The ddRChest-System is a dedicated chest
unit capable of taking all chest examinations in a direct digital format, while
the ddRCombi is a multi-functional system in combination with a ceiling suspend
unit able to perform examinations on the seated, upright and recumbent patient.
As of April 25, 2000, 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 December 31, 1999 finished
products accounted for approximately 22% of inventory while raw material, parts
and supplies accounted for approximately 59% of inventory and work in process
for approximately 19%.
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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 of which 13.6% related to the single source
supplier of certain camera electronics while 13.6% related to the single source
supplier of optics (both items are included in the same product).
(A) Information With Respect to In-house Production of Camera
Electronics
The agreement with the single source supplier of certain camera
electronics terminated December 31, 1999 due to the fact that its manufacturing
plant where the camera electronics had been manufactured permanently closed on
such date and Company management was not satisfied with proposals submitted to
it by such supplier regarding the latters intentions of establishing a new
manufacturing plant. Company agreement with its then new supplier of camera
electronics provided for availability of such camera electronics to the Company
commencing January 1, 2000. In January of 2000 the Company entered into a new
arms-length agreement with its CCD camera supplier Laboratories d'Electronique
Philips S.A.S. whereby the Company has purchased, from available working
capital, the production facility (including necessary tools equipment, diagrams
and related knowhow) for approximately 250,000 Swiss Francs (US$161,290) and it
is management's intention through such purchase) to have a sufficient number of
CCD cameras on hand (four per system) to cover in excess of those immediately
required to cover orders. Through in-house production of key camera components
the Company has eliminated its reliance upon its former supplier, looks forward
to reduction in camera costs because at a minimum the Company will no longer
have to fund its former suppliers profit margin and does not expect any material
business interruptions to occur regarding CCD camera availability in a timely
manner nor does it anticipate that such in-house production will have any affect
upon quality of its ddR-Systems. The Company currently has 104 CCD cameras in
stock which will be used for the next 26 ddR-Systems, which can be used for
deliveries over the next two months.
(B) Agreement With Single Source Supplier of Optics
The agreement with the single source supplier of optics expires in July
2002, may not be terminated by either party without cause and is subject to
renegotiations which are expected to occur assuming contract fulfillment
continues to be concluded in a timely and satisfactory manner with price and
payment terms being comparable to those currently being utilized and meeting
Company capacity requirements. The percentage of revenues from this single
source supplier of optics amounted to approximately 13.6% at fiscal year ended
June 30, 1999. While management has no current expectation or need to replace
this supplier it does not envision encountering any material difficulties in
replacing such supplier (with a different optics manufacturer having the ability
to timely deliver comparable optic quality) if necessary in the event of any
unforeseen circumstances which may require replacement.
Backlog
Management estimates that as of the end of 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.,
ddRMulti-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
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$1,500,000 in ddRMulti-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. As a result of certain recent economic
problems 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 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.
As of December 31, 1999 total backlog amounts to $19,216,900 of which
$16,794,000 represents digital with the balance representing conventional X-ray
equipment.
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 ddRMulti-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 ddRMulti-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
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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
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."
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. In many
instances where patents are filed the "applicant" is listed as a specific
individual (such as the Company's President) while the patent ownership is
listed in the Company's name thereby assuring that the exclusive patent holder
is the Company.
In May of 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)
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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
was granted in September 1999 as hereinafter indicated. The Add-on- Bucky(R) is
incorporated in Swissray's unique multifunctional ddRMulti-System.
On September 30, 1999 the Company announced that the U.S. Patent Office
issued patent No. US 005920604A for its direct digital Radiography (ddR)
detector, the Add-on Bucky(R). The U.S. patent was awarded to Swissray pursuant
to application submitted by inventors R. G. Laupper, Chairman and President, CEO
of Swissray International, Inc. and Peter Waegli (Bremgarten, Switzerland), for
the optical arrangement and process for transmitting and converting primary
x-ray images generated on a two dimensional primary image array. The Company had
previously been awarded, in May 1999 the European patent for the technology
indicated herein. A separate patent application for the mirror optics has been
submitted and is pending approval in both Europe and the U.S.
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 ddRMulti-System which could impede the
Company's ability to manufacture and/or market the product. The Company
submitted both its Add-on-Bucky(R) and the ddRMulti-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 ddRMulti-System, received FDA approval and on
December 18, 1997 the Company's ddRMulti-System received FDA approval; the
Company thus receiving authorization to market the ddRMulti-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
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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 was completed in December 1999
thus allowing 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".
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 has
111 employees worldwide, of which 25 were employed by subsidiaries in the United
States, 72 in Switzerland, and 14 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.
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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
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
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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 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 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 the 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 proceedings 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 on August 31, 1999. In accordance with such settlement agreement
the Company was required and has since paid the sum of $1,000,000 and is further
obligated to pay (in accordance with the terms of an August 31, 1999 promissory
note and over a period of 24 consecutive months) an aggregate of $500,000 with
interest at the rate of 9% per annum. Payments with respect to such promissory
note have been and remain current.
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 July 22, 1996 and a
subsequent
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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 counterclaims seeking
(amongst other matters) dismissal of the complaint and recision of the
settlement agreement. It is Swissray's management's intention to contest this
matter vigorously. Maxwell has submitted a motion for Summary Judgment which
Swissray has opposed and as of April 25, 2000 no Court determination has been
made with respect thereto.
Restrictive Shares Issued In Accordance With Consulting Agreements
Consulting Agreement with Liviakis Financial Communications, Inc.
On March 29, 1999 the Company entered into a one year Consulting
Agreement ^ 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 fully vested, and non-forfeitable 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. Notwithstanding the
fact that the March 29, 1999 agreement permitted the Company to extend same (for
an additional year) under the same terms and conditions excepting for annual
remuneration, the Company and LFC agreed to renegotiate remuneration. As a
result thereof the parties (on March 29, 2000) entered into a new one year
"Consulting Agreement", which Agreement is virtually identical to the initial
Agreement (including but not limited to voting rights on shares issued as
referred to directly above) excepting that (a) the "Remuneration" section
provides for the issuance of 490,000 fully vested non-forfeitable shares of the
Company's common stock and further provides for the issuance of 36,000
restrictive shares of Company common stock (based on 3,000 shares per month)
throughout the period of Consultant's performance and (b) LFC has agreed to
"lock up" the original 3,000,000 shares issued to it and not attempt to sell
same through Rule 144 or otherwise despite being eligible to do so with such
"lock up" to continue to March 28, 2001 unless the current consulting agreement
is terminated or the Company is acquired by another entity prior to March 28,
2001. Since both the initial Agreement referred to above and the new Agreement
entered into on March 29, 2000 are identical in all material respects excepting
as indicated above, such Consulting Agreements are hereinafter referred to
collectively as "Consulting Agreement". 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.
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 and its
business plans, strategy and personnel to the financial community, establishing
an image for 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
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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.
The agreement further provides that in the event LFC introduces SRMI
(a) to a lender or equity purchaser, not already having a preexisting
relationship with SRMI, with whom SRMI ultimately finances or causes the
completion of such financing, SRMI shall compensate LFC for such services with a
"finder's fee" in the amount of 2.5% of total gross funding provided by such
lender or equity purchaser or (b) to an acquisition candidate, either directly
or indirectly through another intermediary, not already having a preexisting
relationship with SRMI, with whom SRMI ultimately acquires or causes the
completion of such acquisition, SRMI shall compensate LFC for such services with
a "finder's fee" in the amount of 2% of total gross consideration provided by
such acquisition. The compensation to LFC is to be payable in cash and is to be
paid in full at the time the financing or acquisition is closed. It is
specifically understood that LFC is not nor does it hold itself out to be a
Broker/Dealer, but is rather merely a "Finder" in reference to the Company
procuring financing sources and acquisition candidates.
LFC, founded in 1985 by John Liviakis, its President, is a full service
investor relations firm, providing services principally to micro through mid-cap
public companies listed on the Nasdaq, American, New York Stock and OTCBB
Exchanges. Such services include financial community and media relations,
editorial services and interactive communications, as well as administrative,
consulting and advisory services. The overall purpose of LFC is to enhance its
corporate clients' recognition in the financial community, the media and among
shareholders. In furtherance of its agreement with the Company and in addition
to and/or in conjunction with those consulting services referred to above and in
the consulting agreement between the parties, LFC has performed the following
services on behalf of the Company in its efforts to assist and advise the
Company with respect to its stockholder and investor relations as well as its
relations with brokers, dealers, analysts and other investment professionals.
Specifically LFC has performed the following services:
1) pro-actively soliciting sponsorship for the Company's common stock from
stockholders, institutions, and analysts;
2) accepting incoming investor calls from brokers, shareholders and financial
institutions;
3) assisting the Company in packaging its investor relations materials;
4) assisting the Company in the writing and dissemination of its press releases;
5) assisting the Company in media relations; and
6) generally advising the Company, upon request, on matters of a corporate
financial nature.
Additionally, LFC has introduced the Company and subsequently entered
into an investment banking relationship with Raymond James & Associates in order
to assist the Company in evaluating
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strategic alternatives including, but not limited to, identifying proposals from
potential suitors or strategic partners as well as supporting the Company's
financing requirements.
Consulting Agreement with Rolcan Finance Ltd.
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 fully vested, and
non-forfeitable 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 appropriate under then existing circumstances.
Rolcan has advised that it is currently continuing to conduct due
diligence activities with respect to locating international banking enterprises
on behalf of the Company with a view towards obtaining financial backing in
areas of lines of credit, equipment leasing, receivable and inventory financing
and areas of a similar nature. Such efforts if successful, are intended to
alleviate cash flow difficulties that may arise as a result of substantial and
significant increase in the Company's business activities (and most specifically
in its recent major increase in contracting for the sale of 32 of its
ddRMulti-Systems to Romania. Rolcan, established in 1993 by its Managing
Director and control stockholder, Roland Kaufmann, is a business consulting firm
primarily engaged in the types of activities enumerated above with its principal
activities being conducted outside the U.S.
The issuance of the above referenced restrictive shares to LFC and
Rolcan was based upon the then bid price of $0.375 per share as quoted on the
date (March 22, 1999) that the parties each agreed to the terms and conditions
of their respective Consulting Agreements, notwithstanding the fact that when
such binding oral agreements were reduced to writing and executed on March 29,
1999 the closing bid price had risen to $0.906 per share. The factors considered
by the Company's Board in determining the 33% discount from the bid price of
$.375 per share when issuing the above reference shares to LFC and Rolcan was
based upon the Board's determination that there is a substantial and significant
difference between the valuation of free trading securities and restricted
shares. The principal differences considered relate to the facts that (a)
restricted shares may not be sold in the open market and (b) restrictive legend
appearing on such restricted shares may not be removed for a period of at least
one year absent registration and then only in accordance with Rule 144 (assuming
the Company continues to meet necessary reporting requirements for utilization
of Rule 144). The Board further considered the fact that even if the above
referenced Rule 144 requirements were met the holder of restricted shares
remained subject to specific volume limitations (usually 1% of outstanding
common stock) with respect to sales made within a 3 month period subsequent to 1
year holding period. In addition to all of the above, the Board also considered
the fact that the Company's shares have had a history of substantial and
significant volatility.
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The foregoing summarizes certain pertinent terms and conditions
contained in the Agreements entered into by the Company with LFC and Rolcan but
does not purport to be a complete summary of such Agreements. Copies of such
Agreements are filed with the SEC in the Company's Form S-1 Registration
Statement under SEC file number 333-59829. Accordingly, further information may
be obtained through the Commission's World Wide Web site utilized for Issuers
(such as the Company) that file electronically with the Commission. The address
of such site is http:\\www.sec.gov.
Recent Developments
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.
(HMA), a subsidiary of Hitachi Medical Corporation. Under the terms of the
agreement HMA will provide sales, marketing, and service for the distribution of
Swissray's ddRMulti-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. For further and more specific
information with respect to this agreement, see "Sales and Marketing -
Distribution Agreements - The Hitachi Agreement".
In October 1999 the Company was awarded a purchase order for 32 of its
unique direct digital Radiography System from the Romanian Ministry of Health
for its multifunctional ddRMulti-System, valued at over US$13,800,000.
Installation will be in various hospitals throughout Romania, The initial
payment aggregating 15% of the aforesaid total proceeds (i.e., 2,070,000) was
received by the Company in early March 2000. The Company expects to complete all
material delivery requirements within its current fiscal year ending June 30,
2000 and expects that payment of the 85% balance of the gross proceeds due under
such contract will be paid on a pro rata basis upon deliveries of Company
ddRMulti-Systems.
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<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 50 Chairman of the Board of Directors,
President and Chief Executive Officer,
Josef Laupper 54 Secretary, Treasurer and Director
Ueli Laupper 30 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 53 Director and Member of the Independent Audit
Committee
Michael Laupper 27 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 from its inception in June 1988 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
having
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<PAGE>
previously been employed by the Company from January 1993 to July 1995 as Export
Manager. 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.
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 worked in
conjunction with the Company's former CFO and has been the Company's CFO since
August 1999. 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 since 1999 and 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
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<PAGE>
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 entered into a five-year employment agreement with
Swissray Management AG, a wholly owned subsidiary of the Registrant, on December
18, 1997, which agreement provided for automatic renewal for another five years
unless terminated by either party no later than December 31, 2001. Such
agreement also provided for (i) an annual salary of 299,000 Swiss francs (or
$194,121), (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 was calculated at 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 30, 1999 Board meeting (attended by the Company's
President, Ruedi G. Laupper, who absented himself from the meeting prior to vote
upon and adoption of resolutions) 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
fully vested, and non-forfeitable shares of restrictive Company common stock in
exchange for and in consideration of his agreeing to cancel the above referenced
EBIT provisions in his employment contract which otherwise would have entitled
him to receive 25% of all Company earnings before interest and taxes ("EBIT")
payable in shares of Company Common Stock during each year of such employment
contract, which contract expires December, 2007 (EBIT at June 30, 1999 was
$(15,817,751), therefore no bonus was payable). Valuation assigned to the
aforesaid 2,000,000 fully vested, and non-forfeitable shares was based upon
Board members agreement that such price would be based upon 75% of bid price at
the time proposal was initially made and agreed to on March 12, 1999, i.e. 75%
of $0.50 bid price on March 12, 1999. The Board resolution approving the above
referenced transaction (and utilizing the aforesaid agreed to valuation date)
occurred on June 30, 1999, at which time the bid price of the common stock was
$2.625 and at which time the above referenced shares were issued to Mr. Laupper.
In accordance with SEC guidelines (and notwithstanding the percentage discount
from bid price discussed above) the Company's financial statements reflect a 10%
(as opposed to 25%) discount from bid price with respect to this transaction at
date of issuance.
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<PAGE>
At such June 30, 1999 Board meeting members expressed their consensus
that while the Company had not, as yet, had any earnings, that its business
(after significant and ongoing infusions of capital) had now reached the point
where it was expected that "breakeven" (earnings before interest and taxes
("EBIT") being $0) was reasonably foreseeable within the current fiscal year and
that it was further expected that in both the near term (i.e., within the next
two fiscal years) and long term (i.e., the period of time commencing subsequent
to the close of fiscal year ended June 30, 2002) that substantial and
significant earnings would be forthcoming as a result of its development of its
ddRMulti-System (and related products) and the industry's acceptance of same as
reflected by substantial sales increases and the then anticipated sale of a
significant number of its ddRMulti- Systems to the Government of Romania. The
contract for sale of ddRMulti-Systems was entered into in October 1999 as a
result of the Romanian Bidding Commission having accepted the Company's tender
(in September 1999) as made to the Ministry of Health of the Government of
Romania. As a result thereof the Company entered into the aforesaid contract for
the sale of 32 of its ddRMulti-Systems with a valuation of in excess of
$13,800,000. ^ An initial payment aggregating 15% of the aforesaid total gross
proceeds (i.e. a sum approximating $2,070,000) due under such contract was made
to the Company in early March 2000. ^ The Company expects to complete all
delivery requirements within its current fiscal year on or before June 30, 2000
and expects to receive pro rata payments of the 85% balance of the gross
proceeds due under such contract ^ upon deliveries by the Company.
Based upon the above, Board members reaffirmed their aforesaid March
12, 1999 agreement that it would be in the best interests of all parties
concerned (and especially Company stockholders) to eliminate the above
referenced EBIT provisions so that what might otherwise amount to significant
earnings being paid to the Company's President in stock (pursuant to the 25% of
EBIT bonus provisions) be replaced with a permanent one time solution. It was
then resolved and subsequently accepted by the Company's President that
2,000,000 restrictive shares of the Company's Common Stock be issued to him in
exchange for cancellation of the above referenced 25% of EBIT bonus provisions
and in accordance with March 12, 1999 original agreement.
The above referenced proposal was initially orally made to the
Company's President by its Board of Directors on March 12, 1999 and the key
meeting with respect to discussion thereon occurred on such date, and such
agreement was subsequently finalized (i.e. reduced to writing) at the Company's
June 30, 1999 Board meeting wherein discussions were basically limited to those
set forth above and at which the only persons present were Board members and at
which time Board members again agreed that valuation assigned to shares issued
would reflect price at time of initial proposal as previously agreed to. There
were no offers or counter-offers between the Company and its President but
rather directors agreed to and voted in favor of issuance of the above
referenced 2,000,000 restrictive shares and the Company's President (abstaining
himself from such vote) agreed to such resolution. All material factors
considered by the Board consisted of those referred to above and were what it
considered to be "positive" factors without any negative factors or implications
being discussed.
It is management's present intention for the Company to seek
stockholder ratification as relates to this matter. Absent such ratification the
Board may nevertheless determine (and in all likelihood will determine) to leave
the agreement in effect, as is. Nevertheless, such ratification is intended to
be sought in an effort to comply with NASDAQ Marketplace Rule
4310(c)(25)(H)(i)(a).
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<PAGE>
The above referenced Rule provides in part that "Each Issuer shall
require shareholder approval." (A) when a stock option or purchase plan is to be
established or other arrangements made pursuant to which stock may be acquired
by officers or directors, except for warrants or rights issued generally to
security holders of the company or broadly based plans an arrangement including
other employees (e.g. ESPOS). In a case where the shares are issued to a person
not previously employed by the company, as an inducement essential to the
individual's entering into an employment contract with the company shareholder
approval will generally not be required. The establishment of a plan or
arrangement under which the amount of securities which may be issued does not
exceed the lesser of 1 percent of the number of shares of Common Stock, 1
percent of the voting power outstanding, or 25,000 shares, will not generally
require shareholder approval".
The Company is not currently on NASDAQ (see risk factor entitled
"Delisting Due to Non- compliance With certain NASDAQ Standards" as well as
Business subsection entitled "Continued NASDAQ Delisting") but nevertheless
wishes to obtain stockholder ratification regarding its issuance of restrictive
shares of its Common Stock in amounts greater than 25,000 shares per person
since NASDAQ may consider this issue for companies who are reapplying for
listing (on a case by case basis) and in the case of the Company, has so
considered such issuance to the detriment of the Company's ability for NASDAQ
relisting.
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
$94,924 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).
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" insurance 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 was to expire in May 31, 1999 but Mr. Kalbermatter
resigned in February 1999.
All of these employment agreements are covered by Swiss law.
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<PAGE>
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 Officer 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 $194,121 $8,377 $4,335,000(1)(8) --- ---
President and Chief Executive 1998 $173,587 $16,057 $15,000 (1) --- ---
Officer, Chairman of the 1997 --- --- $1,122,973 (7) --- ---
Board of Directors 1997 $146,983 --- $15,000 (1) 12,000(5) ---
Josef Laupper 1999 $ 83,566 $6,494 $12,000 (1) --- ---
Secretary, Treasurer 1998 $ 94,669 --- $12,000 (1) --- ---
1997 $ 96,861 --- $12,000 (1) --- ---
Ueli Laupper 1999 $ 94,924 $7,077 $10,000 (1) --- ---
Vice President Internatioal 1998 $ 95,685 --- $10,000 (1) --- ---
Sales (2) 1997 $ --- --- $ --- --- ---
Herbert Laubscher 1998 $ 79,244 --- $ --- --- ---
Chief Financial Officer (2)(3) 1997 $ --- --- $ --- --- ---
Ulrich R. Ernst (4) 1997 $ 96,979 --- $10,000 (1) --- ---
Erich A. Kalbermatter 1999 $153,333 --- $ --- --- ---
Chief Operating Officer 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, as follows:
Ruedi G. Laupper, the Company's President, surrendered for
cancellation an aggregate of 1,608,635 shares of common stock owned by
him in order for the Company to meet its obligations with respect to
various warrantees and representations made by it regarding
availability of a sufficient number of authorized but unissued shares
to timely meet convertible debenture conversions and avoid Company
default (regarding financings which
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occurred in or about September 1996 and January 1997). By surrendering
such shares Ruedi G. Laupper lost his holding period under Rule 144
which at that point would have entitled him to utilize Rule 144 every
three months to sell such restrictive shares (as free trading) subject
to volume limitation imposed by Rule 144. In exchange for losing such
valuable right and once stockholders had increased the number of
authorized shares of Company common stock at a Special Meeting called
for such purposes, Mr. Laupper, as previously agreed to, received a
number of shares equal to 30% (48,259 post reverse split shares) more
than those previously canceled (creating a brand new holding period for
him for purposes of Rule 144 transactions).At the time that the
Company's President surrendered his aforesaid 1,608,635 shares for
cancellation (to wit: March 7, 1997) the bid price of the Company's
common stock was $2.6875 while at the time that such individual
received the 48,259 post split shares referred to above (on June 30,
1997) the bid price for the Company's common stock was $2.421875.
(8) Dollar value assigned to the 2,000,000 shares of Common Stock issued
for relinquishment of EBIT bonus based upon Board members agreement
that such price would be based upon 90% of bid price at the time
proposal was initially made, i.e., 90% of the $2.40 average price on
June 30, 1999 - the date of the Board of Directors meeting.
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> <C>
Ruedi G. Laupper 120,000(2) 30.4% $0.73(3) $2.94(4) 6/13/02 265,200 282,840 300,480
Josef Laupper(5) -- -- -- -- -- -- -- --
Ueli Laupper(5) -- -- -- -- -- -- -- --
Herbert Laubscher(5) -- -- -- -- -- -- -- --
Ulrich Ernst(5)(6) -- -- -- -- -- -- -- --
</TABLE>
(1) The options to purchase the Registrant's Common Stock were granted under
the Swissray International, Inc. 1996 Non-Statutory Stock Option Plan.
(2) These options were owned indirectly through SR Medical Equipment Ltd., a
corporation wholly owned by Mr. Laupper. They were immediately
exercisable on the date of grant but do not give effect to subsequent
October 1998 1 for 10 reverse stock split.
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<PAGE>
(3) The exercise price per share is contingent on purchase of the entire
amount of securities.
(4) The market price on date of grant was based on the average of the high
and low reported prices on the Nasdaq SmallCap Market on June 13,
1997. On October 26, 1998 the Company's securities were delisted by
NASDAQ.
(5) These individuals own no stock options of the Registrant.
(6) Mr. Ernst was Chairman of the Board of Directors from May 1995 until
March 18, 1997.
STOCK OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1998
With respect to the Named Executive Officers there were no granting of
stock options under either the Company's 1996 or 1997 Stock Option Plans (the
"Plans") during the fiscal year ended June 30, 1998.
STOCK OPTION GRANTS IN FISCAL YEAR ENDED JUNE 30, 1999
With respect to the Named Executive Officers there were no granting of
stock options under either the Company's 1996, 1997 or 1999 Stock Option Plans
(the "Plans") during the fiscal year ended June 30, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END
OPTION VALUES(1)
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options Options
At Fiscal Year-End(#) At Fiscal Year-End($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <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, 1998 and 1999.
(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.
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<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"). 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 April 25, 2000,
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.
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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. 2,988,000 of these
options have been granted through April 25, 2000.
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 .
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, 1998 and 1997, were $509,959, $347,854 and $274,009,
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 Company had no Compensation Committee during the last completed
fiscal year. The Corporation's executive compensation was supervised by all
members of the Company's Board of Directors and the following directors were
concurrently officers of the Company in the following capacities: Ruedi G.
Laupper (Chairman of the Board of Directors, President and Chief Executive
Officer); Josef Laupper (Secretary and Treasurer and director) and Ueli Laupper
(Vice President and director). No executive officer of the Company served as a
member of the Board of Directors or
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compensation committee of any entity which has one or more executive officers
who serve on the Company'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 in consideration of Mr.
Laupper's agreement to cancellation of 160,863 post split shares of Common Stock
held by Ruedi G. Laupper or companies controlled by him. See also footnote 7 to
Summary Compensation Table for additional material information regarding this
transaction.
The Company did not issue any shares of its Common Stock to any of its
officers during fiscal year ended June 30, 1999 excepting for the issuance of
2,000,000 restrictive shares to Ruedi G. Laupper in exchange for and in
consideration of cancellation of certain bonus provisions contained in
employment contract.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of April 25, 2000 (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). The title of class of all
securities indicated below is Common Stock with $.01 par value per share.
