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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A
AMENDMENT NO. 2
(Mark one)
/X/ Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required) For the fiscal year ended December 31, 1994
/ / Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required) For the transition period from _________________
to __________________
Commission File Number: 0-16052
QUADRAX CORPORATION
(Name of Small Business Issuer in Its Charter)
Delaware 05-0420158
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 High Point Avenue
Portsmouth, Rhode Island 02871
(Address of Principal Executive Offices) (Zip Code)
(401) 683-6600
(Issuer's Telephone Number, Including Area Code)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, par value $.000009 per share
Non-Callable Class C Common Stock Purchase Warrants
(Titles of Classes)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for past 90 days. Yes No X
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the issuer's knowledge, in the issuer's definitive proxy
statement incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
---
State issuer's revenues for its most recent fiscal year. $860,419
State the aggregate market value of the voting stock held by non-affiliates:
$27,558,318, computed by reference to the closing price of the issuer's Common
Stock on March 28, 1995 as reported on the Nasdaq Small Cap Market.
State the number of shares outstanding of each of the issuer's classes of
common equity. As of March 28, 1995: 11,876,512 shares of Common Stock, par
value $.000009 per share
311,120 Non-Callable Class C Common
Stock Purchase Warrants
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's definitive proxy statement to be delivered to
stockholders in connection with its Annual Meeting of Stockholders to be held on
May 31, 1995 are incorporated by reference in Part III.
Transitional Business Disclosure Format (check one): Yes No X
--- ---
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Explanation
The response of Quadrax Corporation to "ITEM 1. DESCRIPTION OF BUSINESS"
contained in its Annual Report on Form 10-KSB for the fiscal year ended December
31, 1994, as amended by Amendment No. 1 thereto, is being further amended to
supplement the disclosure contained under the caption "Changes in Control and
Related Transactions" in such Item.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
GENERAL
Quadrax Corporation ("Quadrax" or the "Company") is a development stage
company that designs, develops, fabricates and sells fiber-reinforced
thermoplastic polymer composite materials ("Quadrax Composites") and products
manufactured from Quadrax Composites. Quadrax Composites are synthetic materials
made using patented and other proprietary, as well as non-proprietary, chemical
processes and manufacturing technologies. The Company believes that Quadrax
Composites are functionally superior to other structural substrates for most
applications in which abrasion resistance and extreme heat tolerance are not
critical. Quadrax Composites' functional advantages include high
strength-to-weight ratios, chemical stability in a variety of ambient conditions
(imperviousness to rust, rot or reaction with most commonly used chemical
solvents), ease and safety of manufacture using modified conventional heat and
compression molding techniques, virtually unlimited shelf life without special
storage or handling requirements, and recyclability.
The Company, which has been a development stage company since its
inception in March 1986, commenced limited commercial production in mid-1993.
The Company has not achieved profitability in any fiscal quarter and has been
required to raise substantial amounts of capital in order to support its
on-going development activities. Although the Company historically was dedicated
to the formatting of composite materials for defense and aerospace markets, it
began redirecting its business in 1993 and 1994 to focus on commercial and
consumer markets for value-added, high-performance products. The Company did not
generate significant revenues in fiscal 1994 (the period from January 3, 1994 to
December 31, 1994), and the Company's independent accountants, Livingston &
Haynes, P.C., have included a "going concern" qualification in their report on
the Company's financial statements for fiscal 1994, reflecting the Company's
history of losses as a development stage company and its continuing dependence
on financing activities to provide the cash needed to meet its expenses. See the
Consolidated Financial Statements of the Company set forth following page 25 of
the Form 10-KSB, as previously filed.
Quadrax Corporation is organized in a holding company structure, operating
through three wholly owned subsidiaries: Quadrax Advanced Materials Systems,
Inc., Quadrax Advanced Structures, Inc. and McManis Sports Associates, Inc.
("McManis Sports"). It also wholly owns and operates Quadrax Sports, Inc. as a
marketing company. Unless the context otherwise requires, references herein to
"Quadrax" or the "Company" refer collectively to Quadrax Corporation and its
subsidiaries.