<TABLE>
<CAPTION>
No. Of Shares Percentage of
Beneficially Shs. Beneficially
Name and Address of Beneficial Owner Owned (1) Owned (1)
- ------------------------------------ -------------- ------------
<S> <C> <C> <C>
Ruedi G. Laupper (2)(10) 2,941,074 12.53%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Josef Laupper (3) 325,000 1.38%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Erwin Zimmerli (4) 223,750 .95%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
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Ueli Laupper (11) 443,750 1.89%
320 West 77th Street
New York, New York 10024
Dov Maor (13) 31,250 * %
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Michael Laupper (12) 250,000 1.07%
c/o SWISSRAY International, Inc.
Turbistrasse 25-27
CH 6280 Hochdorf
Switzerland
Dominion Capital Fund, Ltd. 5,176,512 (5) 18.89%
c/o Thomson Kernaghan & Co. Ltd.
365 Bay Street
Toronto, Ontario M5H 2V2
Canada
Sovereign Partners LP 6,178,534 (6) 21.60%
90 Grove Street - Suite 01
Ridgefield, New Jersey 06877
Liviakis Financial Communications, Inc. (LFC) 3,526,000 (7) 15.13%
495 Miller Avenue - 3rd Floor
Mill Valley, California 94914
Rolcan Finance Ltd. 800,000 (8) 3.43%
Seestrasse 17
P.O. Box 53
CH 8702 Zollikon 2
Switzerland
Parkdale LLC (14) 2,131,476 (14) 8.72%
c/o Thomson Kernaghan & Co. Ltd.
365 Bay Street
Toronto, Ontario M5H 2V2
Canada
All directors and officers as
a group (six persons) 4,214,824 (9) 17.45%
</TABLE>
* Represents less than 1% of the 23,311,782 shares outstanding as of
April 24, 2000.
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(1) 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.
(2) 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,
(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 and (iv) an additional 156,250 shares which may be
acquired upon exercise of balance of immediately exercisable options
issued in October 1999.
(3) Includes 175,000 shares which may be acquired upon exercise of balance
of immediately exercisable options issued in October 1999.
(4) Includes 173,750 shares which may be acquired upon exercise of balance
of immediately exercisable options.
As of the April 25, 2000, an aggregate principal outstanding balance
(exclusive of interest) for those Convertible Debentures referred to below
amounts to $14,227,794. None of these convertible debentures are owned by
officers and/or directors of the Company.
(5) Includes 1,090,681 shares currently owned as well as up to 4,085,831
shares which normally could be issued (inclusive of 369,263 shares as
may be issued for interest earned), at any time, upon conversion of
previously issued convertible debentures (the "Convertible
Debentures"). Dominion Capital Fund, Ltd. is managed and directed by
David Sims, its sole director. Voting control of Dominion Capital Fund,
Ltd.'s shares is exercised by Livingstone Asset Management Limited, a
Bahamas Company controlled by David Sims.
(6) Includes 880,633 shares currently owned as well as up to 5,297,901
shares which normally could be issued (inclusive of 477,276 shares as
may be issued for interest earned), at any time, upon conversion of
previously issued convertible debentures (the "Convertible
Debentures"). The person or persons having voting control are
Southridge Capital Management LLC, P.P., Steven Hicks (President) -
Connecticut.
The foregoing information contained in footnotes 5 and 6 above assumes
conversion based on 18% - 20% discount from market (dependent upon debenture)
based upon the last reported sales price on April 25, 2000. This 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. The 4.99% limitation does not apply and,
accordingly, would not limit beneficial ownership in any manner in the
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event that (a) 50% or more of the Company is acquired, (b) the Company is merged
into another company or (c) a change of control occurs.
(7) Pursuant to written Agreements, the Registrant's President, Ruedi G.
Laupper, has sole voting rights with respect to these shares without
any limitation thereon so long as same are owned by LFC. LFC in turn
(and pursuant to agreement with the Company) may not sell any of such
shares until March 28, 2001 and then only in accordance with and
subject to such volume limitations as are imposed in accordance with
the applicable provisions of Rule 144 under the Securities Act of 1933.
(8) Roland Kaufmann, Managing Director and a control person of this firm
has voting control over these shares.
(9) Includes 842,000 shares issuable upon option exercise.
(10) When taking into account the number of shares owned beneficially by
Ruedi G. Laupper (2,772,824) as well as those shares over which he
exercises voting control (as indicated in footnote 7 above) Ruedi G.
Laupper exercises voting control over approximately 27% of all voting
shares as of April 25, 2000.
(11) Includes 193,750 shares which may be acquired upon exercise of balance
of immediately exercisable options issued in October 1999.
(12) Includes 100,000 shares which may be acquired upon exercise of balance
of immediately exercisable options issued in October 1999.
(13) Includes 31,250 shares which may be acquired upon exercise of
immediately exercisable options issued in October 1999.
(14) Includes 1,000,000 shares currently owned as well as up to 1,131,476
shares which normally could be issued (inclusive of 102,861 shares as
may be issued for interest earned), at any time, upon conversion of
previously issued convertible debentures (the "Convertible
Debentures"). Parkdale LLC is managed and directed by Navigator
Management Ltd., its sole director. Voting control of Parkdale LLC's
shares is exercised by Livingstone Asset Management Limited, a Bahamas
Company controlled by David Sims.
As indicated in footnotes 5 and 14 thereto, Livingstone Asset
Management Limited, a Bahamas Company controlled by David Sims has voting
control over both Dominion Capital Fund, Ltd. and Parkdale LLC. These persons or
firms having voting control (i.e., Livingstone Asset Management Limited,
controlled by David Sims) do not own any Company shares of record but rather
have been given the right to vote by Dominion Capital, Dominion Investment and
Parkdale with respect to those shares owned by such entities. Accordingly, such
persons and/or firms (referred to in this paragraph) exercise, in the aggregate,
the right to vote over 2,613,941 shares owned in the aggregate by Dominion
Capital, Dominion Investment and Parkdale.
CERTAIN TRANSACTIONS
Reference is herewith made to Compensation Committee Interlock, second
paragraph regarding (a) 48,259 restrictive shares of Company common stock issued
to its President during fiscal year ended June 30, 1998 and (b) 2,000,000
restrictive shares issued to its President during fiscal year ended June 30,
1999. For further information with respect to the latter transaction reference
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is herewith made to "Management - Employment Agreements", second paragraph. With
respect to both transactions referred to herein the Company's Board determined
same to be as fair to the Company as could have been made with unaffiliated
parties and both of such transactions were unanimously approved by its Board
with the Company's President abstaining from voting.
Subsequent to June 30, 1999 year end, 497,824 restrictive shares of
Company common stock were issued to corporations controlled by the Company's
President in consideration of his pledging as collateral (and subsequently
forfeiting) shares of Company common stock owned by corporations controlled by
him in order to enable the Company to obtain financing.
During October of 1999 and in accordance with unanimous Board approval
the Company issued an aggregate of 875,000 shares to certain of its officers
and/or directors as partial consideration for services rendered. Such shares
were issued as follows:
No. Of
Name Position Shares
Ruedi G. Laupper Chairman, President & 275,000
Chief Executive
Officer
Josef Laupper Secretary, Treasurer 150,000
& a Director
Michael Laupper Chief Financial Officer, 150,000
Controller
Ueli Laupper Vice President & a 250,000
Director
Erwin Zimmerli Director 50,000
The Company made unsecured advances to its former Chairman of the Board
of Directors (a principal stockholder) during the fiscal year ended June 30,
1997 requiring interest at 6% per annum. The balance at June 30, 1997 was
$69,587. Interest charged to the stockholder for the fiscal year ended June 30,
1997 was $3,460. Such indebtedness was repaid in full in July 1997. ^
SELLING HOLDERS
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.
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The following table sets forth as of April 25, 2000, certain
information with respect to the Selling Holders, (who participated in financings
from August 31. 1998 to February 18, 2000) 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 excepting that those persons or
firms indicated in footnotes 4 through 8 inclusive below did not participate in
convertible debenture financing.
Name of Selling Holder Shares(1) % of Class(2)
- ---------------------- --------- ----------
Aberdeen Avenue LLC (5) 237.346 1.01%
Canadian Advantage Limited Partnership 414,807 1.78%
Carbon Mesa Partners, LLC 63,098 .27%
Display Presentations Ltd. (10) 65,000 .28%
Dominion Capital Fund Ltd. (3) 5,176,512 18.89%
Dominion Investment Fund LLC (3) 357,842 1.51%
Dundurn Street LLC 333,333 1.43%
Endeavour Capital Fund SA 211,539 .90%
Excaliber Limited Partnership 84,615 .36%
Greenfield Investments Consultants (6) 166,667 .71%
Alfred Hahnfeldt 333,332 1.43%
Live Marketing (11) 16,864 .07%
Parkdale LLC (3) 2,131,476 8.72%
Southridge Capital Management LLC 333,334 1.43%
Sovereign Partners Ltd. Partnership (4) 6,178,534 21.60%
Striker Capital Ltd. 833,334 3.57%
Trianon Opus One Inc. (7) 85,077 .36%
Gary B. Wolff (8) 150,000 .64%
Dr. Erwin Zimmerli (9) 100,000 .43%
(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 April 25, 2000 at an 18% to 20%
discount (as required) and including 1,028,255 shares which may be
issued for interest earned through mandatory conversion date.
(2) Based upon an aggregate of 23,311,782 shares arrived at by adding the
aggregate of those shares indicated in column designated "Shares" to
those shares issued and outstanding as of April 25, 2000.
(3) Livingstone Asset Management Limited, a Bahamas Company controlled by
David Sims has voting control over these entities.
(4) Southridge Capital Management LLC (a Connecticut corporation) G.P.
Steven Hicks (President) has voting control over this entity.
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(5) Minglewood Capital LLC, CTC Corporation Ltd. Bas Horsten (director of
CTC) has voting control over this entity.
(6) Steven Hicks and Dan Picket have voting control over this entity.
(7) These shares are being registered pursuant to certain "piggy-back"
registration rights granted to an otherwise unaffiliated lender,
Trianon Opus One Inc., pursuant to terms of a promissory note (see
"Description of Capital Stock - Promissory Note").
(8) The shares being registered underlie certain outstanding warrants
granted to such individual in December 1998 (50,000 warrants) and March
1999 (100,000 warrants).
(9) The shares being registered underlie certain outstanding warrants
granted to such individual who is a member of the Company's Board of
Directors.
(10) These shares were issued in accordance with October 8, 1999 agreement
and as partial consideration for services rendered and in accordance
with certain "piggy-back" registration rights granted to this otherwise
unaffiliated stockholder.
(11) These shares were issued in accordance with October 31, 1999 agreement
and as partial consideration for services rendered and in accordance
with certain "piggy-back" registration rights granted to this otherwise
unaffiliated stockholder.
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Each of the Selling Holders referred to herein have indicated in
writing to the Company that they are neither broker-dealers nor affiliates of
broker-dealers.
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
1,729,521 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.
PLAN OF DISTRIBUTION
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.
One exception to such limitation (referred to as the mandatory conversion
provision) provides for the automatic conversion on last date of debenture with
respect to any outstanding unconverted balances. Additional exceptions to such
limitation (i.e. where contractual limitation does not apply) relate to (i) if
there is a public announcement that 50% or more of the Company is being
acquired, (ii) a public announcement that the Company is being merged, or (iii)
a change in control. Excepting for such limitations, the debenture holder is
entitled to convert any Debentures solely to the extent that, after such
conversion, (a) 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) and (b) the number of shares of common stock issuable upon such
conversion would result in beneficial ownership of no more than 4.99% of the
outstanding shares of common stock.
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
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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.
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
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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.
RESTRICTIVE SHARES BEING REGISTERED PURSUANT TO CONTRACTUAL AGREEMENTS
An aggregate of 81,864 shares of Company common stock are being
registered hereunder in accordance with certain "piggy-back" registration rights
granted to two otherwise unaffiliated firms in exchange for services rendered by
such firms to the Company, as follows:
(a) On October 8, 1999 the Company entered into an agreement with
Display Presentations, Hauppauge, New York (hereinafter "Display"), whereby
Display agreed to provide certain construction and related services for purposes
of assisting the Company's establishment of its booth at the November 1999 RSNA
Convention held in Chicago, Illinois. Total costs in accordance with such
contract amounted to $415,000 with one-half of such costs ($207,500) having been
paid in cash and with the balance paid through issuance of 65,000 restrictive
shares of SRMI common stock, which shares were based upon a market valuation of
$3.192 per share (which was the bid price when the written agreement was orally
agreed to). In accordance with such written agreement the Company was required
to register such shares in this Registration Statement and (b) on October 31,
1999 the Company entered into an agreement with Live Marketing, Chicago,
Illinois (hereinafter "Live"), whereby Live agreed to provide certain video
production, audio/video equipment rental, lighting, on site personnel and
related services for purposes related to SRMI's booth at the 1999 RSNA
Convention, Total costs in accordance with such contract amounted to $156,180 of
which $105,590 was paid in cash and with the balance of $50,590 paid in 16,864
restrictive shares of SRMI common stock, which shares were based upon market
valuation of $3.00 per shares (which was the bid price when the written
agreement was orally agreed to). In accordance with such written agreement the
Company was required to register such shares in this Registration Statement.
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.
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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 April
24, 2000 was 23,311,782. In addition, the Registrant currently has reserved
2,449,221 shares for previously issued restrictive shares pursuant to
convertible debentures referred to under Registration Nos. 333-50069 and
333-59829 and an additional aggregate of 5,472,088 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") and (ii)
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").
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."
Preferred Stock
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) an amendment to its Certificate of
Incorporation pursuant to which it obtained authority to issue up to 1,000,000
shares of preferred stock, par value $.01 per share. None of such shares have
been issued.
The preferred stock is issuable with such rights, preferences,
privileges and such number of shares constituting each series to be fixed by the
Board of Directors without further action by the holders of common stock. The
Board of Directors could, without stockholder approval, issue preferred stock
with voting and conversion rights, which could dilute the voting power of the
holders of the common stock. The issuance of shares of preferred stock by the
Board of Directors could be utilized, under certain circumstances, as a method
of preventing a takeover of the Company whether or not stockholders approve or
disapprove of such takeover. As of the date hereof, the Board of Directors has
not authorized any series of preferred stock and there are no agreements or
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understandings for the issuance of any shares of preferred stock. See also risk
factor entitled "Authority to Issue Preferred Stock With Terms That May Not Be
Beneficial to Common Stock Holders".
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 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 82% of the 10 day average bid price for the 10
consecutive trading days immediately preceding the conversion date or $1.00
whichever is less. 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, 1,231,560 shares are being
registered pursuant to the terms of such agreements.
-93-
<PAGE>
(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 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) . 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 479,008
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 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. 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 237,346 shares.
(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. who has since assigned its rights to Parkdale LLC,
(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
-94-
<PAGE>
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 485,682 shares.
(e) August 11, 1999
On August 11, 1999 the Company entered into a fifth 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 $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 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 645,615 shares.
With respect to each debenture referred to in this subsection in
paragraphs designated (a) through (e) 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 $16,591,049 aggregate principal amount of
Convertible Debentures from August of 1998 to February 18, 2000. With respect to
specific dates and dollar amounts of debentures issued, reference is made to
risk factor entitled "Potential Adverse Effect Upon Stock Price ..". 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
-95-
<PAGE>
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") , 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 4.99% 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"
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
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 (which agreed to date was either 30, 45 or 60 days
from closing dependent upon Agreement) 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
-96-
<PAGE>
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 April 25, 2000 if
all of the Convertible Debentures (issued from August 1998 to February 18, 2000,
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 April 25, 2000, the Registrant would be required to issue 11,406,550 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 "Description of Capital Stock."
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
-97-
<PAGE>
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 risk factor entitled "Delisting Due to
Non-Compliance With Certain NASDAQ Standards". 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 April 28, 2000,
the last reported sale price of the Common stock on Electronic Over-the-Counter
Bulletin Board was $2.906 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 "Potential Adverse
Effect Upon Stock Price as a Result of Registration of Significant Number of
Shares .." and in particular to the chart which is a part thereof. Reference is
also made to risk factor entitled "Past History of Debt (Debenture) Fund Raising
to Retire Existing Indebtedness" which indicates Company's need to raise funds
partially to retire certain existing debenture indebtedness.
See also "Restrictive Shares Being Registered Pursuant to Contractual
Agreements" with respect to registration of an aggregate of 81,864 shares of
Company common stock.
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.
-98-
<PAGE>
INDEPENDENT AUDITORS
The consolidated financial statements of the Registrant and its
subsidiaries for the years ended June 30, 1999 and June 30,1998 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 two years ended June 30, 1997 and 1996 included herein have
been included in reliance upon the report of Bederson & Company LLP, independent
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
As set forth in the report of Bederson & Company LLP, the financial
statements of one of the Registrant's subsidiaries for the year ended June 30,
1997 were audited by other auditors whose report was furnished to Bederson &
Company LLP. The opinion of Bederson & Company LLP set forth in such report,
insofar as it relates to amounts included for that subsidiary, is based solely
on the report of the other auditors.
INTERIM FINANCIAL STATEMENTS
The information for the interim period ended December 31, 1999 is
unaudited but includes all adjustments considered necessary for a fair
presentation of the results.
-99-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements for Fiscal Years Ended
June 30, 1999, 1998 and 1997
Independent Auditors' Reports ................................ F-1 - F-3
Consolidated Balance Sheets .................................. F-4
Consolidated Statements of Operations ........................ F-6
Consolidated Statements of Cash Flows ........................ F-7
Consolidated Statements of Stockholders' Equity .............. F-8
Notes to Consolidated Financial Statements ................... F-9 - F-25
Unaudited Financial Statements for Three Months Ended
September 30, 1999 and 1998 ....................... F-26 - F-31
-100-
<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
(deficit) and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the 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 (deficit) and cash flows for the
years 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 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Swissray (Deutschland) Rontgentechnik
GmbH, a wholly owned subsidiary, which statements reflect total assets of
$437,021 as of June 30, 1997 and total revenues of $1,255,140 for the year then
ended. Those statements were audited by other auditors whose report has been
furnished to us, and our opinon, 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 misstatements. 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 statements 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 farily, in all
material respects, the financial position of Swissray International, Inc., and
its subsidiaries, at June 30, 1997 and 1996 and the results of their operations
and their cash flows for the 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
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 obtian reasonable assurance about whether the
financial statements are free of material misstatements. 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 preparation. 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 28,036 38,280
Note receivable - net of allowance of $544,376 and $30,733 --- 513,643
Goodwill 1,603,007 1,796,336
Debt issuance costs on convertible --- 180,000
------------------------------
TOTAL OTHER ASSETS 5,298,768 6,834,962
------------------------------
TOTAL ASSETS $23,511,189 $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 15,305,852 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 69,028,013 58,074,793
Treasury stock (540,000) ---
Deferred compensation (1,282,500) ---
Accumulated deficit (71,492,463) (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 $ 23,511,189 $ 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 5,014,293 569,816 1,816,879
Salaries 3,784,305 4,168,540 2,059,396
Selling 3,207,646 3,740,391 1,873,389
Research and development 1,808,107 3,542,149 5,786,158
General and administrative 2,484,756 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 19,345,939 18,747,729 17,450,333
----------------------------------------------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (15,579,358) (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 (20,177,901) (22,808,032) (13,187,451)
INCOME TAX PROVISION --- --- 110,223
----------------------------------------------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (20,177,901) (22,808,032) (13,297,674)
Extraordinary income (expenses) (832,849) 304,923 (384,514)
----------------------------------------------------
NET LOSS $(21,010,750) $(22,503,109) $(13,685,188)
====================================================
LOSS PER COMMON SHARE BASIC
Loss from continuing operations (3.09) (8.48) (8.41)
Extraordinary items (0.13) 0.11 (0.24)
----------------------------------------------------
NET LOSS (3.22) (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 $(21,010,750) $(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 4,755,925 --- 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 2,644,163 --- 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 1,247,110 -- --
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 4,300,000 -- --
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 $ 69,028,013 $ -- $(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 (21,010,750) -- -- -- (21,010,750)
Foreign currency translation losses net of taxes $ -0- -- -- (311,956) -- (311,956)
--------------
TOTAL COMPREHENSIVE LOSS -- -- -- -- (21,322,706)
--------------
Issuance of common stock for cash -- -- -- -- 3,160,397
Stock options exercised for services -- -- -- -- 7,300
Shares issued for services -- (1,282,500) -- -- 426,625
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 -- -- -- -- 4,320,000
Treasury stock - at cost -- -- -- -- (540,000)
Interest expense on option value per Black Scholes -- -- -- -- 91,763
---------------------------------------------------------------------
BALANCE - JUNE 30, 1999 $(71,492,463) $(1,282,500) $(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 fully vested, nonforfeitable shares with a fair value of $4,320,000.
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 fully vested, nonforfeitable shares of
common stock with a fair value of $1,710,000 to consultants for services to be
rendered over terms of one to five years. 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. 850,000 -
----------------- ---------------
15,402,221 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)
----------------- ---------------
$ 15,305,852 $ 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
- -------------------------------- ----------------- --------------------------- -----------------------
<S> <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
interest cost for the warrants issued of $92,000. Such value was determined
using the Black-Scholes method. 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 $ (14,542,148) $ (13,962,842) $ (175,254)
Switzerland (5,392,436) (8,803,842) (12,678,800)
Germany (243,317) (42,184) (333,397)
------------------ ------------------- -------------------
$ (20,177,901) $ (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
NOTE 24-VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance at
Beginning Charged to End of
of Year Expenses Deductions Year
Allowance for doubtful acounts:
Year ended December 30, 1999 $954,498 $706,877 $897,006 ------
Year ended December 30, 1998 $912,568 $133,169 $141,266 $954,498
Year ended December 30, 1997 $409,843 $619,160 $ 66,465 $962,568
F-25
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET
ASSETS
December 31, June 30,
1999 1999
(Unaudited)
------------ ----------
CURRENT ASSETS
Cash and cash equivalents ........................ $ 3,714,913 $ 1,281,297
Accounts receivable, net of allowance for doubtful
accounts of $ 202,942 and $ 219,993 .............. 2,586,887 2,448,879
Inventories ...................................... 6,546,931 7,332,401
Prepaid expenses and sundry receivables .......... 706,589 866,804
----------- -----------
TOTAL CURRENT ASSETS ............................. 13,555,320 11,929,381
PROPERTY AND EQUIPMENT ........................... 6,483,486 6,283,040
OTHER ASSETS
Loan receivable .................................. 15,267 15,948
Licensing agreement .............................. 2,855,780 3,104,109
Patents and trademarks ........................... 185,298 199,906
Software develompent costs ....................... 307,799 347,763
Security deposits ................................ 37,449 28,035
Goodwill ......................................... 1,506,341 1,603,007
----------- -----------
TOTAL OTHER ASSETS ............................... 4,907,934 5,298,768
----------- -----------
TOTAL ASSETS ..................................... $24,946,740 $23,511,189
=========== ===========
F-26
<PAGE>
December 31, June 30,
1999 1999
(Unaudited)
------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ............ $ 191,655 $ 247,028
Notes payable - banks ........................... 5,231,860 3,667,159
Notes payable - short-term ...................... 772,767 1,700,000
Loan payable .................................... 117,332 126,006
Accounts payable ................................ 4,459,599 5,422,321
Accrued expenses ................................ 2,493,918 2,003,844
Restructuring ................................... 500,000 500,000
Customer deposits ............................... 227,490 278,507
------------ -----------
TOTAL CURRENT LIABILITIES ....................... 13,994,621 13,944,865
Convertible Debentures, net of conversion benefit 15,292,793 15,305,852
LONG-TERM DEBT, less current maturities ......... 181,141 195,095
COMMON STOCK SUBJECT TO PUT ..................... 319,985 1,819,985
STOCKHOLDERS' EQUITY
Common stock .................................... 206,120 140,062
Additional paid-in capital ...................... 83,765,653 69,028,013
Treasury Stock .................................. (2,040,000) (540,000)
Deferred Compensation ........................... (336,500) (1,282,500)
Accumulated deficit ............................. (84,410,897) (71,492,463)
Accumulated other comprehensive loss ............ (1,706,191) (1,787,735)
Common stock subject to put ..................... (319,985) (1,819,985)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ...................... (4,841,800) (7,754,608)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...... $ 24,946,740 $ 23,511,189
============ ============
F-27
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended
December 31,
1999 1998
---------- ----------
Unaudited Unaudited
NET SALES .................................. $ 6,957,028 $ 10,101,147
COST OF SALES .............................. 5,332,562 7,969,342
---------- ----------
GROSS PROFIT ............................... 1,624,466 2,131,805
OPERATING EXPENSES
Officers and directors compensation ........ 2,425,390 396,894
Salaries ................................... 2,423,131 2,064,577
Selling .................................... 2,372,488 1,438,281
Research and development ................... 895,072 843,589
General and administrative ................. 921,881 710,818
Other operating expenses ................... 571,720 561,007
Bad debts .................................. 16,001 7,383
Depreciation and amortization .............. 678,396 590,762
---------- ----------
TOTAL OPERATING EXPENSES ................... 10,304,079 6,613,311
---------- ----------
LOSS BEFORE OTHER INCOME (EXPENSES) ........ (8,679,613) (4,481,506)
Other income (expense) ..................... 20,489 (358,995)
Interest expense ........................... (4,168,310) (1,412,696)
---------- ----------
OTHER EXPENSES ............................. (4,147,821) (1,771,691)
---------- ----------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS ............... (12,827,434) (6,253,197)
Extraordinary expenses ..................... -- (832,849)
---------- ----------
NET LOSS ................................... $(12,827,434) $ (7,086,046)
========== ==========
LOSS PER COMMON SHARE
Loss from continuing operations ............ $ (0.79) $ (1.35)
Extraordinary items ........................ 0.00 (0.18)
---------- ----------
NET LOSS ................................... $ (0.79) $ (1.54)
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ......................... 16,141,977 4,625,626
F-28
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
December 31,
1999 1998
--------- ---------
Unaudited Unaudited
NET SALES .................................. $ 3,077,861 $ 6,444,706
COST OF SALES .............................. $ 2,354,527 5,132,428
--------- ---------
GROSS PROFIT ............................... 723,334 1,312,278
OPERATING EXPENSES
Officers and directors compensation ........ 2,287,577 241,707
Salaries ................................... 1,400,690 979,391
Selling .................................... 1,618,956 925,483
Research and development ................... 429,839 437,552
General and administrative ................. 659,136 260,177
Other operating expenses ................... 486,171 296,518
Bad debts .................................. 16,001 7,383
Depreciation and amortization .............. 356,515 297,013
--------- ---------
TOTAL OPERATING EXPENSES ................... 7,254,885 3,445,224
--------- ---------
LOSS BEFORE OTHER EXPENSES ................. (6,531,551) (2,132,946)
Other expenses ............................. (5,768) (175,628)
Interest expense ........................... (2,346,697) (758,800)
--------- ---------
OTHER EXPENSES ............................. (2,352,465) (934,428)
--------- ---------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS ............... (8,884,016) (3,067,374)
Extraordinary expenses ..................... -- (803,182)
--------- ---------
NET LOSS ................................... $ (8,884,016) $ (3,870,556)
========= =========
LOSS PER COMMON SHARE
Loss from continuing operations ............ $ (0.52) $ (0.66)
Extraordinary items ........................ 0.00 (0.17)
--------- ---------
NET LOSS ................................... $ (0.52) $ (0.85)
========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING ......................... 17,144,238 4,625,626
F-29
<PAGE>
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
Unaudited Unaudited
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITES
<S> <C> <C>
Net loss .......................................... $(12,827,434) $ (7,086,046)
Adjustment to reconcile net loss to net
cash used by operating activities
Depreciation and amortization .................... 714,399 617,486
Provision for bad debts .......................... (17,050) 2,477
Operating expenses through issuance of
stock options and common stock ................... 355,561 --
Issuance of common stock in lieu of
interest payments ................................ 195,729 --
Interest expense on debt issuance cost and
conversion benefit ............................... 1,131,061 1,297,158
Interest expense on option value per black scholes 1,385,473 --
Amortization of deferred compensation ............ 3,309,375 --
Early extinguishment of debt (gain) ............. -- 832,849
(Increase) decrease in operating assets:
Accounts receivable .............................. (120,957) (1,985,436)
Inventories ...................................... 785,470 (620,696)
Prepaid expenses and sundry receivables .......... 160,216 163,842
Increase (decrease) in operating liabilities:
Accounts payable ................................. (962,723) 1,815,812
Accrued expenses ................................. 490,075 (864,444)
Customers deposits ............................... (51,017) (145,739)
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES ............. (5,451,822) (5,972,737)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and equipment ............ (500,902) (207,223)
Other intangibles ................................ (14,377) --
Security deposits ................................ (9,414) 7,134
Increase in loan receivable ...................... 681 1,974
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES ............. (524,012) (198,115)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings .............. 1,564,701 16,669,384
Expenses related to debentures ................... (13,059) --
Principal payment of short-term borrowings ....... (991,280) (11,188,135)
Principal payment of long-term borrowings ........ (13,954) (72,950)
Issuance of common stock for cash ................ 7,683,474 1,500,000
Issuance of stock options for cash ............... 1,598,024 --
Purchase of Treasury Stock ....................... (1,500,000) (540,000)
Payment to stockholders and officers ............. -- (2,207)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ......... 8,327,906 6,366,092
--------- ---------
EFFECT OF EXCHANGE RATE ON CASH ................... 81,544 (251,964)
--------- ---------
NET INCREASE (DECREASE) IN CASH ................... 2,433,616 (56,724)
CASH AND CASH EQUIVALENT - beginning of period .... 1,281,297 1,281,552
--------- ---------
CASH AND CASH EQUIVALENTS - end of period ......... $ 3,714,913 $ 1,224,828
========= =========
</TABLE>
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999
(1)The financial statements included herein have been prepared by the
Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Registrant believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Registrant's annual
report on Form 10-K for the fiscal year ended June 30, 1999.
(2)In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting of only a
normal and recurring nature, necessary to present fairly the financial position
of the Registrant as of December 31, 1999 and the results of operations and cash
flows for the interim period presented. Operating results for the six months
ended December 31, 1999 are not necessarily indicative of the results to be
expected for the full year ending June 30, 2000.
(3)INVENTORIES
Inventories are summarized by major classification as follows:
December 31, June 30,
---------------------------
1999 1999
---------- ----------
Raw materials, parts and supplies $3,888,797 $5,558,330
Work in process 1,205,428 1,048,197
Finished goods 1,452,706 725,874
---------- ----------
$6,546,931 $7,332,401
========== ==========
Inventories are stated at lower of cost or market, with cost being determined on
the first-in, first-out (FIFO) method. Inventory cost include material, labor,
and overhead.
F-31
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
Page
Available Information 3
Prospectus Summary 5
Risk Factors 10
The Company 27
Use of Proceeds 29
Market Prices and Dividend Policy 29
Capitalization 35
Selected Consolidated Financial Data 36
Management's Discussion and Analysis Of
Financial Condition and Results of Operations 37
Business 52
Management 72
Stock Options and Stock Appreciation Rights 78
Aggregated Option Exercises in Last Fiscal Year and Year-End
Option Values 79
Principal Stockholders 82
Certain Transactions 85
Selling Holders 86
Plan of Distribution 89
Restrictive Shares Being Issued Pursuant to Contractual
Agreements 91
Description of Capital Stock 91
Legal Matters 98
Independent Auditors 99
Interim Financial Statements 99
Index to Consolidated Financial Statements 100
-101-
<PAGE>
SWISSRAY INTERNATIONAL, INC.
17,272,712 SHARES OF
COMMON STOCK
PROSPECTUS
May____, 2000
-102-
<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 220,000.00
TRANSFER AGENT AND REGISTRATION FEES 1,500.00
BLUE SKY FEES AND EXPENSES 15,000.00
MISCELLANEOUS EXPENSES 5,000.00
-----------
Total $351,128.93
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
II-1
<PAGE>
officer of the corporation or any other 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.
II-2
<PAGE>
The Certificate of Incorporation of the Registrant, as amended,
provides for indemnification as follows:
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for damages for any breach of duty in such
capacity, provided that nothing contained in this Article shall eliminate or
limit the liability of any director if a judgment or final adjudication adverse
to him establishes that his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law to which he was not legally
entitled or that his acts violated Section 719 of the New York Business
Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 20, 1995, the Registrant issued 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 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
II-3
<PAGE>
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 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
II-4
<PAGE>
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 $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
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 December 3, 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. All of these debentures have been
converted as of December 3, 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
II-5
<PAGE>
to the following financing participants - Canadian Advantage Limited
Partnership, Dominion Capital Fund, Ltd. and Sovereign Partners LP at a
conversion price of 82% of the average closing bid price for the ten trading
days preceding the date of conversion or $1.00 whichever is less 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. As of April 25, 2000 an unconverted
balance of $3,930,594 remains outstanding and, accordingly, the number of shares
being registered for the balance of this transaction amounts to 4,323,653
shares.
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 to the following financing participants -
Dominion Capital Fund, Ltd. and Sovereign Partners LP at a conversion price of
82% of the average closing bid price for the ten trading days preceding the date
of conversion or $1.00 whichever is less. 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.
None of these Convertible Debentures have been converted as of April 25, 2000
and, accordingly, the number of shares being registered for this transaction
amounts to 3,234,653 shares.
The Registrant received gross proceeds of $1,080,000 in December 1998
pursuant to promissory notes bearing interest at the rate of 5% 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
II-6
<PAGE>
Company's option) and being convertible, at any time at 82% of the 10 day
average bid price for the 10 consecutive trading days immediately preceding the
conversion date or $1.00 whichever is less. 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. None of these convertible debentures have been
converted as of April 25, 2000 and, accordingly, the number of shares being
registered for this transaction amounts to 1,231,560 shares.
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 to the following financing participants -
Dominion Capital Fund, Ltd., Dominion Investment Fund LLC and Sovereign Partners
LP 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. As further consideration for the loan, the Company issued Lenders
Warrants to purchase up to 58,500 shares of the Company's common stock
exercisable, in whole or in part, for a period of up to 5 years at $1.00 per
share. 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. None of these Convertible
Debentures have been converted as of April 25, 2000 and, accordingly, the number
of shares being registered for this transactions amounts to 473,353 shares.
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 debentures in the
principal sum of $1,132,200 (inclusive of interest on aforesaid promissory
notes) going into effect. None of these Convertible Debentures have been
converted as of April 25, 2000 and, accordingly the number of shares being
registered for this transaction is 479,008 shares.
On March 26, 1999 the Company entered into a third promissory note
(contingent convertible
II-7
<PAGE>
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 23,
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. None of these Convertible Debentures have
been converted as of April 25, 2000, and, accordingly, the number of shares
being registered for this transaction amounts to 237,346 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 to the
following financing participants - Endeavour Capital Fund SA, Excaliber Limited
Partnership and Carbon Mesa Partners LLC 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. 63,098
shares have been already been issued with regard to this transaction and,
accordingly, the number of shares being registered for the balance of this
transaction amounts to 296,153 shares.
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. now assigned to Parkdale LLC, (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. None of these Convertible Debentures have been converted as of
April 25, 2000 and, accordingly, the number of shares being registered for this
transaction amounts to 485,682 shares.
II-8
<PAGE>
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. There was no placement agent involved in this financing. The
terms of the Contingent Subscription Agreement, Convertible Debenture and
Registration Rights Agreement went into effect on November 11, 1999 with the
principal sum of the Convertible Debenture being $1,526,000. No portion of this
Convertible Debenture has been converted as of April 25, 2000 and, accordingly,
the number of shares being registered for this transaction amounts to 645,615
shares.
Pursuant to an agreement entered into on September 2, 1999, the Company
authorized a purchaser to purchase 1,000,000 shares at $1.00 per share (which
occurred on September 7, 1999) and up to an additional 2,000,000 shares at $1.50
per share so long as the first 1,000,000 shares were purchased on or before
September 30, 1999 and as long as the purchaser purchased at least an additional
1,000,000 shares within 60 days of its first purchase. The first purchase, as
aforesaid, was made on September 7, 1999 (at $1.00 per share) while the next
1,000,000 shares were purchased on October 19, 1999 (500,000 shares at $1.50 per
share) and November 1, 1999 (500,000 shares at $1.50 per share). Having met the
purchase requirements, the purchaser was entitled (through March 1, 2000) to
purchase the balance of the shares referred to at $1.50 but only purchased
666,667 shares at such price in December 1999. In accordance with the terms of
such Subscription Agreements and Registration Rights Agreements all 2,666,667
shares sold are being registered herein. The Investment participants involved in
the above transactions are Parkdale LLC, Southridge Capital Management LLC,
Striker Capital, Alfred Hahnfeldt and Greenfield Investments Consultants LLC.
In February 2000 the Company entered into an additional separate
transaction whereby it sold 333,333 restrictive shares of its common stock at
$3.00 per share to Dundurn Street LLC. In accordance with the terms of the
Subscription Agreement and Registration Rights Agreement all 333,333 shares sold
are being registered hereunder.
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".
Additional Selling Shareholders
In addition to those Selling Shareholders referred to above, the
following persons and/or firms may be considered to be "Additional Selling
Shareholders".
II-9
<PAGE>
No. of No. of Date
Name Shares Warrants Issued
---- ------ -------- ------
Trianon Opus One Inc. ("Trianon") 85,077 4/28/98
Gary B. Wolff ("Wolff") 150,000 12/11/98 & 3/26/99
Dr. Erwin Zimmerli ("Zimmerli") 100,000 2/26/99
Display Presentations Ltd. ("Display") 65,000 10/8/99
Live Marketing ("Live") 16,864 10/31/99
All shares referred to herein are shares of common stock $.01 par
value. Warrants referred to herein are convertible (on a 1 for 1 basis) into
shares of common stock $.01 par value. None of these five transactions involved
underwriters.
Trianon owns the number of shares indicated pursuant to terms of April
28, 1997 promissory note referred to under "Description of Capital Stock -
Promissory Note", which note issued in exchange for $2,000,000 in cash
consideration, was converted one year thereafter into the number of shares of
Company common stock indicate and which note contained "piggy-back" registration
rights.
Both Wolff and Zimmerli own the number of warrants indicated with the
right to convert same into shares of common stock (on a one for one basis).
Warrants granted to Wolff (each exercisable at $1.00 per share) were issued on
December 11, 1998 (50,000 warrants) and March 26, 1999 (100,000 warrants). The
bid price for shares of Company common stock on the dates of warrant issuance
were as follows: December 11, 1998 - $0.50 and March 26, 1999 - $0.60. Each of
these 150,000 warrants expire five years from date of issuance. Warrants granted
to Zimmerli (each exercisable at $1.00 per share) were issued on February 26,
1999. The bid price for shares of Company common stock on the date of warrant
issuance was $.562. Each of these 100,000 warrants expire five years from date
of issuance.
Wolff acts as corporate counsel to the Company while Zimmerli serves on
the Company's Independent Audit Committee and is one of the Company's
independent directors. The warrants issued to each of these individuals were for
personal services rendered by such individuals to the Company and valued at a
nominal consideration in view of the fact that exercise price approximated twice
the trading price on date of issuance.
Display and Live were issued the number of shares indicated alongside
their respective names as partial consideration for services rendered, pursuant
to agreements containing certain "piggy-back" registration rights. The shares
issued to Live were issued pursuant to October 31, 1999 contract and were for
services rendered and valued at $50,590 with the number of shares being arrived
at by utilizing the bid price ($3.00) on date of contract. The shares issued to
Display were issued pursuant to October 8, 1999 contract and were for services
rendered and valued at $207,500 with the number of shares being arrived at by
utilizing the bid price of ($3.192) on date of contract. The agreements with
both Display and Live are filed as exhibits to this Registration Statement and
are summarized under the heading entitled "Restrictive Shares Being Registered
Pursuant to Contractual Agreements.
Each of the transactions referred to under the heading "Additional
Selling Shareholders" are
II-10
<PAGE>
claimed to be exempt from registration in accordance with Section 4(2) of the
Securities Act of 1933 as transactions by an issuer not involving a public
offering.
Each of those transactions conducted commencing with August, 1997 were
transactions with financing participants who warrant and represent themselves to
be "accredited investors" as that term is defined in the Securities Act.
Those sales of unregistered securities referred to herein as having
been conducted with "non- US persons" from May 20, 1995 through March 5, 1997
were conducted in accordance with the exemption afforded by Regulation S Rules
governing offers and sales made outside the United States without registration
under the Securities Act of 1933 while each of those sales of unregistered
securities indicated herein as having been conducted from April 28, 1997 to the
present were conducted in accordance with exemption afforded by Rule 506 of
Regulation D under the Securities Act of 1933.
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
No. Description
<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 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).
3.14 Amendment to Registrant's Certificate of Incorporation, dated July 28, 1999.
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.
5.1(b) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
5.1(c) Opinion of Gary B. Wolff, P.C., counsel to the Registrant.
5.1(d) 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 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 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). See attached
Schedule. (Incorporated by reference to Exhibit 10.7 of Registrant's Amendment No. 4
to Form S-1 Registration Statement, Registration No. 333-38229, filed February 9,
2000).
10.8 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). See attached Schedule. (Incorporated by
reference to Exhibit 10.8 of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9, 2000).
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 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 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). See attached
Schedule. (Incorporated by reference to Exhibit 10.15 of Registrant's Amendment No.
4 to Form S-1 Registration Statement, Registration No. 333-38229, filed February 9,
2000).
10.16 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). See attached
Schedule. (Incorporated by reference to Exhibit 10.16 of Registrant's Amendment No.
4 to Form S-1 Registration Statement, Registration No. 333-38229, filed February 9,
2000).
10.17 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). See attached Schedule. (Incorporated by
reference to Exhibit 10.17 of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9, 2000).
10.18 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). See attached
Schedule. (Incorporated by reference to Exhibit 10.18 of Registrant's Amendment No.
4 to Form S-1 Registration Statement, Registration No. 333-38229, filed February 9,
2000).
10.19 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). See
attached Schedule. (Incorporated by reference to Exhibit 10.19 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.20 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.20 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
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 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). See attached Schedule. (Incorporated by
reference to Exhibit 10.22 of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9, 2000).
10.23 Registration Rights Agreement dated March , 1998 (Incorporated by reference as
Exhibit 10.23 to Registrant's initial filing of Form S-1 Registration Statement,
Registration No. 333-50069 filed April 14, 1998). See attached Schedule.
(Incorporated by reference to Exhibit 10.23 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.24 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). See attached Schedule. (Incorporated by reference
to Exhibit 10.24 of Registrant's Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.25 This Exhibit Number skipped.
10.26 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). See attached Schedule. (Incorporated by reference
to Exhibit 10.26 of Registrant's Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.27 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). See attached Schedule. (Incorporated by
reference to Exhibit 10.27 of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9, 2000).
10.28 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). See attached Schedule. (Incorporated by reference
to Exhibit 10.28 of Registrant's Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.29 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). See
attached Schedule. (Incorporated by reference to Exhibit 10.29 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.30 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.30 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.31 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.31 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.32 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).
See attached Schedule. (Incorporated by reference to Exhibit 10.32 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.33 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.33 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.34 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, 1998). See
attached Schedule, (Incorporated by reference to Exhibit 10.34 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.35 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.35 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.36 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).
See attached Schedule. (Incorporated by reference to Exhibit 10.36 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.37 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.37 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.38 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). See
attached Schedule. (Incorporated by reference to Exhibit 10.38 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.39 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.39 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.40 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.40 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.41 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.41 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.42 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.42 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.43 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). See
attached Schedule. (Incorporated by reference to Exhibit 10.43 of Registrant's
Amendment No. 4 to Form S-1 Registration Statement, Registration No. 333-38229, filed
February 9, 2000).
10.44 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.44 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.45 Contingent Subscription Agreement dated March 2, 1999 (Incorporated by 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.45 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.46 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.46 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.47 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.47 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.48 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.48 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.49 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.49 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.50 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.50 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.51 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.51 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.52 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.52 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.53 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). See attached Schedule.
(Incorporated by reference to Exhibit 10.53 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.54 Subscription Agreement dated May , 1999. See attached Schedule. (Incorporated by
reference to Exhibit 10.54 of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9, 2000).
10.55 Registration Rights Agreement dated May , 1999. See attached Schedule.
(Incorporated by reference to Exhibit 10.55 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.56 Debenture dated May , 1999. See attached Schedule. (Incorporated by reference to
Exhibit 10.56 of Registrant's Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.57 Promissory Note dated July 9, 1999. See attached Schedule. (Incorporated by
reference to Exhibit 10.57 of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9, 2000).
10.58 Security Agreement dated July 9, 1999. See attached Schedule. (Incorporated by
reference to Exhibit 10.58 of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9, 2000).
10.59 Contingent Subscription Agreement dated July 9, 1999. See attached Schedule.
(Incorporated by reference to Exhibit 10.59 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
.
10.60 Registration Rights Agreement dated July 9, 1999. See attached Schedule.
(Incorporated by reference to Exhibit 10.60 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.61 Debenture dated August 23, 1999. See attached Schedule. (Incorporated by reference
to Exhibit 10.61 of Registrant's Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.62 Promissory Note dated August 11, 1999. See attached Schedule. (Incorporated by
reference to Exhibit 10.62 of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9, 2000).
10.62(a) Assignment of Promissory Note and Security Agreement. (Incorporated by reference to Exhibit
10.62(a) of Registrant's Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.63 Consulting Agreement between Registrant and Liviakis Financial Communications, Inc.
dated March 24, 1999 with exhibit thereto entitled Voting Trust Agreement.
(Incorporated by reference to Exhibit 10.63 of Registrant's Amendment No. 3 to Form
S-1 Registration Statement, Registration No. 333-38229, filed December 8, 1999).
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 Authorized Distributor Agreement with Medika Equipos Medicos, Inc. ^
10.67 Subscription Agreement dated September 7, 1999. (Incorporated by reference to
Exhibit 10.67 of Registrant's Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See attached Schedule.
(Incorporated by reference to Exhibit 10.67 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.68 Registration Rights Agreement dated September 7, 1999. (Incorporated by reference to
Exhibit 10.68 of Registrant's Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See attached Schedule.
(Incorporated by reference to Exhibit 10.68 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.69 Subscription Agreement dated October/November 1999. (Incorporated by reference to
Exhibit 10.69 of Registrant's Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See attached Schedule.
(Incorporated by reference to Exhibit 10.69 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.70 Registration Rights Agreement dated October/November 1999. (Incorporated by
reference to Exhibit 10.70 of Registrant's Amendment No. 3 to Form S-1 Registration
Statement, Registration No. 333-38229, filed December 8, 1999). See attached
Schedule. (Incorporated by reference to Exhibit 10.70 of Registrant's Amendment No.
4 to Form S-1 Registration Statement, Registration No. 333-38229, filed February 9,
2000).
10.71 Contingent Subscription Agreement dated August 11, 1999. (Incorporated by reference
to Exhibit 10.71 of Registrant's Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See attached Schedule.
(Incorporated by reference to Exhibit 10.71 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.72 Registration Rights Agreement dated August 11, 1999. (Incorporated by reference to
Exhibit 10.72 of Registrant's Amendment No. 3 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 8, 1999). See attached Schedule.
(Incorporated by reference to Exhibit 10.72 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.73 Debenture dated November 11, 1999. (Incorporated by reference to Exhibit 10.73 of
Registrant's Amendment No. 3 to Form S-1 Registration Statement, Registration No.
333-38229, filed December 8, 1999). See attached Schedule. (Incorporated by
reference to Exhibit 10.73 of Registrant's Amendment No. 4 to Form S-1 Registration
Statement, Registration No. 333-38229, filed February 9, 2000).
10.74 Agreement with Display Presentations. (Incorporated by reference to Exhibit 10.74 of
Registrant's Amendment No. 3 to Form S-1 Registration Statement, Registration No.
333-38229, filed December 8, 1999).
10.75 Agreement with Live Marketing. (Incorporated by reference to Exhibit 10.75 of
Registrant's Amendment No. 3 to Form S-1 Registration Statement, Registration No.
333-38229, filed December 8, 1999).
10.76 Sales, Marketing and Service Agreement with Hitachi Medical
Systems America Inc. Exhibits A, C, D, E, F and G are not
being filed with this Registration Statement as a request for
confidentiality with respect to each of such Exhibits has been
separately filed with the material (Exhibits A, C, D, E, F and
G) for which confidentiality is sought. The number of pages
omitted amounts to 15 pages.
10.77 Subscription Agreement dated December 13, 1999 - See attached schedule.
(Incorporated by reference to Exhibit 10.77 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.78 Registration Rights Agreement dated December 13, 1999 - See attached schedule.
(Incorporated by reference to Exhibit 10.78 of Registrant's Amendment No. 4 to Form
S-1 Registration Statement, Registration No. 333-38229, filed February 9, 2000).
10.79 Agreement to Purchases Shares dated September 2, 1999. (Incorporated by reference to
Exhibit 10.79 of Registrant's Amendment No. 4 to Form S-1 Registration Statement,
Registration No. 333-38229, filed February 9, 2000).
10.80 Subscription Agreement dated February , 2000.
10.81 Registration Rights Agreement dated February 11, 2000.
10,82 Consulting Agreement between Registrant and Liviakis Financial Communications, Inc.
dated March 29, 2000 with letter agreement dated April 26, 2000 attached thereto.
10.83 Agreement between Registrant and Ministry of Health, Government of Romania inclusive
of Annexes 1 through 5 thereto.
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.
23.1(c) Consent of Bederson & Company LLP.
23.2 Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1a).
23.2(a) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1b).
23.2(b) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1c).
23.2(c) Consent of Gary B. Wolff, P.C. (included in Exhibit 5.1d)
23.3 Consent of Feldman Sherb Ehrlich & Co., P.C.
23.3(a) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(b) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(c) Consent of Feldman Sherb Horowitz & Co., P.C.
23.3(d) Consent of Feldman Sherb Horowitz & Co., P.C.
</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 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
II-21
<PAGE>
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-22
<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 May 1, 2000.
SWISSRAY INTERNATIONAL, INC.
/Ruedi G. Laupper/
By:_______________________
Name: Ruedi G. Laupper
Title: Chairman of the Board of
Directors, President &
Chief 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
/RUEDI G. LAUPPER/ Dated: May 1, 2000
- ------------------ Chairman of the Board of
Ruedi G. Laupper Directors, President &
Chief Executive Officer
/JOSEF LAUPPER/ Secretary, Treasurer and a Dated: May 1, 2000
- ------------------ Director
Josef Laupper
/MICHAEL LAUPPER/ Dated: May 1, 2000
- ------------------ Principal Financial Officer
Michael Laupper & Controller.