CHANGES IN CONTROL AND RELATED TRANSACTIONS
As a result of its inability to raise additional capital in the first
quarter of 1994, the Company and Applied Laser Systems ("ALS") entered into a
senior loan agreement in March 1994, under which ALS made a bridge loan of
$1,000,000 to the Company. In conjunction with the Senior Loan Agreement, the
Company's Board of Directors approved an asset acquisition agreement pursuant to
which ALS would have acquired all of the assets in exchange for ALS stock. In
May 1994 Quadrax and ALS mutually agreed to terminate its proposed acquisition
of the Company, and as a result the Company required substantial additional
capital to meet its operating expenses and continue its operations.
On July 8, 1994, Pattinson Hayton, III, through Conagher & Co., Inc.
("Conagher"), a California corporation controlled by Mr. Hayton, purchased a
majority of the Company's convertible preferred stock, $.01 par value
("Preferred Stock"), from the Company's founder and then Chief Executive
Officer, Richard A. Fisher. Conagher's ownership of the Preferred Stock enabled
it to elect three-fifths of the
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Company's Board of Directors until December 31, 1996. Thereafter, on July 11,
1994, Mr. Hayton was elected by Conagher as a member of the Board, and was
nominated to serve as Chairman. William G. Conway and Sven Kraumanis were also
elected by Conagher, pursuant to the terms of the Preferred Stock, as members of
the Company's then five-member Board.
Contemporaneous with the acquisition of the Preferred Stock, Mr. Hayton
also agreed to purchase newly issued shares of the Company's common stock,
$.000009 par value ("Common Stock"), through Conagher. Pursuant to a stock
purchase agreement dated July 8, 1994, Conagher purchased 1,500,000 shares of
Common Stock in exchange for a $3,000,000 promissory note from Conagher (the
"July Promissory Note") payable in five equal consecutive monthly installments
beginning August 16, 1994. Thereafter, pursuant to a stock purchase agreement
dated August 26, 1994 and subsequently amended on September 16, 1994, Conagher
purchased an additional 2,250,000 shares of Common Stock in exchange for a
$4,500,000 promissory note from Conagher (the "August Promissory Note"), payable
in equal consecutive monthly installments beginning October 30, 1994. Thus, as a
result of these purchases, Conagher acquired 3,750,000 shares of Common Stock in
exchange for promissory notes aggregating $7,500,000.
In September 1994, Conagher satisfied its obligations under the July
Promissory Note by paying to the Company an aggregate of $1,742,675 and by
arranging for the discharge of notes payable by the Company to ALS in the amount
of $1,257,325. Conagher also made aggregate payments of approximately $3,500,000
in connection with the August Promissory Note. The remaining balance of
approximately $1,000,000, which was due and owing as of January 30, 1995, was
not paid by Conagher.
In connection with Conagher's failure to pay the balance due on the August
Promissory Note, the Company entered into negotiations which led to a Settlement
Agreement dated February 13, 1995 with Conagher, Mr. Hayton, Richard A. Fisher,
James J. Palermo, the Company's Chief Executive Officer, and Allied-Asian
Consolidated Limited ("Allied"), a company of which Mr. Hayton was a director
and stockholder. Pursuant to the Settlement Agreement, record ownership of the
Preferred Stock owned by Conagher was transferred to Mr. Palermo, as trustee for
the holders of Common Stock. Mr. Palermo is required to vote the Preferred Stock
as directed by the holders of the Common Stock, and as a result holders of
Common Stock are now able to elect all of the Company's directors. In
conjunction with the acquisition of the Preferred Stock from Conagher, Mr.
Palermo replaced Mr. Hayton as Chairman of the Board and Mr. Hayton resigned as
a director of the Company.
To induce Mr. Hayton to surrender the Preferred Stock and to settle
outstanding obligations relating to Mr. Hayton's transactions in the Company's
securities and other obligations among the Company, Allied, Conagher, Mr.