/UELI LAUPPER/ Vice President and a Director Dated: May 1, 2000
- ------------------
Ueli Laupper
/DR, ERWIN ZIMMERLI/ Director Dated: May 1, 2000
- ---------------------
Dr. Erwin Zimmerli
Director Dated: May , 2000
- ---------------------
Dr. Sc. Dov Maor
II-23
Exhibit 5.1d
May 1, 2000
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
Swissray [LOGO]
----------------
Swissray Medical Systems, Inc.
a company of Swissray International, Inc.
AUTHORIZED DISTRIBUTOR AGREEMENT
THIS AGREEMENT (the "Agreement") is made effective the day of, 19, by and
between Swissray America, Inc. an ______________ corporation, having its
principal place of business at 5801 Soundview Drive, Suite 50, Gig Harbor,
Washington 98335 (which with its successors and assigns is hereinafter called
"Swissray") and
MEDIKA EQUIPOS MEDICOS, INC.
- -------------------------------------------------------------------
(Distributor's Full Legal Name)
Corporation
- -------------------------------------------------------------------
(state whether an individual, partnership or corporation)
Puerto Rico
- -------------------------------------------------------------------
(if a corporation, show name of state in which incorporated)
__________________, having its principal place of business at
(DBA, if different from legal name)
PO Box 360888
- -------------------------------------------------------------------
(Street Address)
San Juan PR 00936-0888
- -------------------------------------------------------------------
(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 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 Medical Systems, Inc.
5801 Soundview Drive. Suite 50
Gig Harbor, WA 98335, USA
Phone 353 858 3330
Fax 253 858 2777
<PAGE>
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.
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.
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.
Distributor 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.
-4-
<PAGE>
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. 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 FINANCIAL 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 Schedules" shall mean the Swissray Confidential Price
Schedules as are issued and replaced, supplemented or modified from time to time
by 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.
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
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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
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 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 model, design or type previously
sold.
6 DURATION OF AGREEMENT 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
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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.
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 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;
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 business relationship of the parties, or
engages in fraud or criminal misconduct.
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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 with 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.
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 invoice prices at which the Products were
originally purchased by Distributor, less any allowances which Swissray may have
given Distributor on account 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 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:
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6.7.1 Discontinue any and all use of the trademark 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 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 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 all monies due to Swissray
as provided in paragraph 7.3, above, then proceeds or other consideration,
tangible or intangible, received by Distributors in connection with the transfer
described in paragraph 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
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,
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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.
8 MUTUAL RELEASE 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 such 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 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
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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, below, 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 Agreement,
to the breach thereof, to the relationship created thereby or to 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 hereby.
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, franchisor 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 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.
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10.3 In the event that any of the provisions 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, 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 parties 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, 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 otter 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 account 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, 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.
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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
notice, 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 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.l Distributor's representation that the following person(s)
substantially participate(s) in the ownership of Distributor:
Name Address % Interest
- ---- ------- ----------
Whiyie Sang Guaynabo, P.R.
- ----------- -------------- ----------
- ----------- -------------- ----------
- ----------- -------------- ----------
l0.9.2 Distributor's representation that the following person(s) will
have full managerial authority and responsibility for the operating
management of Distributor in the performance of this Agreement:
Name Position
- ---- --------
Whiyie Sang President
- ----------- --------------
- ----------- --------------
- ----------- -------------- and
<PAGE>
10.9.3 In the event of any contemplated change of controlling
ownership, Distributor will give Swissray prior written notice thereof
(except in the
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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.
11.11 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 Agreement, this Agreement may not be
altered, modified, amended or otherwise changed, except by a written instrument
executed by both parties.
11.12 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.
11.13 This Agreement has been executed in multiple 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.
Medika Equipos Medicos, Inc. By: /s/ ILLEGIBLE
- -------------------------------- -----------------------------
Distributor's Full Legal Name
/s/ Whiyie Sang Title: /s/ ILLEGIBLE
- -------------------------------- ---------------------------
Signature
President, Whiyie Sang
- --------------------------------
Name--print or type
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Title: President
------------------------
Corporate Officer
(indicate office)
Partner, Proprietor
Dated: October 16, 1998 Dated:
------------------------- ---------------------------
<PAGE>
Exhibits:
Exhibit A: Producta and Discounts.
---------
Swissray Add-On Multi System $450,000
Discount as negotiated
Exhibit B: Territoriy assignment.:
Selected South American markets, Puerto Rico,
Caribbean and Mexico
Swissray standard Terms and Conditions
TERMS of Sale
1. TEMS OF SALE. (a) These t and conditions of Sale
Icallectively. the -Termes) govern the sale of products, parts, accessories
and/or services (collectively, the OProductal) listed on the face of this
invoice sold by Swisavey America, Inc. t'SWISSRAY"I to the customer named an the
face of this invoice tthe -DISTRIBUTORI I. Any te,-, q and conditions of sale
proposed by DISTRXsuTOR in connection with the purchase of Products from
SWISSRAY which add to, vary from or conflict with these Terms are hereby
objected to, and SWISSRAY @ressly conditions its sale of Products on
DISTRIBUTOR'S assent to these Terms notwithstanding any dif f erencev or
additions in the terms proposed by DRSTRIBUTOR. DISTRIBUTOR shall be deemd
conclusively to have unconditionally accepted these Terms by the opening of a
,lettex of credit or other facility to pay for Products; or by the tender of
payment or advance payment for Products, or by acceptance of any Products,
whether conforming or nonconforming.
2- PRICES. Prices for Products that axe the subject of this
invoice are set forth on the face hereof. less any applicable discount and
allowances that may be available to DISTRIBUTOR pursuant to any SWISSRAY
programs that may be applicable. Prices &re exclusive of all taxes of any
nature, whether imposed by federal, state, local or foreign authority. All such
taxes shall be for DISTRIBUTORIS account. whether or not collected, advanced or
paid by SWISSRAY. and shall be paid by DISTRIBUTOR tapon RWISSRAY - s invoice
unless DISTRIBUTOR timely provides tax exemption certificates in form
satisfactory to SWISSRAY.
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3. SHIPMENT. (a) Delivery and price terms are F.O.B. Factory
(swissray, s shipping point). The method and route of ship@ent are at Swissray's
discretion. DISTRIBUTOR will bear all costs, insurance premiums, freight and
other charges and expenses incurred after SWISSRAY has placed Products in the
custody of a carrier. Each shipment of Products constitutes a separate sal-e.
whether the shipment is in whole or in partial fulfillment of DISTRIBUTORIS
order or confirmation for Products. (c) If DISTRIBUTOR defaults in payment for
Products as required by these Terms, SWISSRAY may suspend further shipments.
Continuation of shipments does not constitute a waiver of such default. (d) If
Products are in short supply, SWISSRAY reserves the right to allocate shipment
of orders and back orders in any way it deems appropriate in its sale
discretion. (e) All shipments are made at DISTRIBUTOR's risk. Title to and risk
of loss of, or damage to, Products shall pass to DISTRIBUTOR when Products are
placed in the custody of a carrier for shipment to DISTRIBUTOR. it is the sole
responsibility of DISTRIBUTOR to file all claims for
shipment damage or loss with a carrier. Failure by DISTRIBUTOR to notify
SWISSRAY of any shortages, defects or damage within ten (10) days following
receipt by DISTRIBUTOR of Products will be conclusive proof that DISTRIBUTOR
has received Products without defects or damage, and in the quantity specified
on the bill of lading. (9) Date& for delivery of Products are estimates only.
SWISSRAY shall not be responsible for loss or damage of any kind resulting
from delay or inability to deliver, or failure to deliver, Products that is
caused directly or indirectly by any thing or event beyond SWISSRAY's
absolute, exclusive and unconditional control. SWISSRAY is not required to use
overtime labor or e@nd monies to cure delay or failure to deliver. In the
event of any partial failure to deliver, SWISSRAY will have the right to
receive payment @o rata for Products in fact delivered, whether or not
delivery may have been delayed.
4. RE PRODUCTS; CANCELXATION. (a) in no case may Products be
returned to SWISSRAY without first obtaining SWISSRAY's written permission or
upon conditions other than specified by SWISSRAY. SWISSRAY assumes no
responsibility for unauthorized returns. (b) SWISSRAY reserves the right in
its sole discretion to cancel any backorders even if such orders have been
accepted previously by acknowledgment, partial shipment or otherwise.
DISTRIBUTOR may cancel an order for Products in whole or in part upon two
business days' written notice to SWISSRAY prior to shipment.
S. PAYMENT AbM COLLECTION. (a) DISTRIBUTOR will pay SWISSRAY
the full amount of the purchase price of Products upon the due date set forth
on the reverse side hereof. Open accounts unpaid beyond such date will bear
interest at a rate not to exceed the highest rate legally permissible in the
state of DISTRIBUTOR'S domicile. if SWISSRAY retains an agency and/or
attorneys to collect amounts overdue after notifying DISTRIBUTOR of its
intention to do so, all collection costs, including without limitation
reasonable attorneys' fees, shall be payable by DISTRIBUTOR. (b) Unless
specifically authorized by SWISSRAY in writing, DISTRIBUTOR will make full
payment of this invoice regardless of any claim, counterclaim or setoff
DISTRIBUTOR may have against SWISSRAY. Any such claim, counterclaim or setoff
shall be resolved exclusively as provided in paragraph 10, below. (5) In the
-17-
<PAGE>
event payment for this invoice becomes past due. SWISSRAY will have the option,
in addition to any other rights it may have, and in its sole discretion, to
cancel or delay shipment of orders of DISTRIBUTOR previously accepted, to
declare all silm-q owing from DISTRIBUTOR to be immediatel @ due and payable,
and to cancel credit previously extended by SWISSRAY.
6. WARRANTIES. (a) SWISSRAY extends a Limited Warranty on
Products directly to distributor of Products, and SWISSRAY will, from time to
time, advise DISTRIBUTOR of the terms and conditions of such Limited Warranty.
(b) SWISSRAY MAKES NO W TIES, GUARANTEES OR REPRESENTATIONS, EXPRESS OR IMPLIED,
TO DISTRIBUTOR WITH RESPECT TO PRODUCTS. ALL WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF
FITNESS FOR USE OR FITNESS FOR A PARTICULAR PURPOSE. AND ALL OBLIGATIONS TO
DISTRIBUTOR ON 3 F OF SWISSRAY WITH RESPECT TO ANY PRODUCTS ARE HEREBY EXCLUDED
AND DISCLAIMED EXCEPT AS SWISSP-AY MAY UNDSRTAKE IN A PUBLISHED POLICY OR
WRITTEN AGREEMENT WITH DISTRIBUTOR AT ITS OPTION TO REPAIR OR REPLACE PRODUCTS
THAT ARE FOUND TO BE DEFECTIVE PRIOR TO RESALE BY DISTRIBUTOR. SWISSRAY WILL NOT
BE LIABLE FOR ANY COST OR EXPENSE FOR REPAIR, INSTALLATION OR OTHER WORK BY
DISTRIBUTOR IN CONNECTION WITH PRODUCTS. ic) DISTRIBUTOR will not make any
warranties, representations or guarantees to any person, either orally or in
writing, in the name or on behalf of SWISSRAY without SWTSSRAY's prior written
consent,
7. LIMITATION OF LUMILITY. (a) EXCEPT AS PROVIDED IN THE
FOLLOWING PARAGRAPH (b) WITH RESPECT TO DIRECT DA14AGES ARISING OUT OF CLAIMS
RELATED TO ORDERS FOR PRODUCTS, UNDER NO CIRCUMSTANCE WILL SWISSRAY BE LIABLE
FOR ANY DAMAGES, INCLUDING WITHOUT LIMITATION DIRECT, INDIRECT, SPECIAL.
INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES (EXCEPT FOR CONSEQUENTIAL DAMAGES
RELATING TO PERSONAL INJURY IN JURISDICTIONS WHERE SUCH DAMAGES MAY NOT BE
DISCLAIMED As A MATTER OF LAW AND THIRD-PARTY CLAIMS ARISING OUT OF SWRSSRAY'S
PRODUCT LIABILITY) OR LOSS OF PROFITS, UNDER AMY LEGAL THEORY, SUSTAINED BY
DISTRIBUTOR, OR BY ANY PERSON D @ ING WITH DISTRIBUTOR, IN CONNECTION WITH ANY
ORDER FOR PRODUCTS OR THE PRODUCTS COVERED THEREBY. (b) THE LIABILITY OF
SWISSRAY, IF ANY, FOR DIRECT DAMAGES IN CONNECTION WITH FILLING ORDERS FOR
PRODUCTS IN ACCORDANCE WITH THESE TERMS, REGARDLESS OF THE DELIVERY OR
NON-DELIVERY OF SUCH PRODUCTS, WILL NOT, IN ANY EVENT, BE GREATER THAN THE
ACTUAL PURCHASE PRICE OF PRODUCTS WITH RESPECT TO WHICH SUCH CLAIM IS MADE.
8. TPJW DISTRIBUTOR will not use the 'SWISSRAY" name or any of
the other intellectual property rights of SWISSRAY without SWISSRAY's prior
written consent, except that the name, 'SWISSRAY,L may be used in connection
with the sale of genuine SWISSRAY Products, but only if due regard is given both
to proper trademark use and to the ownership by SWISSRAY of its name and mark.
DISTRIBUTOR will not remove or alter any trademark or tradename or serial number
from any Products or use in connection with Products any trademarks or
tradenames other than SWISSRAY's or use SWISSRAY's trademarks or tradenames in
connection with products of others.
9. INTELLECTUAL PROPERTY PROTECTION. SWISSRAY's sole and
exclusive obligation to DISTRIBUTOR with respect to claims made
18
<PAGE>
against DISTRIBUTOR for alleged infringement of any patent arising by virtue of
the sale or normal use of unmodified Products or allegedinfringement of other
intellectual property (provided that DISTRI13UTOR has not contributed to such
infringement) shall be: (a) to defend. at SWISSRAY'S, cost any legal action
brought against DISTRIBUTOR in respect of any such claim for such patent
infringement and pay all final judgments and costs entered by reason of such
action (provided that SWISSRAY has been given prompt notice and has been allowed
to
deal with and defend any such action from the beginning) ; and (b) at SWISSRAY's
sole option to do any one or more of the following: (i) settle the claim of
infringement; (ii) procure for DISTRIBUTOR the right to use or sell the
allegedly infringing Products; (iii) replace or modify the allegedly infringing
Products so as to avoid the alleged infringement; or (iv) refund the price
actually paid by DISTRIBUTOR to SWISSRAY for the allegedly infringing Products.
10. MMXTRATION AND LAW. (a) Fxcept with
resnect to disputes as to indebtedness arising out of the sale of Pro@ucts in
the ard @ ry course of SWISSRAY's business and disputes relating Lo SWISSPAY's
intellectual property rights, any and all controversies or claims arising out of
or relating to these Terms, including without limitation claims asserting
violation of the antitrust laws, shall be settled exclusively by arbitration in
New York, New York if the arbitration shall be commenced by SWISSRAY and New
York, New York if arbitration shall be comenced by DISTRIBUTOR, using the
knerican Arbitration Association. The Arbitration shall be heard before three
arbitrators, one to be chosen by DI M IBUTOR, one to be chosen by SWISSRAY, and
the third to be chosen by those two arbitrators. (b) The arbitrators shall apply
the internal law of the State of New York, excluding its conflict-of-laws
principles. in determining the rights, obligations and liabilities of the
parties. The arbitrators shall not have the power to alter, modify. amend. add
to or subtract from any of these Terms, nor to grant injunctive relief or
punitive damages of any nature. In all other respects, the Commercial
Arbitration Rules of the American Arbitration Association shall govern the
arbitration. Judgment on the award of the arbitrators may be emtered by any
Court having jurisdiction to do so, and DISTRIBUTOR and SWISSRAY her @
irrevocably consent to the jurisdiction and venue of the federal and state
courts of the States of New Jersey and Nebraska over their person for that
purpose as well as for any and all other purposes in connection with these
Terms, and waive any defense based upon improper venue, inconvenient venue or
lack of jurisdiction in connection therewith. (c) The failure or refusal of
either DISTRIBUTOR or SWISSRAY to Submit to arbitration shall constitute a
breach of these Terms and the party resisting arbitration shall be required to
pay the costs, including without limitation reasonable attorneys, fees,
compelling the same. Cc) claims or controversies that are not the subject of
arbitration under these Terms shall be governed by the internal law of the State
of New York, exclusive of its conflict-of-laws principles. For this purpose,
both DISTRIBUTOR and SWISKRAY hereby.
II. MISCELLKNEOUS PRMASIONS. (a) In the event that any of the provisions of
these Terms are held by a Court or other tribunal of competent jurisdiction to
be unlawful. invalid, void or
19
<PAGE>
unenforceable. the remaining provisions of these Ter= will rwmin in full force
and effect and will in no way be affected, impaired or invalidated. (b) The
failure or refusal by SwissRAY to insist upon the strict performance of any
provision of these or to @rcise any right in one or more instances will not be
construed an a waiver of such provision or right presently or in the future.
nor will such failure or refusal be deemed a custom or practice contrary to
such provision or right. (c) The paragraph headings contained in these Term
are for reference only and will not be conxide@ as substantive parts of these
Terms or in their interpretation or for any other purpose. The use of the
singular or plural will include the other form. . (cl) SWISSRAY may assign the
proceeds under any contract to sell Products to any third party at any time
without the consent of DISTRIBLITOR. DISTRI]BL"ROR shall have no right to
assign any of its rights or obligations with .respect to orders for Products
without the prior written consent of SWISSRAY, and any attempt to so assign
shall be null and void-
Enhibit D! Swineray Standard Software Warranty
Soft a Waz=ant-yz For a period of me (1) yuar Er= the date of ah:Llpment
ovismiray warrants that the software *bell canto= to the specifications not Eo
@ in the dommentation. swiceray,,Lv &*la obligation %,,-der thin warranty
shall be IbAted to using reasonable efforts to ensure o@ cmf@ty ma to supply
SWer with a corrected version of the Baftmze an soon as practicable after
Buyer has notified @Aperay of UW ZLOACOnfommity. @ffaray @o not @-ramt that
(1) overat;ico of any of Um software shall be Interrupted or error free,, (2)
functions con@nad in the Software shall operate in Um ewftinations which may
be selected for use by buyer or meet: I"zlo -requireftente. This warranty
shall be @fLd it the Software is find without the written consent of @Aperay.
Exhibit E.- Swissray s anty
LXKX2= t OwimAr-ray warrants for a period of me (1) year two= the data of wh@nt,
that egmipmnt shall be free from defects iz material or wor ilp and will achieve
Um functionality domeribeci in the product documntation provided by Mdearay. AU
tomting of the aqu@nt shall be per:Eo=a4 using @owrar'n ip@ieb*d sipmelfications
text @theds MA test equiamnt. @ezray,'a solo componsibi3.ity under LM* warranty
shall lm to repair or replace, at awlesrayro cqption. wW @onento which faila
during the warranty period because oil eL doinct: in ma-v hilp and/or material.
All. replileamat e@ t: cc parts
-20-
SALES, MARKETING AND SERVICE AGREEMENT
THIS SALES, MARKETING AND SERVICE AGREEMENT (this "Agreement")
is made effective as of the 12th day of August 1999 (the "Effective Date"), by
and between Swissray America, Inc., a Delaware corporation, with offices at 320
West 77th Street, Suite 1A, New York, New York 10024 ("SWISSRAY") and Hitachi
Medical Systems America Inc., a Delaware corporation, with offices at 1959
Summit Commerce Park, Twinsburg, Ohio 44087 ("HMSA"). SWISSRAY and HMSA are each
sometimes referred to herein as a "Party," and are sometimes collectively
referred to herein as the "Parties."
In consideration of the mutual undertakings and agreements set
forth herein, and for other good and valuable consideration given by each Party
hereto to the other, the receipt and sufficiency of which is hereby
acknowledged, SWISSRAY and HMSA intending to be legally bound, agree as follows:
1. DEFINITIONS. Terms not otherwise defined in this Agreement shall have
the following meanings:
1.1 The term "PRODUCT" shall mean the ddR Multi-System for X-Ray
designed, manufactured and sold by SWISSRAY under the SWISSRAY
trademark or tradename, as more fully described in Exhibit A
attached hereto and incorporated herein, as well as products
manufactured and sold by SWISSRAY under the SWISSRAY trademark or
tradename that are new iterations thereof, so long as such new
iterations use the same core technology as described in Exhibit
A. No other SWISSRAY product, whether or not sold under the
SWISSRAY trademark or tradename, is intended to be encompassed
within the definition of PRODUCT.
1.2 "Term" shall mean the period of time commencing on the Effective
Date and ending upon termination of this Agreement as provided
under section 14 of this Agreement.
1.3 "Effective Date" shall mean the date first written above.
1.4 "SIS" shall mean Swissray Information Solutions, Inc., an
affiliate of SWISSRAY.
2. HMSA APPOINTMENT; SCOPE OF APPOINTMENT.
2.1 General Appointment. SWISSRAY hereby appoints HMSA, and HMSA
hereby accepts appointment, solely to sell the PRODUCT directly
to end users and to provide warranty service for the PRODUCT its
sells, all subject to the terms and conditions of this Agreement,
including the limitations set forth in sections 2.2 and 2.3 of
this Agreement. See section 3.5 with respect to post-warranty
service for PRODUCTS.
2.2 Territories: HMSA is hereby authorized to sell the PRODUCT to end
users within the geographical areas specified on Exhibit B,
attached hereto and incorporated herein (the "Territory").
2.3 SWISSRAY Reserved Accounts: Except with respect to the accounts
listed in Exhibit C, attached hereto and incorporated herein (the
"Reserved Accounts"), which are hereby reserved to SWISSRAY,
SWISSRAY shall not sell the PRODUCT to customers within the
Territory during the Term. SWISSRAY may sell PRODUCTS to the
Reserved Accounts both within and outside the Territory.
Notwithstanding anything in this Agreement to the contrary,
<PAGE>
nothing in this Agreement shall prohibit SIS from selling
PRODUCTS to any customer within the Territory as a part of the
overall resolution of issues addressed by SIS. See Exhibit E.
2.4 Notwithstanding anything to the contrary in this Agreement, HMSA
is not authorized to sell and shall not sell PRODUCTS to the
Reserved Accounts. HMSA shall not, except as otherwise set forth
in this Agreement, be compensated by SWISSRAY for any sale by
SWISSRAY to any Reserved Account.
2.5 If HMSA determines to market, sell or service any direct digital
radiographic system or computed radiography products (CR devices)
that compete with PRODUCTS, HMSA shall give SWISSRAY immediate
notice thereof and SWISSRAY shall have the right to presume that
such intended action will occur and may terminate this Agreement
immediately upon written notice to HMSA. Such termination by
SWISSRAY shall be deemed a termination for cause as described in
section 14.2, below.
2.6 Except as specifically limited by this section 2, SWISSRAY and
HMSA shall each have the right to sell and distribute any
products and services within the Territory.
3. HMSA'S MARKETING RESPONSIBILITIES. HMSA shall have the following
rights, and accepts and will perform the following
responsibilities, at no additional cost or expense to SWISSRAY,
at all times during the Term:
3.1 Promote Products: HMSA will use all reasonable commercial efforts
to promote the goodwill of SWISSRAY and to promote and sell
PRODUCTS within the Territory in a manner that will emphasize
their high quality, technology and utility. Specifically:
3.1.1 HMSA shall develop sales incentives, sales support and other
sales aids in support of the PRODUCT.
3.1.2 Within three (3) months after the Effective Date, HMSA shall
provide a direct mailing in support of the PRODUCT to its
Magnetic Resonance Imaging product installed base within the
Territory. SWISSRAY shall have the right to inspect, but not
copy, the list of the recipients of all such mailings prior to
the mailing being sent so that SWISSRAY may assure that it is
being sent only within the Territory and not to Reserved
Accounts.
3.1.3 SWISSRAY and HMSA shall, to the extent reasonably practicable,
coordinate public relations, advertising and other similar
marketing activities and shall upon each party's prior written
approval share on an equal basis the expenses of such marketing
activities. The primary purpose of such activities shall be
commercial sales of the PRODUCT.
3.2 Reports and Records:
3.2.1 HMSA shall provide SWISSRAY with reports during the Term, as
follows: (A) monthly, at the end of each month during the Term:
(i) a list of HMSA current sales leads or prospects; (ii) a
rolling forecast of sales and PRODUCT requirements for the
following six (6) month period of which the first ninety days'
shall be considered firm orders and shall be accompanied by
HMSA's purchase order, which shall be deemed accepted by SWISSRAY
2
<PAGE>
unless HMSA is notified to the contrary within ten (10) business
days thereafter; (iii) the information required to be maintained
by HMSA pursuant to section 3.2.2, below with respect to PRODUCTS
sold by HMSA during the prior month; and (B) on a routine basis,
but in no event less than monthly during the Term, a good faith
update from the appropriate HMSA X-Ray specialist to his or her
SWISSRAY regional representative counterpart of the marketing
activities and the status of sales leads within such region, and
(C) such other reports as may be reasonably requested by SWISSRAY
from time to time. All reports submitted by HMSA shall become the
property of SWISSRAY but shall be used solely for its own
internal purposes.
3.2.2 HMSA shall maintain accurate records that identify the Products
(by model and serial number) it sells to all of its customers,
such records to include, customer's name, address, telephone
number and date of sale. HMSA shall also maintain all records
required to be maintained under applicable federal laws and
regulations, including as required by the Food, Drug and
Cosmetics Act. Such records shall be made available to SWISSRAY
for inspection and copying during HMSA's normal business hours
upon at least twenty-four (24) hours' prior notice to HMSA, but
in no event shall SWISSRAY be allowed to see or copy resale price
information.
3.2.3 HMSA shall notify SWISSRAY promptly of all complaints of its
customers regarding the PRODUCTS. SWISSRAY shall have the right
to communicate directly with such customer with respect to such
complaint, but shall have no right to make, and shall not purport
to have authority to make, any commitment on behalf of HMSA with
respect thereto.
3.3 Maintain Sales and Technological Expertise: Except as otherwise
stated below, HMSA shall, at no cost or expense to SWISSRAY,
employ and maintain sales and technical personnel sufficiently
trained to assist its customers in the use of Products as
solutions for end-user problems, to fill end-user needs and to
provide installation, applications training and warranty service
to its customers. SWISSRAY will rely upon HMSA to provide such
value-added sales and technical and engineering service as a
principal reason for entering into and continuing this Agreement.
Without limiting this general obligation:
3.3.1 HMSA shall, maintain an aggressive outbound sales
force which actively pursues (including, making field
sales calls) opportunities to sell Products to end
users, and which is technically trained as provided
in section 3.3.2, below;
3.3.2 HMSA shall provide necessary training so that (1) its
technical support and service engineer staff shall
have a thorough familiarity with the specifications
and technical features of Products, and (2) its sales
personnel will have a full understanding of the
technical features of, and know the competitive
advantages of, PRODUCTS. HMSA shall participate in
and otherwise cooperate with SWISSRAY in training
programs which SWISSRAY may establish, and shall
require its sales and technical staff to study all
materials issued to HMSA by SWISSRAY for that
purpose;
3.3.3 HMSA acknowledges receipt of SWISSRAY's current
service engineer prerequisite minimum requirements.
3
<PAGE>
HMSA shall review SWISSRAY's service engineer
prerequisite minimum requirements, and shall require
its x-ray service engineers to meet such requirements
as the same may be reasonably amended by SWISSRAY
from time to time, including without limitation, with
respect to NT Workstation, DICOM and Ethernet
connectivity; and
3.3.4 HMSA will provide applications training, at its own
expense, to customers in connection with HMSA's
PRODUCT sales. SWISSRAY shall provide the entire
requisite documentation and software to support
applications training and shall provide a "train the
trainer" session for one HMSA applications person.
See Exhibit D.
3.4 Warranty Service: HMSA shall perform all warranty repairs and
parts replacements for PRODUCTS sold by HMSA, using SWISSRAY
Spare Parts (defined in section 8.1, below), as may be
required by SWISSRAY's End-User Warranty (defined in section
11.1, below) using, among other things, the Activation Codes
made available to HMSA by SWISSRAY in accordance with section
6.3. All such warranty repairs and parts replacements shall be
conducted in accordance with SWISSRAY's warranty service
policies and procedures as they may be amended from time to
time in SWISSRAY's sole, absolute discretion. HMSA
acknowledges receipt of SWISSRAY's current warranty service
policies and procedures manual.
3.4.1 In connection with its warranty service obligations,
HMSA shall return parts replaced under the End-User
Product Warranty to SWISSRAY and HMSA shall pay all
expenses for transporting and insuring such defective
parts one-way to SWISSRAY. SWISSRAY shall not accept
defective parts directly from HMSA customers, unless
authorized in writing by HMSA to do so. SWISSRAY
shall pay all expenses for transporting and insuring
replacement parts for such parts that it confirms are
defective.
3.4.2 For the period of either (a) fifteen (15) months from
SWISSRAY's delivery of PRODUCT to HMSA or to the
destination specified in HMSA's order; or (b) twelve
(12) months after HMSA completes installation of
PRODUCT at HMSA's customer's site, whichever is
shorter, SWISSRAY shall issue a credit to HMSA for
the net cost of Spare Parts used by HMSA as
replacement parts under SWISSRAY's End-User Product
Warranty. SWISSRAY reserves the right to verify
defects in parts before it issues a Spare Parts
credit to HMSA. HMSA acknowledges and agrees that no
additional consideration shall be due to HMSA for
labor, administrative or other costs associated with
warranty work performed by HMSA under this Agreement.
3.4.3 Within seven (7) days following the expiration or
earlier termination of this Agreement, HMSA shall
notify SWISSRAY in writing whether HMSA elects to
continue to provide warranty service as required by
this Agreement for HMSA's customers of PRODUCTS. The
obligations set forth in this section 3.4.3 shall
survive the expiration or earlier termination of this
Agreement. If HMSA fails to notify SWISSRAY that it
elects to continue to provide warranty service as
required by this Agreement, SWISSRAY shall have the
right, at its option, to assume such warranty service
obligations.
4
<PAGE>
3.4.4 HMSA shall not contract with any third party to
perform any of its installation or warranty services
under this Agreement without the prior written
consent of SWISSRAY in each instance.
3.5 Post-Warranty Service: HMSA may, but shall not be obligated
to, provide post-warranty service for PRODUCTS sold and
installed by HMSA in the Territory. HMSA acknowledges and
agrees that, except to the extent of its obligations under
sections 8 and 11.2.2, SWISSRAY has no responsibility and
assumes no liability for post-warranty service performed by
HMSA.
3.6 Act Lawfully: Each of SWISSRAY and HMSA shall comply with
all federal, state and local laws and regulations in
performing its responsibilities under this Agreement and in
all of its activities with respect to PRODUCTS.
3.7 HMSA shall (1) at its own expense, except as set forth in
section 3.4.2, install and service the PRODUCTS in accordance
with SWISSRAY's published specifications, installation
procedures, maintenance manuals and user manuals; and (2) not
modify PRODUCTS or Spare Parts without the prior written
consent of SWISSRAY.
3.8 The parties acknowledge that the services of SIS may be
significant to the proper systems integration and operation of
PRODUCTS. Therefore, whenever HMSA shall receive an inquiry
from a customer or potential customer of PRODUCTS that is
within the consulting or connectivity services offered by SIS,
HMSA shall consult with SIS with respect thereto and shall
direct such customers or potential customers to SIS in Gig
Harbor, Washington, tel. No. (253) 858-3330.
4. SWISSRAY'S RESPONSIBILITIES. SWISSRAY accepts and will perform the
following responsibilities at no additional cost or expense to HMSA
except as otherwise stated:
4.1 The scope of the technical support, documentation and training
to be supplied by SWISSRAY is defined in Exhibit D attached to
this Agreement and incorporated herein. The technical support,
documentation and training to be supplied by SWISSRAY shall
include a general indoctrination of PRODUCT knowledge.
4.2 SWISSRAY shall provide HMSA at no cost with four (4) complete
sets of operation manuals, installation manuals and all other
service documents for the PRODUCTS upon execution of this
Agreement, and thereafter during the Term, shall provide at no
cost to HMSA updates to these documents from time to time.
4.3 SWISSRAY shall use its reasonable best efforts to provide HMSA
with access to the installed base of SWISSRAY PRODUCTS for
demonstration and testimonial purposes. Access, in each
instance, to the SWISSRAY installed base shall be solely with
SWISSRAY's prior written authorization.
4.4 For promotion purposes, SWISSRAY shall assist HMSA at mutually
agreed upon industry trade-shows. The extent of such
assistance by SWISSRAY shall be mutually agreed upon on a case
by case basis.
4.5 Subject to section 6.3, below, SWISSRAY shall, until the first
anniversary of the Effective Date, provide to HMSA at
SWISSRAY's sole cost and expense "SwissVision" software and
images that will allow HMSA to produce clinical images to
support HMSA's sales effort. HMSA will provide the laser
5
<PAGE>
camera and manpower to produce such images.
4.6 SWISSRAY shall provide HMSA, at HMSA's expense (less an
initial one-time credit of $5,000.00 ) with sales support
materials, including sales brochures, financial proformas and
sample images on X-Ray film in reasonable quantities to allow
HMSA's to fulfill its obligations under this Agreement.
4.7 SWISSRAY shall secure from SIS a letter substantially in the
form of Exhibit E.
---------
5. PURCHASE OF PRODUCT AND SPARE PARTS BY HMSA.
5.1 Governing Terms and Conditions. The terms and conditions
solely and exclusively governing the sale of Products and
spare parts for PRODUCTS ("Spare Parts") to HMSA will be as
set forth in this Agreement. If the terms and conditions set
forth in any document forming a part of any order for Products
or Spare Parts placed by HMSA are different from or in
addition to the provisions of this Agreement, the provisions
of this Agreement shall prevail, and any such different or
additional terms and conditions proposed by HMSA thereby will
be deemed deleted and not binding or enforceable upon SWISSRAY
and are hereby objected to by SWISSRAY.
5.2 Ordering: HMSA purchase orders for PRODUCT or Spare Parts
shall be addressed to:
SWISSRAY America, Inc.
5801 Soundview Drive, Suite 50
Gig Harbor, WA 98355
All HMSA purchase orders must be submitted to SWISSRAY in
writing and are subject to acceptance by SWISSRAY in writing
(as provided in section 3.1.2 with respect to PRODUCTS). Any
shipment of Products or Spare Parts to HMSA in whole or in
partial fulfillment of any order will not be deemed to
constitute an acceptance by SWISSRAY of any of the terms and
conditions of such order, except as to identification of
Products or Spare Parts, as the case may be, and the
quantities involved, unless otherwise expressly agreed to in
writing by SWISSRAY.
5.3 Delivery:
--------
5.3.1 SWISSRAY shall use its reasonable best efforts to
deliver the PRODUCT not later than ninety (90) days
from the date of the HMSA purchase order, unless
otherwise requested by HMSA and agreed to in writing
by SWISSRAY.
5.3.2 SWISSRAY shall use its reasonable best efforts to
ensure that (i) lead times for shipment of Spare
Parts shall not exceed seven (7) days from HMSA's
purchase order date, and (ii) emergency orders for
Spare Parts shall be shipped within three (3) days
after purchase order date. SWISSRAY shall make direct
deliveries of emergency orders to customers of HMSA
on behalf of HMSA only upon prior written
instructions by HMSA.
5.4 Order Cancellations by HMSA. No purchase order for PRODUCTS
accepted by SWISSRAY may be revoked or cancelled by HMSA, in
whole or in part, except with SWISSRAY's written consent and
upon the following terms:
6
<PAGE>
5.4.1 HMSA shall pay SWISSRAY 33% of the purchase price for
purchase orders cancelled or revoked between
forty-five (45) and ninety (90) days of the delivery
date;
5.4.2 HMSA shall pay SWISSRAY 66% of the purchase price for
purchase orders cancelled or revoked between fifteen
(15) and forty-four (44) days of the delivery date;
and
5.4.3 HMSA shall pay SWISSRAY 75% of the purchase price for
purchase orders cancelled or revoked between one (1)
and fourteen (14) days of the delivery date.
The cancellation payments required under sections 5.4.1, 5.4.2 and
5.4.3 shall not apply to cancellations, in whole or in part, by HMSA of
its purchase order for PRODUCT accepted by SWISSRAY if such
cancellation by HMSA is exclusively caused by a modification to PRODUCT
by SWISSRAY that materially and adversely affects functional
specifications and with respect to which SWISSRAY receives written
confirmation from HMSA's customer that as a result of such
modification, such HMSA customer cancelled its order with HMSA.
6. CONTINGENCY PLAN, INTELLECTUAL PROPERTY.
6.1 In order to ensure the availability and quality of service and
Spare Parts hereunder, SWISSRAY shall maintain a complete and
up-to-date set of (a) drawings of Spare Parts; (b)
documentation necessary for the repair of detectors; (c)
contact information for third party vendors of Spare Parts;
and (d) the Activation Code described in section 6.3 in an
escrow location mutually agreed upon for the deposit of such
documentation pursuant to the terms of a Technology Escrow
Agreement among SWISSRAY, HMSA and Data Securities
International, Inc. substantially in the form of Exhibit H
(the "Technology Escrow Agreement"), which is being entered
into by such parties contemporaneously with the execution and
delivery of this Agreement. HMSA shall have access to such
documentation solely upon (a) SWISSRAY, its successors or
assigns ceasing to engage in the sale of PRODUCTS or Spare
Parts; (b) the events set forth in section 14.2.1 below shall
occur to SWISSRAY and not be cured as provided therein; or (c)
provided that HMSA is not in breach of this Agreement, if
SWISSRAY fails to make Spare Parts available to HMSA as may be
required by this Agreement for a period of ninety (90) days.
HMSA's access to the escrow, if any, shall be for the sole
purpose of fulfilling HMSA's warranty and post-warranty
service obligations to its customer base of installed
PRODUCTS. The provisions of this section 6.1 shall survive the
expiration or earlier termination of this Agreement. In the
event SWISSRAY shall terminate this Agreement for cause as set
forth in section 14.2, the Technology Escrow Agreement shall
be simultaneously terminated and the escrowed documentation
shall be returned to SWISSRAY in accordance with the terms and
conditions of the Technology Escrow Agreement.
6.2 HMSA hereby acknowledges that SWISSRAY and its parent and
affiliates, have legally protected rights and interests in
Products, software, tradenames, trademarks, logos, insignias
and all other proprietary information and things, tangible and
intangible, whether or not registered (the "Intellectual
Property Rights"). HMSA will not imitate Products or infringe
upon SWISSRAY's Intellectual Property Rights in any way
whatsoever. HMSA shall immediately notify SWISSRAY in writing
upon learning that a third party is or may be violating
SWISSRAY's Intellectual Property Rights.
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6.3 SWISSRAY hereby grants to HMSA the nonexclusive,
nontransferable, nonsublicensable right: (a) to demonstrate
and evaluate (but not otherwise use) software associated with
the PRODUCT; and (b) to use the activation codes provided by
SWISSRAY to HMSA so that HMSA can have access to the
diagnostic software resident within the PRODUCT (the
"Activation Code") solely for the purpose of servicing the
PRODUCT sold by HMSA and for no other purpose. HMSA will not,
and will not allow any other person to, make any copies of
such software, to modify, disassemble or decompile any such
software, or to remove, obscure or alter any notice of patent,
trademark, copyright or trade name on such software. No title,
ownership or proprietary right to any such software,
Activation Codes or other Intellectual Property Rights is
granted or transferred by virtue of this Agreement. The
provisions of this Section 6.3 shall survive the expiration or
earlier termination of this Agreement.
6.4 HMSA shall not use the "SWISSRAY" name or any of the
Intellectual Property Rights without SWISSRAY's prior written
consent, except that the name "SWISSRAY" may be used in
connection with the sale of Products, but only if due regard
is given to proper trademark use and the ownership by SWISSRAY
of its name and mark. Without limiting the generality of the
foregoing, HMSA will not use any trademark or tradename owned
by SWISSRAY, or its parents or affiliates, either alone or
with any other word or words as part of HMSA's trade or
corporate name or in any advertising, without the express
written consent of SWISSRAY. HMSA will not remove any such
trademark or tradename from any Products, Spare Parts or other
literature or materials provided to HMSA by SWISSRAY. Upon the
termination or expiration of this Agreement, HMSA will
discontinue completely any use of any of SWISSRAY's trademarks
or tradenames as set forth in section 15.3, below.
6.5 HMSA acknowledges that, should it breach its covenants as set
forth in sections 6.2, 6.3, or 6.4 above, or section 13,
below, SWISSRAY will be irreparably harmed, that money damages
alone would not provide an adequate remedy, and that therefore
SWISSRAY shall be entitled to an injunction preventing HMSA
from further breaching such covenants without any further or
more particularized showing of irreparable injury or the
posting of a bond or other security. Such an injunction may be
applied for before any Court having jurisdiction thereof. In
any such proceeding, SWISSRAY will also be entitled to recover
damages only as set forth in section 11.6 of this Agreement.
7. MODIFICATION OF PRODUCT.
7.1 SWISSRAY may modify the PRODUCT in its sole, absolute
discretion prior to delivery of PRODUCT. If such modifications
materially affect specifications or FDA submissions, SWISSRAY
shall use its best efforts to notify HMSA of such
modifications in writing at least ninety (90) days prior to
first delivery of the modified PRODUCT. In no event will
SWISSRAY be obligated to make any such modification to
Products previously supplied to HMSA or to continue to supply
Products as made prior to such modification.
7.2 Modifications of PRODUCT which, in SWISSRAY's sole discretion,
are based upon safety or legal concerns shall be implemented
by SWISSRAY as promptly as may be practicable under the
circumstances. Notwithstanding anything to the contrary in
this Agreement, SWISSRAY may, in its sole discretion, suspend
sales and shipment of PRODUCTS or Spare Parts for safety
reasons without liability to HMSA.
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7.3 SWISSRAY shall send HMSA all field change orders relating to
the PRODUCT in writing. HMSA shall promptly implement such
field change orders within the time period referenced in such
field change order. Field change orders shall contain at least
the following information:
(a) Reason for change;
(b) Designation of PRODUCT concerned by serial number(s);
(c) Importance of modification (immediately, next service
call optionally);
(d) Time required for work, and
(e) Instructions for implementation.
7.4 If, in SWISSRAY's sole judgment, safety-related field change
orders to PRODUCT are required by law, the costs of material
in respect of such field change orders shall be borne by
SWISSRAY and the cost of labor to implement same shall be
borne by HMSA. In all other cases, unless a field change order
is required by SWISSRAY solely for its convenience, in which
case SWISSRAY shall bear the cost of material and labor in
respect thereof, the cost of materials and labor associated
with a field change order shall be borne by HMSA.
7.5 SWISSRAY shall promptly respond to HMSA's written concerns
relating to safety problems.
8. SPARE PARTS, POST WARRANTY SERVICE.
8.1 SWISSRAY shall make available to HMSA a complete list of Spare
Parts arranged according to SWISSRAY's part numbers. The Spare
Parts list shall be revised by SWISSRAY as necessary to be
kept up-to-date and shall cross reference HMSA part numbers.
8.2 Spare Parts shall be packed and labeled to identify the
contents of each package in accordance with the Spare Parts
list. Labeling shall indicate the respective revision level,
if any, of Spare Parts.
8.3 For a period of seven (7) years following shipment of each
PRODUCT under this Agreement, SWISSRAY shall supply HMSA with
Spare Parts for such PRODUCT at the then current list price,
less any applicable discount. Thereafter, if any Spare Part is
not available for purchase, SWISSRAY shall make reasonable
efforts to re-engineer the fit or function of similar Spare
Parts, if any, for a reasonable fee.
8.4 Spare Parts shall be of the same quality as the parts
installed in the PRODUCTS.
8.5 The parties acknowledge the importance of post-warranty
service to the proper operation of PRODUCTS. Therefore, if
HMSA determines at any time that it will not, itself, satisfy
any one or more post-warranty service contracts for PRODUCTS,
HMSA shall provide SWISSRAY with the first opportunity to
assume HMSA's obligations under such contracts.
9. PRICES AND TERMS OF PAYMENT.
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9.1 The prices for PRODUCT (the "Prices") are stated in Exhibit F,
attached to this Agreement and incorporated herein. Prices
include packaging, packing and are FOB to SWISSRAY's US
shipping point.
9.2 Terms of payment:
For PRODUCT:
10% upon date of order
70% upon tender of delivery to the shipping address in HMSA's
Purchase Order 20% 30 days after tender of delivery to the
shipping address in HMSA's Purchase Order
For Spare Parts:
100% 30 days after tender of delivery to the shipping address
in HMSA's Purchase Order
9.3 The Prices listed on Exhibit F shall remain in effect for all
Products or Spare Parts ordered prior to the first anniversary
of the Effective Date. For any PRODUCT ordered thereafter,
SWISSRAY may change the price by written notification to HMSA
ninety (90) days prior to the date the price change will
become effective, provided that, no price change shall affect
PRODUCT orders placed by HMSA prior to effective date of the
price changes.
10. SHIPPING, TAXES, TITLE, RISK OF LOSS, Force Majeure.
---------------------------------------------------
10.1 At the time of shipment of PRODUCTS to HMSA, SWISSRAY shall
furnish HMSA with at least the following information:
(a) Purchase order number
(b) Transportation information
(c) Serial number of the PRODUCT
10.2 Shipment.
--------
10.2.1 Shipment Terms. Delivery and price terms for PRODUCT
and Spare Parts are F.O.B. to SWISSRAY's U.S.
shipping point. Thereafter, HMSA shall bear all
costs, insurance premiums, freight and all other
charges and expenses incurred after SWISSRAY has
placed Products or Spare Parts in the custody of a
carrier. All such costs, charges and expenses will be
included on SWISSRAY's invoice and will be paid by
HMSA in accordance with the terms of this Agreement.
The method and route of shipment shall be as set
forth on HMSA's purchase order. If the method and
route of shipment are not specified on HMSA's
purchase order, the method and route of shipment
shall be at SWISSRAY's discretion.
10.2.2 Separate Shipments. Each shipment of Products or
Spare Parts to HMSA will constitute a separate sale
obligating HMSA to pay therefor, whether such
shipment is in whole or in partial fulfillment of
HMSA's purchase order or confirmation for such
Products or Spare Parts, as the case may be.
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10.2.3 Suspension of Shipment. In the event of a default by
HMSA under this Agreement, SWISSRAY may decline, at
its sole option, to make further shipments under any
and/or all orders for Products or Spare Parts under
this Agreement. If SWISSRAY elects to continue
shipments, such continuation will not constitute a
waiver of such default, nor will such continuation in
any way limit SWISSRAY's legal remedies for such
default.
10.2.4 Shipment Allocation. If PRODUCTS are in short supply,
SWISSRAY reserves the right to allocate shipment of
orders and back orders for all PRODUCTS among HMSA,
other customers and itself in its sole, absolute
discretion. SWISSRAY shall notify HMSA in the event
of a change in the status of HMSA's deliveries under
this section 10.2.4.
10.2.5 Shipment Directly to Customer. Notwithstanding
anything in this Agreement to the contrary, if
SWISSRAY shall suspend shipments as provided in
section 10.2.3, SWISSRAY shall have the right,
without liability, to ship suspended PRODUCTS
directly to the HMSA customer to whom the suspended
shipment was due for SWISSRAY's own account. HMSA
shall cooperate with SWISSRAY to assure the
completion of such shipment.
10.3 Taxes. Federal, state and municipal taxes now or hereafter
imposed in respect of the sale, use, production, manufacture,
delivery or transportation of Products or services of SWISSRAY
(except SWISSRAY's income taxes not levied in lieu of any of
the foregoing) will be added to and become a part of the price
of Products payable by HMSA. Such taxes required by law to be
collected or paid by SWISSRAY will be additional to prices
quoted on Exhibit F, will be included on SWISSRAY's invoice
and will be paid by HMSA unless HMSA supplies tax exemption
certificates in form satisfactory to SWISSRAY.
10.4. Title and Risk of Loss. All shipments from SWISSRAY's U.S.
shipping point are made at HMSA's risk. Title to PRODUCTS and
risk of loss of or damage to Products or Spare Parts will pass
to HMSA upon SWISSRAY placing Products or Spare Parts in the
custody of a carrier for shipment to HMSA. It will be the sole
responsibility of HMSA to file all claims for shipment damage
or loss with the carrier but SWISSRAY will cooperate with HMSA
in such effort.
10.5. Force Majeure. Notwithstanding anything in this Agreement
to the contrary, SWISSRAY shall not be liable for loss or
damage of any kind resulting from delay or inability to
deliver, or failure to deliver, caused directly or
indirectly by: acts of God or the public enemy; accidents;
strikes or differences with labor; inability to obtain
labor, material, equipment or transportation; compliance
with or the operation of any applicable legislation,
regulation, directive, ruling, judgment or order of any
governmental unit or any court or other competent
governmental authority or matters covered by section 7.2,
above; or any other thing, similar or dissimilar, beyond
SWISSRAY's absolute and unconditional control. SWISSRAY
shall not be required to use overtime labor, nor to expend
any monies whatsoever, to cure any such delay or failure to
deliver. In the event of any partial failure to deliver,
SWISSRAY will have the right to receive payment pro rata for
such of Products or Spare Parts as it did in --- ---- fact
deliver, whether or not delivery of the same may have been
delayed.
11. WARRANTY, LIMITATION OF DAMAGES.
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11.1 End-User Product Warranty. SWISSRAY extends a warranty for
Products directly to end-users of the Products (the "End-User
Product Warranty"). SWISSRAY's current End-User Product
Warranty is attached as Exhibit G. As set forth in Exhibit G,
the End-User Product Warranty shall be in effect for twelve
(12) months from the date of completion of the installation of
the PRODUCT at HMSA's customers' site. Replacement parts shall
be warranted for the remainder of the original warranty
period.