Hayton, and Mr. Fisher, the Company agreed to issue to Allied 1,150,000
restricted shares of Common Stock. The Company, among other things, also agreed
to: (i) retain Allied or its nominee as a financial advisor and agent pursuant
to a Financial Advisor and Distribution Agreement (the "Advisor Agreement") for
the placement of a new class of preferred stock, (ii) assume the outstanding
obligations of Conagher to Mr. Fisher and indemnify and hold harmless Conagher,
Allied and Mr. Hayton against any liability thereof, (iii) enter into employment
agreements with certain Company employees, (iv) transfer certain office leases
and equipment, automobile leases and insurance policies to Allied, (v) assume
liability for the lease of an automobile, and (vi) release Conagher, Allied and
Mr. Hayton and their successors, assigns, agents and attorneys from any and all
claims. The Company also agreed to cancel Conagher's remaining payment
obligations under the August Promissory Note in exchange for Allied's execution
and delivery of a promissory note in the amount of $621,563 (the "February
Promissory Note"), payable in installments with the final payment due on January
1, 1997.
On February 28, 1995, Allied failed to pay $150,000 due under the February
Promissory Note. The Company subsequently declared Allied to be in default on
the note and the entire principal amount due and payable. In addition, the
Company determined not to pay Allied $10,000 that Allied claimed was due
March 1, 1995 under the Advisor Agreement. In connection therewith, and as
discussed further below, the Company entered into an
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amendment dated March 17, 1995 with Allied, Conagher, Mr. Hayton, Mr. Palermo,
and Mr. Fisher (the "First Amendment") whereby (i) the Advisor Agreement was
terminated, (ii) the Company agreed to pay Allied 4 percent of any net proceeds
realized by the Company from the sale of any shares of any new issue of
preferred stock issued and sold by the Company between February 13, 1995 and May
19, 1995, (iii) Allied agreed to pay $150,000 to the Company upon execution of
the First Amendment and to deliver a promissory note to the Company in the
amount of $311,563 in exchange for the cancellation of the February Promissory
Note.
Thereafter, in connection with the Company's preparation for the initial
filing of its Annual Report on Form 10-KSB, the Company and its independent
accountants reviewed payments made by Mr. Hayton when he was Chairman of the
Company. These payments were made through bank accounts (the "Funding Accounts")
established by the Company for the deposit of proceeds received from payments by
Conagher on the July and August Promissory Notes. The Funding Accounts were
under the signature authority and control of Mr. Hayton. Payments for expenses
unrelated to Company business were made using checks drawn from the Funding
Accounts. These payments included reimbursements for undocumented travel
expenses, checks drawn to Mrs. Hayton, and checks to various attorneys who do
not appear to have been engaged in work for Quadrax. Payments also were
authorized and directed by Mr. Hayton from the Funding Accounts and otherwise to
Apogee Robotics, Inc., a company that the Company believes is controlled by Mr.
Hayton. The Company has never conducted any business with Apogee Robotics, Inc.
Finally, the Company paid certain charges incurred by Mr. Hayton that were
unrelated to the business of the Company, based upon Mr. Hayton's agreement to
reimburse fully the Company for such charges. The Company was never reimbursed
for these payments. The total amount of all payments now being reviewed by the
Company is approximately $1,400,000.
In November 1994, the Company acquired all of the outstanding stock of
McManis Sports, a development stage business organized to engage in golf
equipment manufacturing activities. Mr. Hayton was instrumental in arranging for
the acquisition of McManis Sports, which the Company purchased for cash and a
number of shares of Common Stock subject to increase in order to assure a
minimum market value of $1,100,000 at the time the shares are registered with
the Securities and Exchange Commission. The Company anticipated that, at the
time of the acquisition, the purchase price approximated the value of the net
tangible assets of McManis Sports. The Company and its independent accountants
have subsequently determined that those assets have a market value of
approximately $560,000, and the Company now believes that the development and
marketing of the product lines of McManis Sports will require more resources
than originally expected. The Company has recorded approximately $709,000 of the
purchase price of McManis Sports as goodwill representing intangible value of
designs and expertise acquired in the purchase and, consistent with generally
accepted accounting principles, will review the status of this goodwill amount
periodically.
In light of the questions concerning the purchase price related to the
acquisition of McManis Sports, the discovery of unauthorized expenditures from
the Funding Accounts, and Mr. Hayton's failure to repay the Company for certain
expenses as agreed upon, the Company was, as of the time of the initial filing
of the Company's Form 10-KSB on April 13, 1995, reviewing alternatives
available to it, including possible remedies against Mr. Hayton and Conagher.
On various occasions since the filing of the Company's Form 10-KSB
on April 13, 1995, representatives of the Company, Conagher and Allied and Mr.
Hayton met and conferred regarding certain matters discussed above, principally
issues regarding expenses incurred by or on behalf of the Company during the
Company's fiscal 1994 and the satisfaction of certain obligations under the
Settlement Agreement as amended by the First Amendment.
In the course of those meetings, Mr. Hayton made available to the Company
documentation and other evidence demonstrating, to the Company's satisfaction,
that the non-recurring financing-related expenses of $5,569,000 incurred in
fiscal 1994 were corporate expenses incurred principally in connection with the
Company's acquisitions, financing and restructuring transactions effected in
fiscal 1994. Included in this total
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amount were approximately $1,482,000 which the Company incurred in connection
with the termination, in May 1994, of the proposed purchase of the Company by
ALS. These expenses included the issuance of 170,000 shares of Common Stock to
the Company's investor relations consultant, and other professional fees.
Subsequent to the proposed ALS transaction, the Company entered into certain
acquisition agreements and financing arrangements, as set forth above. In
November 1994, the Company acquired all of the outstanding stock of McManis
Sports, a manufacturer of and marketing representative for manufacturers of
golfing equipment, for $1,465,600 in Common Stock and $109,500 in cash. In
connection therewith, the Company issued to the designee of Allied 150,000
shares of Common Stock (see Notes 9 and 10 to the Consolidated Financial
Statements) as compensation for acting as an agent in bringing this opportunity
to the Company. Also in November 1994, the Company acquired certain assets and
liabilities of Time Sports, Inc. for approximately $360,000 in cash and notes
payable to facilitate transfer of a license to use the Wimbledon trademark. The
Company issued 100,000 shares of Common Stock to the designee of Allied (see
Notes 9 and 10 to the Consolidated Financial Statements) as compensation for
acting as an agent in bringing this opportunity to the Company. The total value
of the 250,000 shares of Common Stock issued to the designee of Allied as
compensation in connection with these transactions has been expensed in fiscal
1994 as a financing-related cost (see Notes 9 and 10 to the Consolidated
Financial Statements). The Company recognizes that the acquisition of McManis
Sports and the acquisition of Time Sports, Inc. are the core business of the
Company, and the Company endorses the acquisitions and considers the
acquisitions to be in the best interests of the Company. Expenses in the amount
of approximately $3,572,000 that were previously identified by the Company (as
set forth above), due to incomplete documentation, as payments authorized by
and/or related to Mr. Hayton or Conagher, have been demonstrated to the
Company's complete satisfaction to be associated, for financial reporting
purposes, with corporate expenses incurred in connection with the restructuring
of the Company, the redemption of debt through stock issuance and miscellaneous
professional fees associated therewith. Mr. Hayton and the Company have agreed
that approximately $75,000 shall be treated, by the Company, for tax and
financial reporting purposes, as additional compensation to Mr. Hayton during
fiscal 1994.
As set forth above, the Company entered into the Settlement Agreement with
Conagher, Mr. Hayton and Allied, the terms of which included the execution and
issuance of the February Promissory Note to the Company by Allied in the amount
of $621,563. On March 17, 1995, the parties to the Settlement Agreement entered
into the First Amendment, pursuant to which Allied agreed to pay to the Company
the amount of $311,563, being the balance due under the February Promissory
Note. The amount of $311,563 was calculated as follows:
<TABLE>
<S> <C>
February Promissory Note $ 621,563
less: payment February 24, 1995 (100,000)
less: payment March 17, 1995 (150,000)
less: consideration for cancellation
of financial advisor agreement (60,000)
---------
Balance due on February Promissory Note $ 311,563
=========
</TABLE>
THE SUM OF $311,563 WAS PAID IN FULL ON APRIL 3, 1995, AS REQUIRED.