11.2 SWISSRAY Warranties to HMSA.
---------------------------
11.2.1 General: SWISSRAY warrants to HMSA that: (1) HMSA
shall acquire good title to the PRODUCTS free and
clear of all liens and encumbrances; (2) there is no
pending litigation or, to the knowledge of SWISSRAY,
any existing claim involving the PRODUCT that
adversely affects HMSA's rights or obligations under
this Agreement in respect of the PRODUCT; (3)
SWISSRAY's sale of the PRODUCT to HMSA as
contemplated by this Agreement will not violate any
contract, agreement or understanding to which
SWISSRAY is a party or by which SWISSRAY is bound;
(4) throughout the Term of this Agreement, SWISSRAY
shall have the right to continue to sell PRODUCT to
HMSA.
In addition, SWISSRAY warrants to HMSA that, at the
time of sale by SWISSRAY, the PRODUCT (1) shall
comply with all applicable United States laws and
regulations including but not limited to safety
standards and FDA requirements related to the
manufacture or sale of PRODUCTS; and (2) shall be
listed by UL as appropriate and labeled accordingly.
SWISSRAY shall certify compliance with any such
applicable laws and regulations, shall maintain any
UL listing and shall maintain required FDA records
throughout the Term.
11.2.2 Spare Parts: SWISSRAY warrants to HMSA only that
Spare Parts will be free from defects in material and
workmanship at the time of delivery to HMSA. For a
period of twelve (12) months thereafter (the "Spare
Parts Warranty Period"), SWISSRAY in its sole,
absolute discretion, as HMSA's exclusive remedy under
this section 11.2.2, will either repair Spare Parts
found by SWISSRAY to be defective, or replace such
defective Spare Parts, with new or refurbished
equivalent Spare Parts. Repaired or replacement Spare
Parts are warranted under the terms of this warranty
for the remainder of the original Spare Parts
Warranty Period. Exchanged Spare Parts become the
property of SWISSRAY.
This Spare Parts warranty shall not apply if warranty
service is necessitated in whole or in part by: (1)
Spare Parts having been abused or damaged by casualty
or accident or Spare Parts not used in accordance
with SWISSRAY's manuals or publications, (2) Spare
Parts having been serviced or modified other than by
SWISSRAY, or the use of parts or software not sold by
SWISSRAY for the Spare Parts, (3) failure to maintain
the environmental conditions prescribed by SWISSRAY
for Spare Parts, or (4) deviation from SWISSRAY's
recommended maintenance procedures for Spare Parts.
11.3 No Other SWISSRAY Warranty. Except as set forth in section
11.2, above, SWISSRAY makes no warranties, guarantees or
representations, express or implied, to HMSA with respect to
Products, Spare Parts or otherwise. ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED
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WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR USE OR FOR A
PARTICULAR PURPOSE ARE HEREBY EXCLUDED AND DISCLAIMED.
11.4 HMSA Warranty to SWISSRAY. HMSA warrants that it shall (1)
install and service the PRODUCTS in accordance with SWISSRAY's
published specifications, installation procedures, maintenance
manuals and user manuals; (2) not modify PRODUCTS or Spare
Parts; and (3) comply with all applicable federal, state and
local laws, rules, regulations and ordinances including but
not limited to safety standards and FDA requirements, related
to HMSA's obligations under this Agreement.
11.5 No Warranty by HMSA to Customers. HMSA will not make any
warranties, representations or guarantees to any person,
either orally or in writing, in the name or on behalf of
SWISSRAY with respect to Products (or their features or
specifications) or otherwise, except as set forth in
SWISSRAY's written literature distributed by SWISSRAY for that
purpose.
11.6 Damage Limitations
11.6.1 EXCEPT AS PROVIDED IN SECTION 11.6.2 WITH RESPECT TO
DIRECT DAMAGES ARISING OUT OF CLAIMS RELATED TO
PRODUCT OR SPARE PARTS ORDERS AND EXCEPT AS PROVIDED
IN SECTION 12 WITH RESPECT TO THIRD PARTY CLAIMS,
UNDER NO CIRCUMSTANCE WILL SWISSRAY OR HMSA BE
LIABLE FOR ANY DAMAGES, UNDER ANY LEGAL THEORY,
INCLUDING, WITHOUT LIMITATION, BREACH OF WARRANTY,
DIRECT, INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR
CONSEQUENTIAL DAMAGES (EXCEPT FOR CONSEQUENTIAL
DAMAGES RELATING TO PERSONAL INJURY IN JURISDICTIONS
WHERE SUCH DAMAGES MAY NOT BE DISCLAIMED AS A MATTER
OF LAW) OR LOSS OF PROFITS, SUSTAINED BY THE OTHER
PARTY, OR BY ANY PERSON DEALING WITH SUCH OTHER PARTY
IN CONNECTION WITH ANY PRODUCT OR SPARE PARTS ORDER
OR PRODUCTS OR SPARE PARTS COVERED THEREBY.
11.6.2 THE LIABILITY OF EITHER PARTY, IF ANY, FOR DIRECT
DAMAGES IN CONNECTION WITH A BREACH OF THE TERMS AND
CONDITIONS OF THIS AGREEMENT, REGARDLESS OF THE
DELIVERY OR NON-DELIVERY OF PRODUCTS OR SPARE PARTS,
WILL NOT, IN ANY EVENT, BE GREATER THAN THE ACTUAL
PURCHASE PRICE PAID OR TO BE PAID BY HMSA'S CUSTOMER
FOR THE PRODUCTS OR SPARE PARTS WITH RESPECT TO WHICH
SUCH CLAIM IS MADE.
11.7 The provisions of this section 11 shall survive the expiration
or earlier termination of this Agreement.
12. THIRD PARTY CLAIMS.
12.1 SWISSRAY shall indemnify, hold harmless and defend HMSA, its
parents, subsidiaries and affiliates and its and their
officers, directors, agents, employees and each of their
successors and assigns (the "HMSA Indemnified Parties") from
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and against or, in SWISSRAY's sole absolute discretion, shall
settle, any and all third-party claim, loss, liability, cost,
damage and expense including, without limitation, reasonable
attorneys' fees, with respect to which HMSA or the HMSA
Indemnified Parties may suffer (collectively, "Losses")
arising out of (1) alleged product liability solely in
connection with the design or manufacture of the Products; (2)
SWISSRAY's material breach of this Agreement by act or
omission of SWISSRAY, its employees, agents, or contractors,
or otherwise; and (3) alleged infringement of any patent,
copyright, trademark, trade secret or other intellectual
property right solely in connection with the design or
manufacture of the PRODUCTS (collectively, "Patent Claims"),
provided that, SWISSRAY shall have no obligation for Losses
for Patent Claims if PRODUCTS that are the subject of any
Patent Claims have been altered or modified by HMSA or its
customers or have been combined by HMSA with any other product
or have been made to HMSA's specifications or custom made at
HMSA's request.
12.1.1 Notwithstanding anything to the contrary in this
Agreement SWISSRAY's liability for Losses indemnified
under 12.1(2) (but not under 12.1(1) or 12.1(3))
shall be limited to the actual purchase price paid by
HMSA's customer for Spare Parts or PRODUCTS with
respect to which such claim for Losses is made.
12.1.2 In the event a claim is made against SWISSRAY that
PRODUCT or Spare Parts infringe the intellectual
property rights of any third party, SWISSRAY may at
its option (a) obtain a license for HMSA and its
customers to continue to use or to sell the
infringing PRODUCT; or (b) replace or modify the
PRODUCT so that it performs substantially in
accordance with its specifications and avoids the
alleged infringement. Moreover, SWISSRAY may cancel
all orders for PRODUCT or Spare Parts effected by
such Patent Claim and, in such event, HMSA shall use
commercially reasonable efforts to mitigate its
damages. HMSA acknowledges and agrees that SWISSRAY's
liability for cancelling orders for PRODUCT or Spare
Parts pursuant to this section 12.1.2 shall be
limited to the purchase price that would have been
paid by HMSA's customer for such cancelled PRODUCTS
or Spare Parts.
12.2 HMSA shall indemnify, hold harmless and defend SWISSRAY and
its parents, subsidiaries and affiliates and its and their
officers, directors, agents, employees and each of their
successors and assigns (the "SWISSRAY Indemnified Parties")
from and against or, in HMSA's sole absolute discretion, shall
settle, any and all third-party claim, loss, liability, cost,
damage and expense, including, without limitation, reasonable
attorneys' fees, which SWISSRAY or the SWISSRAY Indemnified
Parties may suffer arising out of (1) any act or omission of
HMSA, its employees, agents or contractors in connection with
the satisfaction of HMSA's obligations under this Agreement;
and (2) HMSA's material breach of this Agreement, including
its obligations described in Exhibit C.
12.3 The indemnifications set forth above are conditioned upon
HMSA or SWISSRAY, as the case may be, giving the other party
prompt notice if its receipt of a claim for which
indemnification is sought hereunder. The indemnified party
shall, at no out-of-pocket expense to the indemnifying
party, cooperate with the indemnifying party in respect of
the defense of such matter. The indemnified party shall have
the right, without affecting its indemnity hereunder, to
participate in the administration, defense or settlement of
any such matter at its own expense and with counsel of its
own choosing. The indemnifying party shall not settle any
claim indemnified hereunder without the written consent of
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the indemnified party unless the indemnified party is given
a full and unconditional release in respect of such matter.
12.4 The provisions of this section 12 shall survive the expiration or
earlier termination of this Agreement.
13. CONFIDENTIALITY.
13.1 Each Party shall keep confidential the Intellectual Property
Rights, Activation Codes, technical data, past, present and
future business plans, concepts and designs, drawings,
sketchings, techniques, technologies, systems, processes,
know-how, trade secrets and/or information identified as
confidential (hereinafter referred to as "CONFIDENTIAL
INFORMATION") that it receives from the other party. The
receiving party agrees not to reproduce, disclose such
CONFIDENTIAL INFORMATION to any third party, or to use it for
any purpose not authorized by the disclosing party. The
receiving party agrees to instruct its employees having access
to such CONFIDENTIAL INFORMATION of receiving party's
confidentiality obligations, and further agrees to restrict
access of such CONFIDENTIAL INFORMATION to employees or agents
who have a need to know pursuant to their scope of employment
or agency arrangement. The receiving party agrees to hold the
disclosing party's CONFIDENTIAL INFORMATION in confidence and
to protect such information with the same degree of care used
in protecting the receiving party's similar information, but
in no event, with less than a reasonable degree of care.
13.2 This confidentiality obligation shall not apply to know-how,
data and/or information which is:
13.2.1 demonstrated to be available from public sources or
in the public domain through no fault of the
receiving party, its employees or agents;
13.2.2 demonstrated to be received at any time from any
third party without breach of a nondisclosure
obligation or obligation of secrecy to the disclosing
party or any other party;
13.2.3 demonstrated through proper documentation to have
been developed independently by the receiving party
without reliance on the disclosing party's
CONFIDENTIAL INFORMATION or to have been in the
possession of the receiving party prior to its
disclosure by disclosing party;
13.2.4 required to be disclosed by judicial or governmental
order, provided that, the disclosing party is given
prompt written notice of a request or demand for
disclosure to enable it to seek a protective order or
similar relief; or
13.2.5 approved for disclosure by prior written consent of
an authorized corporate representative of the
disclosing party.
13.3 The provisions of this section 13 shall survive the expiration
or termination of this Agreement.
14. TERM AND TERMINATION.
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14.1 Term. Unless earlier terminated pursuant to section 14.2,
below, this Agreement shall remain in force until the first
anniversary of the Effective Date (the "Term"). This Agreement
may be renewed for additional periods if each party gives
written notice of its intent to renew to the other party not
less than sixty (60) days' prior to the expiration of the
initial or any renewal period. SWISSRAY and HMSA shall consult
during the tenth (10th) month following the Effective Date to
consider whether to renew this Agreement and if so, for how
long and whether the renewal will be for an expanded territory
or otherwise. In reaching such decisions, SWISSRAY shall place
substantial weight on HMSA's performance in respect of
purchase volumes and future commitments to purchase PRODUCTS.
Assuming that HMSA can meet SWISSRAY's marketing needs in
SWISSRAY's sole, good faith discretion, it is SWISSRAY's
present intent to expand the Territory up to and including
exclusivity throughout the United States.
If, after the expiration of the 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 the terms and conditions set forth
herein, except that it will be terminable by either party,
with or without cause, for any reason or for no reason, upon
30 days' written notice to the other party.
14.2 Termination for Cause. Notwithstanding the Term hereof, this
Agreement may by written notice be terminated and canceled at
the option of the party having such right as follows:
14.2.1 By either Party in the event that the other Party
voluntarily files a petition in bankruptcy or has
such a petition involuntarily filed against it, or is
placed in an insolvency proceeding, or if an order is
entered appointing a receiver or trustee for or a
levy attachment is made against a substantial portion
of its assets which voluntary petition, involuntary
petition, insolvency proceeding or order shall not be
vacated, set aside or stayed or a plan of
reorganization shall not accepted within 120 days
after its initiation, or if any assignment for the
benefit of its creditors is made;
14.2.2 By SWISSRAY in the event HMSA shall have infringed
SWISSRAY's Intellectual Property Rights or breached
its obligations in section 13, above;
14.2.3 By either Party in the event that the other Party
shall have failed to cure, upon 30 days' prior
written notice, any breach of a covenant,
representation or warranty made or to be performed
hereunder.
14.2.4 By either Party in the event the other Party shall
merge or consolidate with or into any other entity,
or if either Party shall sell or otherwise dispose of
its capital stock or substantially all of its assets.
15. PROVISIONS AFTER TERMINATION OF THE AGREEMENT. If this Agreement
expires or is sooner terminated:
15.1 SWISSRAY shall continue to supply to HMSA PRODUCT to fulfill
HMSA's open sales orders to HMSA customers prior to notice of
termination of this Agreement, except that, SWISSRAY may
demand full payment immediately upon tender of delivery of
PRODUCT to the destination stated in HMSA's purchase order.
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15.2 SWISSRAY may declare all sums owing from HMSA immediately due
and payable, notwithstanding any credit terms previously
extended or in effect, if SWISSRAY terminates this Agreement
for cause in accordance with section 14.2.
15.3 HMSA shall immediately discontinue use, direct or indirect, of
the Intellectual Property Rights, except that, HMSA may
provide post-warranty service for PRODUCTS to its customers
and SWISSRAY shall continue to supply Spare Parts therefor
pursuant to section 8.3, above.
15.4 Nothing contained herein is intended to prejudice any rights
of the Parties hereto that have accrued prior to the
termination of this Agreement in accordance with its terms or
otherwise, or any rights of the Parties that are intended to
survive any such termination.
16. ARBITRATION AND GOVERNING LAW.
16.1 Arbitration. Except as provided in section 6.5, above, and
except with respect to disputes as to indebtedness arising out
of the sale of Products or Spare Parts, any controversy or
claim arising out of or relating to this Agreement or the
breach thereof, whether common law or statutory, including
without limitation claims asserting violations of the
antitrust laws or RICO, shall be settled exclusively by
arbitration in New York, New York, using the American
Arbitration Association.
16.2 Governing Law. The arbitrators shall apply the internal law of
the State of New York, excluding its conflict-of-laws
principles, in determining the rights, obligations and
liabilities of the parties. The arbitrators shall not have the
power to alter, modify, amend, add to or subtract from any
term or provision of this Agreement, nor to grant injunctive
relief, including interim relief, of any nature, nor to award
punitive damages of any nature. In all other respects, the
Commercial Arbitration Rules of the American Arbitration
Association shall govern the arbitration. Judgment on the
award of the arbitrators may be entered by any Court having
jurisdiction to do so, and the parties to this Agreement
hereby irrevocably consent and submit to the exclusive
personal jurisdiction and venue of the United States District
Court for the Southern District of New York or the Supreme
Court of the State of New York, County of New York, for that
purpose as well as for any and all other permitted purposes in
connection with this Agreement.
16.3 Failure to Arbitrate. The failure or refusal of either party
to submit to arbitration shall constitute a breach of this
Agreement. If judicial action is commenced in order to compel
arbitration, and if arbitration is in fact compelled, the
Party that shall have resisted arbitration shall be required
to pay to the other Party all costs and expenses, including
reasonable attorneys' fees, that it incurs in compelling
arbitration. All other fees and charges of the American
Arbitration Association shall be borne by the losing Party or,
in the event, neither Party is the losing party on all issues,
as the arbitrators shall determine in their award.
16.4 Matters Not Arbitrated. With respect to claims or
controversies that are not the subject of arbitration pursuant
to this Agreement, the rights and obligations of the parties
under this Agreement will be governed by the internal law of
the State of New York, exclusive of its conflict-of-laws
principles. All such causes of action instituted by either
party with respect to this Agreement will be brought solely in
the United States District Court for the Southern District of
New York, or, if that court lacks subject matter jurisdiction,
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then solely in the Supreme Court of the State of New York,
County of New York. For this purpose, the Parties hereby
irrevocably consent to the jurisdiction of the State of New
York over their person, and waive any defense based upon
improper venue, inconvenient venue or lack of jurisdiction.
17. INSURANCE.
SWISSRAY will provide HMSA with documentation of acceptable levels of
product liability insurance coverage (minimum limits of five million
dollars ($5,000,000) each occurrence and in the aggregate) naming HMSA
as an additional insured, related to the PRODUCT.
18. MISCELLANEOUS.
18.1 All changes and amendments to this Agreement must be in
writing, must recite that they are amendments or changes to
this Agreement and must be signed by a corporate officer of
HMSA and a corporate officer of SWISSRAY to be valid. This
requirement of written form can only be waived in writing.
18.2 Notices and communications between SWISSRAY and HMSA required
by this Agreement shall be given in writing and sent by
certified mail, postage prepaid and return receipt requested,
or by fax to the following address of the parties or to such
other address as the party concerned may subsequently notify
in writing to the other party:
If to SWISSRAY to: SWISSRAY America, Inc.
320 West 77th Street, Suite 1A
New York, New York 10024
Attn: Mr. Ueli Laupper, Vice President
Fax No.: 212-545-7912
With a copy to: Piliero Goldstein Jenkins & Hall, LLP
292 Madison Avenue
New York, New York 10017
Attn: Edward J. Goldstein, Esq.
Fax No.: 212-685-2028
If to HMSA to: Hitachi Medical Systems America, Inc.
1959 Summit Commerce Park
Twinsburg, OH 44087
Attn: Mr. Richard L. Ernst, President
& CEO
Fax No.: 330-425-1410
Any such notice if given or made by certified mail as
aforesaid shall be deemed to have been received on the earlier
of the-date actually received and the date five (5) calendar
days after the same was posted and if given or made by fax
shall be deemed to have been received at the time of dispatch,
provided that, a copy of such fax notice is delivered by
certified mail within five (5) calendar days after the same
was faxed. If the date of deemed receipt is not a business
day, the date of deemed receipt shall be the next such
succeeding business day.
18.3 No rights, duties, obligations or interests in this Agreement
shall be assigned by either SWISSRAY or HMSA without the
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written consent of the other Party, and any attempted
assignment, whether voluntarily, involuntarily, by operation
of law or otherwise, shall be wholly void, totally
ineffective, and of no force and effect, and shall not confer
any rights of any kind upon the intended assignee.
18.4 The Parties acknowledge and agree that the Parties are
independent contractors. Nothing in this Agreement shall be
deemed to establish or otherwise create or constitute a
relationship of principal and agent or franchisor and
franchisee between SWISSRAY and HMSA. Neither HMSA nor any of
its agents or employees shall have any right or authority to
assume or create any obligation of any kind, whether express
or implied, on behalf of SWISSRAY or have any authority to
bind SWISSRAY in any respect whatsoever. Neither HMSA nor
SWISSRAY will represent itself, either directly or by
implication, as franchisee or franchisor (as the case may be),
agent, joint venturer, partner or representative of the other
Party.
18.5 The titles to the sections in this Agreement are for
convenience of reference only and are not part of this
Agreement and shall not in any way affect the interpretation
thereof.
18.6 In the event that any of the provisions of this Agreement or
the application of any such provisions to the parties hereto
with respect to their obligations hereunder will be held by a
Court or other tribunal of competent jurisdiction to be
unlawful, invalid, or void or unenforceable, the remaining
provisions of this Agreement will remain in full force and
effect and will in no way be affected, impaired or
invalidated. In the event, however, that any law, order,
regulation, direction, restriction or limitation, or
interpretation thereof, will in the judgment of either Party
substantially alter the relationship between the Parties under
this Agreement, or the advantages derived from such
relationship, either Party may request the other Party hereto
to modify this Agreement, and, if, within 30 days subsequent
to the making of such request, the Parties hereto are unable
to agree upon a mutually satisfactory modification hereof,
then either Party may terminate this Agreement without further
cause on 30 days' notice to the other Party.
18.7 This Agreement together with its Exhibits sets forth the
entire agreement between the parties hereto with respect to
the subject matter hereof and supersedes and cancels any and
all prior or contemporaneous discussions, negotiations,
arrangements and agreements between them, express or implied,
with respect to such subject matter. The Parties acknowledge
that no representations or promises have been made to induce
either of them to enter into this Agreement other than as may
be specifically set forth herein.
18.8 The failure or refusal by either Party 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 of such right
presently or as a modification or amendment of this Agreement,
nor shall such failure or refusal be deemed a custom or
practice contrary to such provision or right. A waiver of any
default by either party of any of the terms and conditions of
this Agreement shall not be deemed to be a continuing waiver
or a waiver of any other default or of any other of these
terms and conditions, but shall apply solely to the instances
to which such waiver is granted.
18.9 (a) This Agreement shall be binding upon and inure to the
benefit of the respective successors and permitted assigns of
the parties hereto. (b) The rights of the Parties under this
Agreement are for the sole benefit of SWISSRAY and HMSA and
are not intended for any other person. (c) The words
"including," "includes," "include" and "covering" as used in
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this Agreement mean, respectively, "including, without
limitation," "includes, without limitation," "include, without
limitation" and "covering, without limitation." (d) References
to sections are to sections in this Agreement and in each case
include references to all subsections under the referenced
section. (e) The words "hereof" "herein" and "hereunder" and
words of similar import shall refer to all applicable
provisions of this document and not to any particular
provision. (f) This Agreement is the result of negotiation
and, accordingly, no presumption or burden of proof will arise
with respect to any ambiguity or question of intent concerning
this Agreement favoring or disfavoring any Party to this
Agreement by virtue of the authorship of any provision of this
Agreement. (g) Words denoting the singular tense or person
shall include the plural and vice versa and references to the
masculine gender shall, where the context permits, include the
feminine and/or neuter genders and vice versa. (h) All
references to statutory provisions shall include all
amendments and re-enactments thereof. (i) The obligations of
the parties that expressly survive the expiration or
termination of this Agreement, or which, by their nature are
intended to survive such expiration or termination, shall so
survive in accordance with their terms or as is required to
give effect to such intention, respectively.
18.10 This Agreement may be executed in multiple counterparts and
duplicate originals, each of which will be deemed enforceable
without production of the others.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their duly authorized officers on the
day and year mentioned below.
SWISSRAY AMERICA, INC. HITACHI MEDICAL SYSTEMS
AMERICA, INC.
By:_____/Ueli Laupper/___________ By:__/Richard L. Ernst__________
------------- -----------------
(authorized signature) (authorized signature)
Name:___Ueli Laupper____________ Name:__Richard L. Ernst________
------------ -----------------
(print or type) (print or type)
Title:_____CEO_________________ Title:___President and CEO_______
--- -----------------
By:____/Michael Baker/___________
-------------
(authorized signature)
Name:____Michael Baker__________
-------------
(print or type)
Title:___Deputy CEO_____________
SWISSRAY America, Inc.
20
<PAGE>
EXHIBIT A
IS NOT BEING FILED WITH THIS REGISTRATION STATEMENT AS A REQUEST FOR
CONFIDENTIALITY WITH RESPECT TO SUCH EXHIBIT HAS BEEN SEPARATELY FILED WITH THE
MATERIAL (EXHIBIT A) FOR WHICH CONFIDENTIALITY IS SOUGHT. THE NUMBER OF PAGES
OMITTED AMOUNTS TO 4 PAGES.
21
<PAGE>
EXHIBIT B
[The Territory]
The Territory shall be the Fifty (50) states of the United States of America,
except the following geographic areas:
1. The States of Alabama, Arizona, Connecticut, Mississippi, Maine,
Massachusetts, New York, Rhode Island, Vermont and New Hampshire.
2. The portion of New Jersey that includes the Atlantic City Expressway
and north.
3. The following counties in the State of Pennsylvania:
Allegheny, Clinton, Mercer, Armstrong, and Crawford, Mifflin,
Beaver, Elk, Potter, Butler, Erie, Venago, Cambria, Forest,
Warren, Cameron, Indiana, Washington, Center, Jefferson,
Westmoreland, Clarion, Lawrence, Clearfield and McKean.
4. The following counties in the State of California:Orange and San Diego.
5. The Panhandle of Florida - Tallahassee west.
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<PAGE>
EXHIBITS C, D, E, F AND G
ARE NOT BEING FILED WITH THIS REGISTRATION STATEMENT AS A REQUEST FOR
CONFIDENTIALITY WITH RESPECT TO SUCH EXHIBITS HAVE BEEN SEPARATELY FILED WITH
THE MATERIAL (EXHIBIT C, D, E, F and G) FOR WHICH CONFIDENTIALITY IS SOUGHT. THE
NUMBER OF PAGES OMITTED AMOUNTS TO 11 PAGES.