ACCORDINGLY, ALL OF THE PAYMENT OBLIGATIONS OF ALLIED UNDER ALL OF THE
PROMISSORY NOTES ISSUED IN CONNECTION WITH THE FINANCING PROVIDED BY CONAGHER
AND ALLIED FOR THE COMPANY, AND IN CONNECTION WITH THE SETTLEMENT AGREEMENT AND
THE FIRST AMENDMENT THERETO, HAVE BEEN FULLY SATISFIED.
In light of its further investigation regarding the foregoing matters, the
Company has determined to seek no legal remedies with respect to Mr. Hayton,
Conagher or Allied regarding the purchase price paid by the Company for McManis
Sports, the purchase of Quadrax shares by Conagher and Allied, or amounts
expended by or on behalf of Mr. Hayton during his tenure as Chairman of the
Company.
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REDIRECTION OF BUSINESS
The Company historically was dedicated to the formatting of composite
materials for defense and aerospace markets. Beginning in 1993, the Company
began to redirect its business toward commercial and consumer applications.
After negotiations for the proposed sale of the Company to ALS were terminated
in May 1994, the Company sought to accelerate the redirection of its business
during the second half of fiscal 1994 through acquisitions of assets and license
rights and through strategic arrangements with manufacturers of sporting goods
and athletic equipment.
Quadrax was originally organized in March 1986 to acquire and complete the
development of the Composite Materials Interlacer, a device designed to format
thermoplastic composite tapes into continuous broad sheet goods. Sheet goods
formatted using the Composite Materials Interlacer have been among those
marketed by Quadrax under the brand name "Quadrax Biaxial Tape." The Company's
target market for Quadrax Biaxial Tape formatted on the Composite Materials
Interlacer originally consisted primarily of aerospace defense contractors
seeking a seamless composite material for use in wing skins on the advanced
design "next generation" tactical fighters then under development. The Composite
Materials Interlacer can format sheet goods up to ten feet wide and having
virtually any length, a significant advantage over other weaving technologies,
which generally cannot produce sheets wider than four feet. The use of the
Composite Materials Interlacer to date generally has been uneconomical, however,
except for a limited number of applications for customers in the aerospace
industry.
At the time of its initial public offering in July 1987, Quadrax was
focused on becoming an integral part of the advanced materials community serving
the defense industry. In subsequent years, the Company obtained contracts from
defense contractors and airframe manufacturers for the sale of Quadrax Biaxial
Tape for evaluation and test purposes.
As defense funding for advanced research was curtailed in the late 1980s
and early 1990s, a number of companies abandoned their participation in the
composite materials industry. Quadrax sought to take advantage of this situation
by acquiring manufacturing equipment and a license of related technology in the
manufacture of thermoplastic composite materials from Phillips Petroleum Company
("Phillips") in 1992 and from Amoco Performance Products Inc. ("Amoco"), a
subsidiary of Amoco Corporation, in 1993. These acquisitions provided Quadrax
with the benefits of research and development conducted over the course of
several years, as well as additional defense industry contacts and a database of
materials performance specifications.
The Phillips and Amoco acquisitions provided Quadrax with the ability to
fabricate tape marketed under the brand name "Quadrax aXial Tape." Quadrax aXial
Tape enabled the Company to begin redirecting its business from defense to
commercial and consumer applications. Quadrax initially targeted sporting goods
applications, because it believed that the improved performance characteristics
offered by Quadrax Composites could overcome the cost premium of its materials
and the familiarity of customers with more conventional composite materials.
In mid-1993, Quadrax signed a joint development and exclusive
manufacturing contract with Kunnan Enterprise Limited ("Kunnan"), a Taiwanese
corporation that is one of the largest manufacturers of tennis racquets in the
world. Kunnan markets products under its house brands (such as "Kennex" and
"ProKennex") and serves as an original equipment manufacturer for other
internationally recognized brands. Quadrax completed the design, development and
prototype production of tennis racquet frames made of Quadrax Composites. In
light of a soft worldwide market for tennis racquets, however, Kunnan determined
not to commit the resources necessary to bring the racquet to market.
As a result of its joint development and manufacturing relationship with
Kunnan, Quadrax developed technologies that can be utilized for manufacturing
value-added products from Quadrax Composites for a
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number of sporting goods markets. One of the Company's strategies is to focus
its resources on the design, development and prototyping of these sporting goods
products in order to demonstrate the performance attributes of Quadrax
Composites and to build demand for the Company's materials. The Company will
then determine on a product-by-product basis whether to undertake manufacturing
of a product or component, outsource manufacturing once commercial production
levels are achieved or seek to enter into strategic relationships with
established companies with experience in manufacturing and marketing for the
relevant market.
In November 1994, Quadrax took a number of steps aimed at accelerating the
redirection of its business:
- The Company acquired from Time Sports, Inc., a subsidiary of Kunnan,
the exclusive rights to make and market tennis racquets under the
"Wimbledon" brand name and to make market certain apparel under the
"Wimbledon" brand name, all pursuant to an underlying licensing
agreement with the All-England Lawn Tennis and Croquet Club of
Wimbledon, England. In connection with the acquisition of the
Wimbledon license rights, Quadrax also acquired certain other assets
and assumed certain liabilities of Time Sports, Inc. The Company
believes that the acquisition of the Wimbledon license rights has
provided Quadrax with immediate brand name recognition within the
tennis industry.
- The Company acquired all of the stock of McManis Sports, a recently
organized development stage company that had been formed to design
and develop golf clubs. This acquisition provided the Company with
lines of golf products, including irons marketed under the "Tour
Technology" and other brand names, as well as expertise in the design
and development of golf equipment. See "Changes in Control and
Related Transactions" above.
- Quadrax signed two joint development/exclusive manufacturing
contracts with Cannondale Corporation, a manufacturer of
high-performance bicycles. These contracts call for the design,
development and production of bicycle frames, forks and other
components using Quadrax Composites. The Company currently estimates
that prototypes of these components will be completed in the second
quarter of 1995.
In February 1995, the Company entered into a joint design/exclusive
manufacturing contract with Brine, Inc., a supplier of lacrosse equipment in the
United States, under which the Company has completed testing of lacrosse sticks
and expects to commence shipments in April 1995.
Quadrax has taken preliminary steps to begin gaining recognition within
the automotive industry. During the second half of 1994, the Company sponsored
the Roger Mears Racing Team in order to demonstrate the strength and impact
resistance performance characteristics of Quadrax Composites under the demanding
conditions of stadium and off-road truck racing. Principal components of a truck
body were constructed using Quadrax Composites, and the truck was raced by the
Mears Team in the Baja 1000.
As Quadrax progresses from the development of prototypes to the production
of finished products and components, it will continue to be dependent on outside
financing sources. The Company raised approximately $5 million of equity capital
in fiscal 1994 and an additional $2.2 million through sales of Common Stock
during the first quarter of fiscal 1995. It expects to seek to raise
approximately $3 million through additional equity sales during the remainder of
1995 and believes that these funds, together with cash provided by revenues,
will be sufficient to meet the Company's cash requirements for the remainder of
fiscal 1995. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION--Financial Position, Liquidity and Capital Resources" below.
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TECHNOLOGIES
CORE TECHNOLOGIES
The core technologies underlying Quadrax Composites involve, first, the
fabrication of unidirectional continuous fiber-reinforced, thermoplastic tapes
and, second, the lay-up and consolidation of those tapes into multi-ply
laminates. These technologies are based on insights into the chemical processes
by which a variety of man-made polymer resins (plastics) can be made to bond
with continuous fibers to produce a material that is strong, lightweight, easy
to handle, and easy to shape using modified conventional heat and compression
molding techniques.
The principal fibers used in making Quadrax Composites are carbon, glass
and aramid (for example, duPont's brand of aramid fiber that it markets under
the name "Kevlar"). The principal resins used are nylon, polymethymethacrylate
(acrylic), polyetherimide, polyphenylene sulfide (PPS) and
poly-ether-ether-ketone (PEEK).