23
----------------------------------
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: $999,999
This offering consists of 333,333 shares of Swissray International, Inc. Common
Stock
--------------------
SUBSCRIPTION AGREEMENT
-------------------
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<PAGE>
SUBSCRIPTION PROCEDURES
A total of 333,333 shares (the "Shares") of the common stock of
SWISSRAY INTERNATIONAL, INC.. (the "Company") are being offered in an aggregate
amount not to exceed $999,999. The Shares 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 "Offering").
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 Attorney. 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 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
2
<PAGE>
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
shares of common stock (the "Shares"). The Shares being offered will be
separately transferable, to the extent that any such transfer is permitted by
law. 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 333,333
Shares. This Offering is comprised of an offering of the Shares to accredited
investors 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 _________ Shares for $_________ Joseph B. LaRocco, Esq. shall act as
escrow agent and notify the Purchaser when he has received the signed
Subscription Agreement (and Exhibits thereto), signed Registration Rights
Agreement and Common Stock from the Company, at which time the Purchaser shall
wire the Purchase Price to the escrow agent. The Purchaser entering into this
Subscription Agreement shall pay the Purchase Price for the Shares by delivering
immediately available good funds in United States Dollars to the escrow agent
per the wire instructions set forth on page two (2) of this Subscription
Agreement. Once the escrow agent is in receipt of the Common Stock, and Purchase
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<PAGE>
Price he shall deliver the Common Stock to the Purchaser and wire the funds,
less consulting fees and escrow fees, to the Company. The closing shall be
deemed to have occurred on the date the Purchase Price, less fees, is wired to
the Company or its attorney, (the "Closing Date").
(b) Upon receipt by the Company of the requisite payment for the Shares
being purchased the Shares so purchased will be forwarded by the Company to the
Purchaser and the name of such Purchaser will be registered on the Shares
transfer books of the Company as the record owner of such Shares. 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.
(c) The Company shall have the option of repurchasing the Shares issued
to Purchaser in this offering as follows: During the sixty (60) calendar day
period following the Closing Date, the Company may at its option purchase any
balance of Shares still owned by the Purchaser at a price of $5.00 per share.
From the sixty-first (61st) calendar day following the Closing Date through and
including the ninetieth (90th) calendar day following the Closing Date, the
Company may at its option purchase any balance of Shares still owned by the
Purchaser at a price of $6.00 per share. From the ninety-first (91st) calendar
day following the Closing Date through and including the one hundred twentieth
(120th) calendar day following the Closing Date, the Company may at its option
purchase any balance of Shares still owned by the Purchaser at a price of $7.00
per share. The Shares shall be repurchased by the Company sending written notice
to the Purchaser and wiring funds to a designated escrow agent. The Purchaser
shall forward the Shares to be repurchased to the escrow agent upon notice from
the transfer agent of the funds so received.
2. REPRESENTATIONS AND WARRANTIES.
------------------------------
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
4
<PAGE>
(a) The undersigned has been furnished with, and has carefully read the
applicable form of Registration Rights Agreement annexed hereto as Exhibit A
(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 Shares, 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-K for the fiscal year ended June 30, 1999 and Forms 10-Q for the three
preceding quarters (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 Shares
without registration under the Act or applicable state securities laws or an
exemption therefrom. The Shares have not been registered under the Act or under
the securities laws of any states. The Shares are to be registered by the
Company pursuant to the terms of the Registration Rights Agreement attached
hereto as Exhibit A and incorporated herein and made a part hereof. The
undersigned represents that the undersigned is purchasing the Shares 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 Shares being acquired nor does the undersigned have
any present intention of dividing the Shares with others or of selling,
distributing or otherwise disposing of any portion of the Shares 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 Shares.
(e) The undersigned recognizes that an investment in the Shares
involves substantial risks, including loss of the entire amount of such
investment.
(f) Legends.
-------
5
<PAGE>
(i) The undersigned acknowledges that each
certificate representing the Shares 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, THESE SECURITIES 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 Shares shall contain the following legend
until the 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) After the effective date of the Registration
Statement the Shares 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 Shares and (b) to purchase and hold the Shares: (ii) the signature of the
6
<PAGE>
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 Shares, 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 Shares 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 Shares 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 Shares and to make an informed investment decision with
respect thereto.
(k) The Purchaser is purchasing the Shares 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 Shares or the
Common Stock issuable upon conversion thereof and is not participating in the
distribution or resale of the Shares.
7
<PAGE>
(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
Shares 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.
(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 Shares, 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 currently: (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 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.
8
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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 B,
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 Shares or would
be reasonably likely to render this Subscription Agreement or the Shares, or any
portion thereof, invalid or unenforceable.
(f) Issuance of the Shares. 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 Shares; 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
Shares 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 Shares or render the Subscription Agreement or
the Shares, 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
9
<PAGE>
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 Shares 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 Shares, 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.
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<PAGE>
(k) Prior Shares Issued Under Regulation D. In the past nine
months the Company raised $13,591,200 in Regulation D offerings, including
redemptions and rollovers.
(l) Current Authorized Shares. As of February 10, 2000 there were
50,000,000 authorized shares of Common Stock of which approximately 14,576,031
shares were 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, if any, 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 for the year ended June 30, 1999 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 Shares 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) Non-contravention. The execution and delivery of this Agreement by
the Company, the issuance of the Shares, and the consummation by the Company of
the other transactions contemplated by this Agreement, 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,
11
<PAGE>
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.
(p) No Default. Except as may be set forth in the Company's report on
form 10-K for the fiscal year ending June 30, 1999, 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 Shares, 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.
(q) Use of Proceeds. The Company represents that the net proceeds
of this offering will be primarily used for working capital.
4. ISSUANCE OF SHARES AND REGISTRATION.
(a) Legend. Upon registration of the Shares, the Company shall deliver
to the Purchaser, or per the Purchaser's instructions, the shares of Common
Stock, subject to the following restrictive legend:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN INCLUDED IN THE COMPANY'S
REGISTRATION STATEMENT INITIALLY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON ____________, 2000, AND MAY BE SOLD IN
ACCORDANCE WITH THE COMPANY'S PROSPECTUS DATED ________, 2000, WHICH
FORMS A PART OF SUCH REGISTRATION STATEMENT, OR AN OPINION OF COUNSEL
OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
(b) Opinion Letter. 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
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<PAGE>
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 date of issuance. Upon
surrender of any Share certificates that are to be sold in part, the Company
shall issue to the Purchaser new Share Certificates equal to the unsold amount.
(c) Once the Common Stock has been registered, if the Common Stock is
not delivered per the written instructions of the Purchaser, within 5 (five)
business days after the Company receives the Share certificates from the
Purchaser, then in such event the Company shall pay to Purchaser one-half of one
percent (.50%) in cash, of the purchase price of the Shares delivered to the
Company per each day after the fifth business day following the receipt by the
Company that the Common Stock is not delivered. The Company acknowledges that
its failure to deliver the Common Stock within said five (5) business days 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 Subscription Agreement.
The Company shall make any payments incurred under this Section 4(c) in
immediately available funds within three (3) business days from the date of
issuance of the applicable Common Stock. Nothing herein shall limit a
Purchaser's right to pursue actual damages for the Company's failure to issue
and deliver Common Stock to the Purchaser within five (5) business days after
registration and after the Company receives the Share certificates from the
Purchaser.
(d) The Company shall at all times reserve and have available all
Common Stock necessary for registration of all the Shares purchased by all
Purchasers of the Shares. If, at any time the Company does not have sufficient
authorized but unissued shares of Common Stock available for registration
("Default", the date of such default being referred to herein as the "Default
Date"), the Company shall issue to the Purchaser all of the shares of Common
Stock which are available. The Company shall provide notice of such Default
("Notice of Default") to all Purchasers, within one (1) business day of such
default (with the original delivered by overnight or two day courier).
The Company agrees to pay to all Purchasers of outstanding Shares
payments for a Default ("Default Payments") in the amount of (N/365) x (.24) x
the initial issuance price of the outstanding Shares held by each Purchaser
where N = the number of days from the Default Date to the date (the
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<PAGE>
"Authorization Date") that the Company authorizes a sufficient number of shares
of Common Stock to effect of all remaining Shares. The Company shall send notice
("Authorization Notice") to each Purchaser of outstanding Shares that additional
shares of Common Stock have been authorized, the Authorization Date and the
amount of Purchaser's accrued Default Payments. The accrued Default shall be
paid in cash which payments shall be made to such Purchaser of outstanding
Shares by the fifth day of the following calendar month following registration
of all the Shares.
5. Limits on Amount of Conversion and Ownership.
Notwithstanding the provisions hereof, in no event except with respect
to a conversion pursuant to redemption by the Company 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 own the number of shares of Common Stock
beneficially owned by the Purchaser and its affiliates, and, would result in
beneficial ownership by the Purchaser and its affiliates of more than 4.99% of
the outstanding shares of Common Stock. 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 Shares 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.
14
<PAGE>
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 C. 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 A.
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 Shares.
(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 Shares, 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 Shares.
(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 SHARES 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 SHARES 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
15
<PAGE>
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.
8. 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 Purchaser 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 Purchaser 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 Purchaser or
the Company. The Company acknowledges and agrees that it has received full and
16
<PAGE>
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.
9. 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., 320 West 77th Street, Suite 1A, New
York, New York 10024 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 9(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, and C
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
17
<PAGE>
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)
18
<PAGE>
SWISSRAY INTERNATIONAL, INC.
CORPORATION QUESTIONNAIRE
Investor Name: Dundurn Street LLC
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned CORPORATION'S Subscription to
purchase the Shares 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 Shares 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 Shares and (c) has
its principal place of business in ___________.
2. Each of the shareholders of the undersigned
CORPORATION is able to certify that such shareholder
meets at least one of the following three conditions:
(a) the shareholder is a natural person whose individual net worth* or
joint net worth with his or her spouse exceeds $1,000,000; or
(b) the shareholder is a natural person who had
an individual income* in excess of $200,000
in each of 1998 and 1999 and who reasonably
expects an individual income in excess of
$200,000 in 2000; or
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<PAGE>
(c) Each of the shareholders of the undersigned
CORPORATION is able to certify that such
shareholder is a natural person who,
together with his or her spouse, has had a
joint income in excess of $300,000 in each
of 1998 and 1999 and who reasonably expects
a joint income in excess of $300,000 during
2000; 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
X 4. The undersigned is an entity in which all of the
equity owners are accredited investors.
20
<PAGE>
II. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a) That the CORPORATION'S purchase of the Shares 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: Corporate Centre, Windwood One, West Bay Road, PO
Box 31106 SWB, Grand Caymans, Cancun Islands
- ----------------------------------------------------------------
Address for Correspondence (if different): SAME
-----------
(Number and Street)
- ----------------------------------------------------------------
(City) (State) (Zip Code)
Telephone Number:________________________________________________
(Area Code) (Number)
Jurisdiction of Incorporation: Cayman Islands
Date of Formation:_________________________________________________
Taypayer Identification Number: N/A______________________________________
Number of Shareholders:____________________________________________
(b) INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
CORPORATION.
Name:___________________________________________________________
Position or Title:__________________________________________________
21
<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 Shares and sign this Subscription Agreement on
behalf of _______________ and, further, that ____________________ has all
requisite authority to purchase the Shares and enter into this Subscription
Agreement.
333,333 March 14, 2000
- -------------------------- --------------------------
Number of Shares subscribed for Date
Dubdurn Street LLc
------------------------------
(Purchaser)
By: (illegible)_______________________
(Signature)
Name: ____________________
(Please Type or Print)
Title: _____________________
(Please Type or Print)
THE SHARES 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.
22
<PAGE>
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted
and agreed to this ____ day of February, 2000
SWISSRAY INTERNATIONAL, INC.
BY/s/ Ruedi G. Laupper
Ruedi G. Laupper, its Chairman and President
duly authorized
23
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 11, 2000,
("this Agreement"), is made by and between SWISSRAY INTERNATIONAL, INC. a New
York corporation (the "Company"), and the entity 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, between the Initial Investor and the Company (the
"Subscription Agreement"), the Company has agreed to issue and sell to the
Initial Investor shares of the company's common stock, $.01 par value (the
"Shares"), of the Company upon the terms and subject to the conditions set forth
in the Subscription Agreement; 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" as used in this Agreement and the Subscription
Agreement between the Company and Initial Investor shall mean the date the
purchase price, less fees, is wired to the Company or its attorney.
(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").
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(iv) "Registrable Securities" means the 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 hereby grants to the Initial
Investor piggy-back registration rights in the Company's most recent
Registration Statement. The Company shall include in its current Registration
Statement the Registrable Securities. 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.
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(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 ninety (90) calendar days following
the Closing 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 ninety (90) 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 ninety (90) calendar day period
following 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 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 and the Subscription Agreement.
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3. Obligation of the Company. In connection with the registration
of the Registrable Securities, the Company shall do each of the following:
(a) Either include the Registrable Securities in the Company's current
Registration Statement or file an amendment to the Company's current
Registration Statement to include the Registrable Securities, 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) ninety (90) days after the Closing
Date, and keep the Registration Statement effective at all times until the
earliest (the "Registration Period") of (i) the date that is two years after the
Closing Date (ii) the date when the Investors may sell all Registrable
Securities under Rule 144 without volume limitations 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
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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
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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
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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
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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.
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(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
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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, 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.
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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., 320 West 77th Street, Suite 1A, New York, New York
10024 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.
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(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.
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:/s/ Ruedi G. Laupper
Name: Ruedi G. Laupper
Title: Chairman and President
By: (illegible)
Name: Dundurn Street LLC
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement"), effective as of March 29, 2000 is
entered into by and between SWISSRAY INTERNATIONAL, INC., a New York corporation
(herein referred to as the "Company") and LIVIAKIS FINANCIAL COMMUNICATIONS,
INC., a California corporation (herein referred to as the "Consultant").
RECITALS
WHEREAS, Company is a publicly-held corporation with its common stock traded on
the OTC Bulletin Board; and
WHEREAS, Consultant has experience in the area of investor communications and
financial and investor public relations; and
WHEREAS, Company desires to engage the services of Consultant to assist and
consult with the Company in matters concerning investors' communications and
public relations with existing shareholders, brokers, dealers and other
investment professionals as to the Company's current and proposed activities;
NOW THEREFORE, in consideration of the promises and the mutual covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. Term of Consultancy. Company hereby agrees to retain the Consultant to
act in a consulting capacity to the Company, and the Consultant hereby agrees to
provide services to the Company commencing March 29,2000 and ending on March 28,
2001 .
2. Duties of Consultant. The Consultant agrees that it will generally
provide the following specified consulting services through its officers and
employees during the term specified in Section 1.:
(a) Advise and assist the Company in developing and implementing
appropriate plans and materials for presenting the Company and its business
plans, strategy and personnel to the financial community, establishing an image
for the Company in the financial community, and creating the foundation for
subsequent financial public relations efforts;
(b) Introduce the Company to the financial community;
(c) With the cooperation of the Company, maintain an awareness during
the term of this Agreement of the Company's plans, strategy and personnel, as
they may evolve during such period, and advise and assist the Company in
communicating appropriate information regarding such plans, strategy and
personnel to the financial community;
(d) 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;
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(e) Perform the functions generally assigned to investor/stockholder
relations and public relations departments in major corporations, including
responding to telephone and written inquiries (which may be referred to the
Consultant by the Company); preparing press releases for the Company with the
Company's involvement and approval or reviewing press releases, reports and
other communications with or to shareholders, the investment community and the
general public; advising with respect to the timing, form, distribution and
other matters related to such releases, reports and communications; and
consulting with respect to corporate symbols, logos, names, the presentation of
such symbols, logos and names, and other matters relating to corporate image;
(f) Upon the Company's approval, disseminate information regarding
the Company to shareholders, brokers, dealers, other investment community
professionals and the general investing public;
(g) Upon the Company's approval, conduct meetings, in person or by
telephone, with brokers, dealers, analysts and other investment professionals to
advise them of the Company's plans, goals and activities, and assist the Company
in preparing for press conferences and other forums involving the media,
investment professionals and the general investment public;
(h) At the Company's request, review business plans, strategies,
mission statements budgets, proposed transactions and other plans for the
purpose of advising the Company of the investment community implications
thereof; and,
(i) Otherwise perform as the Company's financial relations and public
relations consultant.
3. Allocation of Time and Energies. The Consultant hereby promises to perform
and discharge faithfully the responsibilities which may be assigned to the
Consultant from time to time by the officers and duly authorized representatives
of the Company in connection with the conduct of its financial and investor
public relations and communications activities, so long as such activities are
in compliance with applicable securities laws and regulations. Consultant and
staff shall diligently and thoroughly provide the consulting services required
hereunder. Although no specific hours-per-day requirement will be required,
Consultant and the Company agree that Consultant will perform the duties set
forth herein above in a diligent and professional manner. The parties
acknowledge and agree that a disproportionately large amount of the effort to be
expended and the costs to be incurred by the Consultant and the benefits to be
received by the Company are expected to occur within or shortly after the first
two months of the effectiveness of this Agreement. It is explicitly understood
that Consultant's performance of its duties hereunder will in no way be measured
by the price of the Company's common stock, nor the trading volume of the
Company's common stock. It is also understood that the Company is entering into
this Agreement with Liviakis Financial Communications, Inc. ("LFC"), a
corporation and not any individual member of LFC, and, as such, Consultant will
not be deemed to have breached this Agreement if any member, officer or director
of LFC leaves the firm or dies or becomes physically unable to perform any
meaningful activities during the term of the Agreement, provided the Consultant
otherwise performs its obligations under this Agreement.
4. Remuneration. As full and complete compensation for services described in
this Agreement, the Company shall compensate LFC as follows:
4.1 For undertaking this engagement and for other good and valuable
consideration, the Company agrees to issue and deliver to the Consultant a
"Commencement Bonus" payable in the form of 490,000 fully vested and
non-forfeitable shares of the Company's Common Stock ("Common Stock"). This
Commencement Bonus shall be issued to the Consultant immediately following
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execution of this Agreement and shall, when issued and delivered to Consultant,
be fully paid and non-assessable. The Company understands and agrees that
Consultant has foregone significant opportunities to accept this engagement and
that the Company derives substantial benefit from the execution of this
Agreement and the ability to announce its relationship with Consultant. The
490,000 shares of Common Stock issued as a Commencement Bonus, therefore,
constitute payment for Consultant's agreement to consult to the Company and are
a nonrefundable, non-apportionable, and non-ratable retainer; such shares of
common stock are not a prepayment for future services. If the Company decides to
terminate this Agreement prior to March 28, 2001 for any reason whatsoever, it
is agreed and understood that Consultant will not be requested or demanded by
the Company to return any of the shares of Common Stock paid to it as
Commencement Bonus hereunder. The shares of Common Stock issued pursuant to this
Agreement shall be issued in the name of Liviakis Financial Communications, Inc.
4.2 In addition to the 490,000 share Commencement Bonus, for performance
under this agreement the Company shall pay a Consultant Fee, payable in the form
of 36,000 shares per annum of the Company's Common Stock. This Consultancy Fee
shall be issued to the Consultant on execution of this Agreement.
4.3 With each transfer of shares of Common Stock to be issued pursuant to
this Agreement (collectively, the "Shares"), Company shall cause to be issued a
certificate representing the Common Stock and a written opinion of counsel for
the Company stating that said shares are validly issued, fully paid and
non-assessable and that the transfer of them to Consultant has been duly
authorized by the Company. Company warrants that all Shares transferred to
Consultant pursuant to this Agreement shall have been validly issued, fully paid
and non-assessable and that the transfer of them to Consultant shall have been
duly authorized by the Company's board of directors.
4.4 Consultant acknowledges that the shares of Common Stock to be issued
pursuant to this Agreement (collectively, the "Shares") have not been registered
under the Securities Act of 1933, and accordingly are "restricted securities"
within the meaning of Rule 144 of the Act. As such, the Shares may not be resold
or transferred unless the Company has received an opinion of counsel reasonably
satisfactory to the Company that such resale or transfer is exempt from the
registration requirements of that Act.
4.5 In connection with the acquisition of Shares hereunder, the
Consultant represent and warrant to the Company as follows:
(a) Consultant acknowledges that the Consultant has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of the Company concerning an investment in the
Shares, and any additional information which the Consultant has requested.
(b) Consultant's investment in restricted securities is reasonable in
relation to the Consultant's net worth, which is in excess of ten (10) times the
Consultant's cost basis in the Shares. Consultant has had experience in
investments in restricted and publicly traded securities, and Consultant has had
experience in investments in speculative securities and other investments which
involve the risk of loss of investment. Consultant acknowledges that an
investment in the Shares is speculative and involves the risk of loss.
Consultant has the requisite knowledge to assess the
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relative merits and risks of this investment without the necessity of relying
upon other advisors, and Consultant can afford the risk of loss of his entire
investment in the Shares. Consultant is (i) an accredited investor, as that term
is defined in Regulation D promulgated under the Securities Act of 1933, and
(ii) a purchaser described in Section 25102 (f) (2) of the California Corporate
Securities Law of 1968, as amended.
(c) Consultant is acquiring the Shares for the Consultant's own
account for long-term investment and not with a view toward resale or
distribution thereof except in accordance with applicable securities laws.
5. Financing "Finder's Fee". It is understood that in the event Consultant
introduces Company, or its nominees, to a lender or equity purchaser, not
already having a preexisting relationship with the Company, with whom Company,
or its nominees, ultimately finances or causes the completion of such financing,
Company agrees to compensate Consultant for such services with a "finder's fee"
in the amount of 2.5% of total gross funding provided by such lender or equity
purchaser, such fee to be payable in cash. This 2.5% will be in addition to any
fees payable by Company to any other intermediary, if any, which shall be the
subject of separate agreements negotiated between Company and such other
intermediary. It is also understood that in the event Consultant introduces
Company, or its nominees, to an acquisition candidate, either directly or
indirectly through another intermediary, not already having a preexisting
relationship with the Company, which Company, or its nominees, ultimately
acquires or causes the completion of such acquisition, Company agrees to
compensate Consultant for such services with a "finder's fee" in the amount of
2% of total gross consideration provided by such acquisition, such fee to be
payable in cash. This 2% will be in addition to any fees payable by Company to
any other intermediary, if any, which shall be the subject of separate
agreements negotiated between Company and such other intermediary. It is
specifically understood that Consultant is not and does not hold itself out be a
Broker/Dealer, but is rather merely a "Finder" in reference to the Company
procuring financing sources and acquisition candidates.
5.1 It is further understood that Company, and not Consultant, is
responsible to perform any and all due diligence on such lender, equity
purchaser or acquisition candidate introduced to it by Consultant under this
Agreement, prior to Company receiving funds or closing on any acquisition.
However, Consultant will not introduce any parties to Company about which
Consultant has any prior knowledge of questionable, unethical or illicit
activities.
5.2 Company agrees that said compensation to Consultant shall be paid in
full at the time said financing or acquisition is closed, such compensation to
be transferred by Company to Consultant within seven (7) business days of the
execution of the financing of acquisition closing document. Payment of said
compensation, will be a condition precedent to the closing of such financing or
acquisition, and Company shall execute any and all documents necessary to effect
said compensation.
5.3 As further consideration to Consultant, Company, or its nominees,
agrees to pay with respect to any financing or acquisition candidate provided
directly or indirectly to the Company by any lender or equity purchaser covered
by this Section 5 during the period of one year from the date of this Agreement,
a fee to Consultant equal to that outlined in Section 5 herein.
5.4 Consultant will notify Company of introductions it makes for
potential sources of financing or acquisitions in a timely manner (within
approximately 3 days of introduction) via facsimile memo. If Company has a
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preexisting relationship with such nominee and believes such party should be
excluded from this Agreement, then Company will notify Consultant immediately
within twenty-four (24) hours of Consultant's facsimile to Company of such
circumstance via facsimile memo.
6. Expenses. Consultant agrees to pay for all its expenses (phone, mailing,
labor, etc.), other than extraordinary items (travel required by/or specifically
requested by the Company, luncheons or dinners to large groups of investment
professionals, mass faxing to a sizable percentage of the Company's
constituents, investor conference calls, print advertisements in publications,
etc.) approved by the Company prior to its incurring an obligation for
reimbursement.
7. Assignment of Voting Rights. Consultant hereby agrees that throughout the
period of time that it retains beneficial ownership of all or any portion of the
490,000 shares of Company Common Stock (referred to in paragraph 4.1 hereof as
"commencement bonus" shares) as well as those additional shares as may be issued
to it in accordance with paragraph 4.2 of this Agreement, all of which shares of
Common Stock are to be delivered to Consultant pursuant to this Consulting
Agreement that Consultant will (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. Additionally, Consultant agrees that at the
written request of Ruedi G. Laupper it will provide Mr. Laupper or his designee
with an irrevocable proxy to vote all or any portion of the above referenced
shares of Company Common Stock to which Consultant retains beneficial ownership
at any meetings of the shareholders of the Company or to execute on behalf of
Consultant any consents of shareholders to actions being taken by the
shareholders of the Company.
8. Indemnification. The Company warrants and represents that all oral
communications, written documents or materials furnished to Consultant by the
Company with respect to financial affairs, operations, profitability and
strategic planning of the Company are accurate and Consultant may rely upon the
accuracy thereof without independent investigation. The Company will protect,
indemnify and hold harmless Consultant against any claims or litigation
including any damages, liability, cost and reasonable attorney's fees as
incurred with respect thereto resulting from Consultant's communication or
dissemination of any said information, documents or materials not designated by
the Company to the Consultant as "confidential" or "Company private" excluding
any such claims or litigation resulting from Consultant's communication or
dissemination of information not provided or authorized by the Company.
9. Representations. Consultant represents that it is not required to maintain
any licenses and registrations under federal or any state regulations necessary
to perform the services set forth herein. Consultant acknowledges that, to the
best of its knowledge, the performance of the services set forth under this
Agreement will not violate any rule or provision of any regulatory agency having
jurisdiction over Consultant. Consultant acknowledges that, to the best of its
knowledge, Consultant and its officers and directors are not the subject of any
investigation, claim, decree or judgment involving any violation of the SEC or
securities laws. Consultant further acknowledges that it is not a securities
Broker Dealer or a registered investment advisor. Company acknowledges that, to
the best of its knowledge, that it has not violated any rule or provision of any
regulatory agency having jurisdiction over the Company. Company acknowledges
that, to the best of its knowledge, Company is not the subject of any
investigation, claim, decree or judgment involving any violation of the SEC or
securities laws.
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10. Legal Representation. The Company acknowledges that it has been represented
by independent legal counsel in the preparation of this Agreement. Consultant
represents that it has consulted with independent legal counsel and/or tax,
financial and business advisors, to the extent the Consultant deemed necessary.
11. Status as Independent Contractor. Consultant's engagement pursuant to this
Agreement shall be as independent contractor, and not as an employee, officer or
other agent of the Company. Neither party to this Agreement shall represent or
hold itself out to be the employer or employee of the other. Consultant further
acknowledges the consideration provided hereinabove is a gross amount of
consideration and that the Company will not withhold from such consideration any
amounts as to income taxes, social security payments or any other payroll taxes.
All such income taxes and other such payment shall be made or provided for by
Consultant and the Company shall have no responsibility or duties regarding such
matters. Neither the Company or the Consultant possess the authority to bind
each other in any agreements without the express written consent of the entity
to be bound.
12. Attorney's Fee. If any legal action or any arbitration or other proceeding
is brought for the enforcement or interpretation of this Agreement, or because
of an alleged dispute, breach, default or misrepresentation in connection with
or related to this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs in connection
with that action or proceeding, in addition to any other relief to which it or
they may be entitled.
13. Waiver. The waiver by either party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such other party.
14. Notices. All notices, requests, and other communications hereunder shall
be deemed to be duly given if sent by U.S. mail, postage prepaid, addressed to
the other party at the address as set forth herein below:
To the Company:
Swissray International, Inc.
Ruedi G. Laupper
Chairman
320 West 77th Street, Ste 1A
New York, NY 10024
With a copy to:
Gary B. Wolff, P.C.
747 Third Avenue
New York, NY 10017
To the Consultant:
Liviakis Financial Communications, Inc.
John M. Liviakis, President
495 Miller Avenue
Mill Valley, CA 94941
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With a copy to:
Hasse Molesky Law Offices
Lizbeth Hasse
530 Jackson Street, 3rd Floor
San Francisco, CA 94133
It is understood that either party may change the address to which
notices for it shall be addressed by providing notice of such change to the
other party in the manner set forth in this paragraph.
14. Choice of Law, Jurisdiction and Venue. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the State of
California. The parties agree that San Francisco County, CA. will be the venue
of any dispute and will have jurisdiction over all parties.
15. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the alleged breach thereof, or relating to Consultant's activities
or remuneration under this Agreement, shall be settled by binding arbitration in
California, in accordance with the applicable rules of the American Arbitration
Association, and judgment on the award rendered by the arbitrator(s) shall be
binding on the parties and may be entered in any court having jurisdiction as
provided by Paragraph 14 herein. The provisions of Title 9 of Part 3 of the
California Code of Civil Procedure, including section 1283.05, and successor
statutes, permitting expanded discovery proceedings shall be applicable to all
disputes that are arbitrated under this paragraph.
16. Complete Agreement. This Agreement contains the entire agreement of the
parties relating to the subject matter hereof. This Agreement and its terms may
not be changed orally but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
AGREED TO:
"Company" SWISSRAY INTERNATIONAL, INC.
Date: April 5, 2000 By: _/Ruedi G. Laupper/__________
------------------
Ruedi G. Laupper, Chairman
"Consultant" LIVIAKIS FINANCIAL COMMUNICATIONS, INC.
Date: April 4, 2000 By:_/John M. Liviakis/_________
------------------
John M. Liviakis, President
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Consulting Agreement with Liviakis Financial Communications, Inc.
On March 29, 1999 the Company entered into a one year Consulting
Agreement ^ 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 fully vested, and non-forfeitable 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. Notwithstanding the
fact that the March 29, 1999 agreement permitted the Company to extend same (for
an additional year) under the same terms and conditions excepting for annual
remuneration, the Company and LFC agreed to renegotiate remuneration. As a
result thereof the parties (on March 29, 2000) entered into a new one year
"Consulting Agreement", which Agreement is virtually identical to the initial
Agreement (including but not limited to voting rights on shares issued as
referred to directly above) excepting that (a) the "Remuneration" section
provides for the issuance of 490,000 fully vested non-forfeitable shares of the
Company's common stock and further provides for the issuance of 36,000
restrictive shares of Company common stock (based on 3,000 shares per month)
throughout the period of Consultant's performance and (b) LFC has agreed to
"lock up" the original 3,000,000 shares issued to it and not attempt to sell
same through Rule 144 or otherwise despite being eligible to do so with such
"lock up" to continue to March 28, 2001 unless the current consulting agreement
is terminated or the Company is acquired by another entity prior to March 28,
2001. Since both the initial Agreement referred to above and the new Agreement
entered into on March 29, 2000 are identical in all material respects excepting
as indicated above, such Consulting Agreements are hereinafter referred to
collectively as "Consulting Agreement". 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.
READ AND AGREED TO:
By: /s/ John Liviakis, President
John Liviakis, President
LIVIAKIS FINANCIAL COMMUNICATIONS, INC.
By: /John Liviakis/
John Liviakis, President
Date: April 26, 2000
AGREEMENT No.
Concluded between:
Swissray Medical AG hereinafter to be called SELLER,
Turbistrasse 25-27,
CH-628 Hochdorf,
Switzerland
And
MINISTRY OF HEALTH hereinafter to be called
1-3 , Ministerului St., Sector 1 PURCHASER respectively
Bucharest ROMANIA Beneficiary
Whereas
The Ministry of Health of Romania has invited Companies to offer High Technology
Digital Radiology Equipment through a tender procedure.
Swissray's offer (Annex I) was accompanied with a financing proposal from ABN
AMRO Bank N.V. to enable the Purchaser to extend the payment of the involved
equipment.
Swissray has been granted the order for Lot 4; Direct Digital Radiology,
it has now been agreed between parties as follows:
<PAGE>
ART. 1 OBJECT OF THE AGREEMENT:
PURCHASE OF DIGITAL RADIOLOGY EQUIPMENT
1.1 The Goods: 32 units of ddRMulti-System to be supplied are
described in Annex I which is part of this Agreement.
The following changes are made to Annex I:
- environmental temperature of functioning: +10-+40grd.C
- the 80 kW X-ray Generator can be set-up to 65kW or 50kW
by software programming.
ART. 2 TOTAL VALUE OF THE AGREEMENT
2.1 The total value of the Agreement is 13'856'000.00 USD
(thirteen million eight hundred fifty six thousand
United States dollars).
32 units X 433'000.- USD = 13'856'000.- USD
ART. 3 PRICE CLAUSE
3.1 The prices are firm and no variations will be made
during the validity of the Agreement The prices
include cost for installation, warranty-service,
transportation, related insurance, commissioning and
training and exclude all taxes, state charges and fees
whatsoever payable in Romania as well as customs
clearance costs.
<PAGE>
ART. 4 PAYMENT CONDITIONS
4.1. Payment to be made by Purchaser to Seller in USD as follows:
o 15% of the order amount by advance payment within 30
days from entering into force of the present Agreement
and of the Loan Agreements between Purchaser and ABN AMRO
Bank N.V., by presentation of the following documents:
- commercial invoice over 15% of the total agreement amount
- copy of the performance bond over 10% of the total
agreement amount
- copy of the present agreement
- copy of the loan agreement
o 85% of the order amount against shipping documents
and a copy of the loan agreement over 85%, payable
under an Irrevocable Letter of Credit (see ANNEX
II),
Seller will hold full title to all equipment until
full and unencumbered payment has been received.
Payments to be made to Seller within the framework of
Export Finance Agreements to be concluded between the
Purchaser and ABN AMRO Bank N.V.
<PAGE>
4.2 The Seller guarantees the good execution of the
present agreement with a Performance Bond over 10% of
the total amount of this agreement, issued by ABN AMRO
Bank N.V., with a validity period of 30 days after the
installation of the 32nd equipment.
The Performance Bond will be reimbursed partially in
an amount of 50% of its total value, within 30 days
after presentation of the Acceptance Certificates
(Annex V) for the first 16 units delivered and
installed. After opening of the Performance Bond, the
Romanian Ministry Of Health will immediately return
the Bid Bond over 600'000.- USD to the issuing bank.
ART. 5. DELIVERY TERMS
5.1. Delivery schedule is specified in Annex I.
Delivery time begins from the moment this Agreement
is in force according to Art. 14 hereafter.
5.2 The date of delivery is the day when transportation
documents are issued.
5.3 Delays due to custom clearance in Romania will
not be considered as late delivery caused by the
Seller.
5.4 The Seller undertakes to pack the Goods in adequate
packing materials, suitable to the Goods and the means
of transportation.
5.5 The seller through his representative in Romania
"Swissray Romania s.r.l." will fulfil the custom
formalities in Romania on behalf of the Purchaser.
5.6 The Seller will deliver to the Beneficiary together
with each delivered unit following documents and
manuals:
- Copy of the invoice
- Packaging list with contents
- EUR I certificate
- Certificate of origin
- User manuals in English and Romanian
- Technical manuals in English and Romanian
<PAGE>
ART. 6. PLACE OF DELIVERY AND RECEPTION
6.1. Delivery of Goods: C.l.P. Beneficiary Warehouse
Romania, on condition the place of destination will be
communicated by Purchaser to Seller latest at the
start of the delivery according to schedule
(see Annex I).
6.2 Benefit and risk will be passed to the Beneficiary
after the Goods have been delivered to the place of
destination (Beneficiary warehouse in Romania).
6.3 . Reception of Goods will be acknowledged by
Beneficiary and Seller representatives after each part
delivery of Goods by issuing a Hand Over Protocol
(Annex IV).
Purchaser irrevocably accepts Beneficiary's signatures
on the Hand Over Protocol as having been given in his
name and on his behalf with legal effect.
6.4 Swissray Romania s.r.l. will present till the first
delivery all legal requested authorizations for
functioning (CNCAN and MoH.)
ART. 7. GUARANTEE / INSTALLATION / SERVICE.
7.1. Product Warranty:
Seller herewith guarantees that the Goods to be
supplied under the Agreement meet the specifications
of the aforesaid Tender. The Goods are new, unused, of
the most recent or current models and incorporate all
recent improvements in design and materials unless
provided otherwise in the Agreement. Seller guarantees
that the Goods supplied under the Agreement shall have
no defect arising from design, material or workmanship
or from any act or omission of the Supplier, that may
develop under normal use of the supplied Goods. The
Warranty for each single item shall remain valid 12
months from date of issue of Acceptance Certificate
(Annex V) or 16 months after date of issue of Hand
Over Protocol (Annex IV) whichever comes first.
7.2. The Beneficiary shall promptly notify the Seller's
representative in writing or by phone of any claims
<PAGE>
arising under this Warranty. Upon receipt of such
notice, Seller shall, within 15 days repair or replace
the defective Goods or Parts thereof, without costs to
the Purchaser.
The reaction time (visit to beneficiary) will be 12
hours for Bucharest and 24 hours for the rest of the
country, 7 days per week. Delays in reaction time or
repair time over 72 hours will be added to the
warranty period. A finding protocol will be signed by
both parties.
7.3. The warranty is not valid for systems, options or
spare parts which have been subject to misuse,
accident or incorrect wiring or servicing by third
parties. Defects caused by improper installation by
third parties or incorrect use of written
recommendations such as installation, operation and
service manuals are not covered by Product Warranty.
Seller shall not be liable for, and Beneficiary
assumes responsibility for, all personal injury and
property damage resulting from the handling,
possession, use or resale of the Products. In no event
shall Seller be liable for incidental or consequential
damages, whether Beneficiary's claim is in contract,
negligence or otherwise.
7.4. Service after Warranty:
Till the first delivery the Seller will establish in
Romania an authorized service organization which will
ensure the well functioning of each unit delivered to
the Beneficiary. In this sense the Seller will supply
in advance a detailed maintenance and service
equipment proposal for the period required by the
beneficiary.
The effect of unfulfilment of this clause will be the
corresponding extension of the warranty period. The
Seller will cover the expenses representing Buyer's
interest for the credit of the delayed period.
7.5. Spare Parts and Consumable:
Seller guarantees the availability of the spare parts
and consumable materials for a period of 10 years
after the closing of manufacturing concerning this
type of equipment, but not less than 15 years after
the expiration of warranty period.
7.6. Installation:
Purchaser grants that site of installation meets the
requirements according to Annex I. Performance of
on-site installation of the supplied Goods shall be
carried out under supervision of technical staff of
Seller or his local representative. The works will
include:
<PAGE>
o Communication of pre-installation requirements
to the beneficiary,
o Unpacking,
o Assembling,
o Furnishing, installation,
o Start-up and commissioning.
o Interfacing with the work station Easy
Vision/Philips where necessary. Seller shall furnish
materials required for assembly, installation of the
Goods and connection of equipment to main supplies
within the normal range of the equipment supplied and
in accordance with the pre-installation requirements.
During the period of installation the hospitals will
assure easy access to the equipment from Monday to
Saturday from 8.h till 22.h.
7.7. Acceptance Certificate
7.7.1 When installation of an item is completed this item
will be commissioned by both parties on which occasion
a written Acceptance Certificate as per Annex V of
this Agreement will be signed by Parties.
In the event that the above mentioned Acceptance
Certificate will not have been 7.7.2 signed by the parties of
the present Agreement within a period of 120 Calendar
days (in line with present policy of ERG) after the
date of issue of the Hand Over Protocol as per Annex
IV of this Agreement, Acceptance will automatically be
considered as having been made by the Purchaser with
legal effect.
7.8. Seller guarantees to submit to Purchaser any
technical and quality documentation requested by the
competent Romanian Authorities.
ART. 8. CLAIMS
8.1. The Beneficiary shall proceed the quantitative
take-over of delivered Goods immediately after
receipt, in the presence of the representative of the
Carrier and Seller and will issue a Hand Over Protocol
settling the possible shortage in comparison with
shipping documents and the events that have occurred
during the transportation.
8.2. Seller should replace the missing, damaged and
<PAGE>
deteriorated Goods on his own charge and expenses
within a reasonable time or at the latest before
installation.
8.3. Any quality claim which arises during the warranty
period must be made in writing or Phone by Beneficiary
to Seller representative. If Seller or its
representative determines that any such claim is
justified, Seller will replace the product at no cost
to Beneficiary.
ART. 9 TRAINING
9.1. User/Technical training
The training for selected and qualified hospital staff
will be performed, under the following conditions:
o Initial training will be performed by the
manufacturer's qualified engineers/specialists
or by engineers of Seller or his local
representative, at the Time of installation,
o The training will be organized differently for
specialized radiological staff and hospital
technicians. The goal of the training is to give
complete user knowledge for the radiological
staff and sufficient technical background in case
of trouble shooting for the technicians.
o The topic of the training will take into account
the knowledge level of each participant.
o Purchaser will inform Seller in writing about the
names of the qualified training participants;
o The training will be conducted in English and all
attendants need to have reasonable knowledge of
the English language. In case the participants do
not have this knowledge the hospital will arrange
at own cost a professional translator during the
training.
o The training will take place during normal
working hours on normal working days, and
hospitals will assure accessibility to the
equipment during office hours.
9.2. Purchaser makes available the necessary infrastructure
for training purposes.
ART. 10. FORCE MAJEURE
10.1. The Parties shall not be liable for loss or damage due
to delay or failure resulting from any case beyond
their reasonable control or due to compliance with
regulations, orders, acts, instructions or priority
<PAGE>
requests of any governmental or regulatory department
or agency, civil or military authority, or due to acts
of God, fires, floods, inclement weather, strikes,
lockouts, factory shutdowns or alternations, embargo's
wars or riots.
10.2. The Force Majeure which hinders one of the Party to
fulfill the obligations resulting from this Agreement
may be submitted to the other Party, provided that
it should be advised within 15 days, by a registered
letter to which a confirmation is enclosed from a
qualified authority certifying the beginning and
the end of Force Majeure and the circumstances of its
occurrence. The case of Force Majeure, which have been
communicated to the other Party, as mentioned above,
extend the obligation of both Parties with the
duration of the Force Majeure. As a consequence of
Force Majeure no Party can claim for delay and
failure in the fulfillment of the Agreement
obligations, delay charges, interests or of any other
indemnities or participation in the damages caused by
Force Majeure.
ART. 11. ARBITRATION AND GOVERNING LAW
11.1. All disputes arising out of this Agreement or in
connection with this Agreement shall solely and
finally be settled by a court of arbitration
consisting of three arbitrators in accordance with the
rules of Swiss International Private Law (Chapter 12,
"International Arbitration"). Each Party shall be
entitled to appoint one arbitrator. The place of
arbitration shall be Zurich. The court of arbitration
shall conduct the proceedings in English.
11.2. This Agreement shall be subject to and governed by
Swiss Law. The UN-Agreement governing Provisions on
International Agreement of Sales ("Wiener Kaufrecht"),
dated April 11 1980, is not applicable.
<PAGE>
ART. 12. TRANSFER OF AGREEMENT AND NON-APPLICABILITY
12.1. In the event that individual provisions of this
Agreement should prove to be inapplicable or
unenforceable under law, the two Parties shall agree
on alternative provisions which most nearly equate to
the economic purpose of the inapplicable provisions.
This shall not affect the applicability of the
remainder of the Agreement.
Art. 13 FORM OF ALTERATIONS OF AGREEMENT
13.1. Any amendments or additions of the present Agreement
are valid only if they were made in written form and
signed by both Parties. The present Agreement is
concluded and signed in English and Romanian, in 2
copies each, two copies for each Party.
The English version prevails.
ART. 14 EFFECTIVE DATE OF AGREEMENT
14.1 This Agreement will become valid and effective
as soon as the following contracts and financial
instruments have entered into force:
o Export Finance Agreements between Purchaser or
any other responsible Ministry or Institution of
Romania and ABN AMRO Bank N.V.,
o L/C in favor of Seller according to Annex II,
Signed on ............... 1999 Signed on .............. 1999
SELLER: PURCHASER::
Swissray Medical AG MINISTRY OF HEALTH
R. G. Laupper
President and Chairman, CEO
ppa. Thomas Laupper
Export Manager
<PAGE>
The following documents form an integral part of the Agreement:
ANNEX I Offer of September 1 1999, adjusted in number of units
(32 instead of 45), according to Award of Ministry of
Health of Romania (no. 43402), dated of September 16 and 17
1999
ANNEX II Letter of Credit
ANNEX III Performance Bond
ANNEX IV Hand Over Protocol
ANNEX V Acceptance Certificate
<PAGE>
ANNEX I
Offer of September 1 1999, adjusted in number of units (32
instead of 45), according to Award of Ministry of Health of
Romania (no. 43402), dated of September 16 and 17 1999
Already in Purchaser's Possession
<PAGE>
ANNEX II
Letter of Credit
Irrevocable documentary credit L/C No. of issuing bank L/C No. of advising bank
- -----------------------------------------------------------------------------
Advising bank Beneficiary
ABN AMRO Bank N.V Swissray Medical AG
Zurich Branch Turbistrasse 25-27
Beethovenstrasse 33
CH-8022 Zurich CH-6280 Hochdorf
- --------------------------------------------------------------------------------
Amount: Expiry date: ..............................
USD: ..................... with / in Zurich at sight
Applicant
Ministry of Health of Romania
Ministerului Street Sector 1
Bucharest / Romania
- --------------------------------------------------------------------------------
We hereby issue in your favor this documentary credit which is available against
presentation of the following documents:
1. Signed commercial invoice in triplicate
2. Copy of Forwarding Certificate of Receipt FCR
3. Hand Over Protocol
4. Certificate of Origin
5. Weight list
THE PRESENT LETTER OF CREDIT FORMS AN INTEGRAL PART OF THE LOAN AGREEMENT DATED:
...................... BETWEEN THE
MINISTRY OF HEALTH OF ROMANIA AND ABN AMRO BANK N.V., ZURICH BRANCH
DELIVERIES MADE WITHIN THE FRAMEWORK OF THIS LETTER OF CREDIT LEAD TO
CORRESPONDING ADVANCES UNDER THE LOAN AGREEMENT.
Covering: the supply of 32 ddR Direct Digital Radiology Equipment units with
accessories, as per the delivery
contract no. ........ dated ..............
- --------------------------------------------------------------------------------
From Hochdorf to Bucharest Partial shipment allowed Transshipment prohibited
- --------------------------------------------------------------------------------
Special conditions:
The advising bank is not requested to add its confirmation to this credit.
Payment to be effected under the loan agreement mentioned above.
<PAGE>
ANNEX III
BANK'S NAME, AND ADDRESS OF ISSUING BRANCH OR OFFICE
Beneficiary:................................................ Date:.............
(name and address)
PERFORMANCE GUARANTEE No. ....................
- --------------------------------------------------------------------------------
We have been informed that_____________________(hereinafter called the
Principal), has entered into contract No. ____________ dated _____________ with
you for the supply of (description of Goods and/or services)
Furthermore, we understand that, according to the conditions of the contract, a
performance guarantee is required.
At the request of the Principal, we (name of the bank) _____________________
hereby irrevocably undertake to pay you any sum or sums not exceeding in total
an amount of USD 1.385.600.00 (say: one million three hundred eighty five
thousand and six hundred USD) upon receipt by us of your first demand in writing
and your written statement stating;
i) that the Principal is in breach of his obligation(s) under the
underlying contract; and
ii) the respect in which the Principal is in branch.
Your demand for the payment must also be accompanied by the following document
(s): (specify document(s) if any, or delete)
This guarantee shall expire on _______________ at the latest
Consequently, any demand for payment under it must be received by us at this
office on or before that date.
- --------------------------------------------------------------------------------
This guarantee is subject to the Uniform Rules for Demand Guarantees,
- --------------------------------------------------------------------------------
<PAGE>
ICC Publication No. 458.
- --------------------------------------------------------------------------------
Signature(s)
ANNEX IV
Hand Over Protocol
Agreement No. __________________________ dated __________________
Between Swissray Medical AG and Romanian Ministry of Health
HAND OVER PROTOCOL
Shipment ___ /____
The undersigned, representatives of the Purchaser respectively Beneficiary and
Seller present, confirm herewith that the shipment no. ______ of total _________
has been handed over to the consignee on (date)____________ in conformity with
the packing list. All packages have been acknowledged damage free.
Representative of Purchaser Representative of Seller
resp. Beneficiary'
- ----------------------- --------------------
<PAGE>
- ----------------------
Place and date
ANNEX V
ACCEPTANCE PROTOCOLL
- --------------------------------------------------------------------------------
Seller: Swissray Medical AG Agreement No.
Turbistrasse 25-27 _______________
CH-6280 Hochdorf Dated
---------------
Equipment: ddRMulti-System
Serial No.
Hospital/Clinique address
1. Installation Equipment's completeness
The system has been handed over complete and damage free.
Yes No
If no please specify hereunder: Loss/ Damage/ Missing parts
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
2. Functionality
- --------------------------------------------------------------------------------
Installation and put into operation performed by:
- --------------------------------------------------------------------------------
Company Swissray Medical AG
Turbistrasse 25-27
CH-6280 Hochdorf
Engineer's name
Signature
Controlling and acceptance of Hospital Administration
Name
Signature
Date
3. Users training
Training performed: _______________ Date:_____________________
Trainees` list
Name: Signature
Name: Signature
Name: Signature
Name: Signature
<PAGE>
4. Engineers training (If necessary)
Training performed: _______________ Date:_____________________
Trainees` list
Name: Signature
Name: Signature
5. User Manuals and Service Manuals
Handing over Date:_____________________
Hospital's Administration Final Acceptance Date:_____________________
Name:
Signature:
ON LETTERHEAD
Exhibit 23.3(d)
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 year ended June
30, 1999 in Swissray International, Inc.'s Amendment No. 5 to Form S-1 filed May
2, 2000.
/s/FELDMAN SHERB HOROWITZ & CO., P.C.
FELDMAN SHERB HOROWITZ & CO., P.C.
New York, New York
May 2, 2000
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