The Company is developing the ability to form its multi-ply laminates into
three-dimensional piece parts, in order to generate additional demand for the
Company's tape products.
FUNCTIONAL ADVANTAGES AND LIMITATIONS OF QUADRAX COMPOSITES
The principal functional advantage offered by Quadrax Composites is the
ability to provide equivalent strength at lower weights than competing
materials. By varying mixes of resin, fiber, fiber areal weight, resin
percentage, number of plies, and axial orientation of the different plies,
Quadrax can deliver materials that meet a wide range of minimum threshold
strength requirements at a fraction of the weight of more conventional materials
such as steel and aluminum.
Quadrax Composites use continuous fibers aligned at uniform intervals
parallel to a single axis of orientation within the polymer resin matrix,
permitting the formation of tape of virtually any length. The result is a
material that presents a uniformly high strength profile along the longitudinal
axis, making it possible to design a multiple ply material that displays very
precisely engineered structural properties along its entire planar horizon.
Quadrax Composites can be engineered to deliver a variety of other
characteristics, including chemical stability (no rust), moisture and heat
resistance (no rotting or, within certain tolerances, melting), vibration
damping, and electrical insulation. Unlike epoxy-based composite materials,
Quadrax Composites are fully recyclable. Scrap material can be ground up, melted
down and reformed using conventional compression and injection molding
techniques, retaining sufficient strength and other structural characteristics
to make it suitable for use in a wide variety of "lower tier" applications.
Quadrax Composites are thermoplastic, so they will lose their shape under
prolonged exposure to high temperatures. Like all composites, they are
fiber-reinforced and therefore subject to disintegration through abrasion that
exposes the fibers. These disadvantages are irrelevant for most structural
applications, but limit the utility of Quadrax Composites in high-temperature
applications.
APPLICATIONS
The high strength-to-weight ratio and other functional advantages of
Quadrax Composites make them superior structural materials for a wide range of
applications. The Company has targeted a number of applications for which high
strength-to-weight ratios are critical, including:
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- athletic and recreational equipment, such as racquet frames, lacrosse
and hockey sticks, bats, bicycle frames, and panel and frame
assemblies for a wide variety of recreational vehicles;
- truck and trailer components and systems; and
- military equipment, primarily outer body panels and reinforcing
members for aircraft, armored vehicles and marine vessels.
COMPETITIVE ADVANTAGES AND DISADVANTAGES
The characteristics of Quadrax Composites offer several processing
efficiencies that enable Quadrax Composites to present an attractive
price/performance profile, when measured on a total-cost-of-finished-goods
basis. These characteristics include:
- their light weight, which makes Quadrax Composites easy to move and
handle;
- structural characteristics that make them easy to form using modified
conventional cutting, thermoforming or compression molding
techniques;
- their chemical stability, which makes Quadrax Composites easy and
quick to process with virtually no restrictions on shelf life, no
lengthy cure periods, no toxicity, and no refrigerated storage
requirements; and
- for certain resins, the ability of Quadrax Composites to be bonded
through heat and pressure alone, without the need for glues or other
bonding agents.
Quadrax Composites, like most composites, are more expensive than
competing conventional materials. Quadrax Composites also suffer from
institutional resistance to working with new materials and to investing in the
re-tooling needed to integrate the materials into existing product and
production lines. The Company believes that these disadvantages will dissipate
over time as Quadrax Composites gain recognition in the marketplace and as
economies of scale lower unit costs.
See "Competition--Materials Competition" below.
MANUFACTURING AND DISTRIBUTION SYSTEMS
PRODUCTION
Materials, Machinery, Energy and Personnel. All materials, machinery,
energy and personnel needed to build and operate production facilities at
Quadrax are readily available from conventional sources, with specialized
expertise limited to the proprietary processes themselves. Raw materials consist
only of fibers and resins produced by a number of established chemical companies
and sold primarily for applications other than composites. Machinery
requirements are limited to tape fabrication lines (which are specially
assembled using conventional machinery), molds and dies (which are custom-made,
using conventional machine tool technologies) and various die cutters,
thermoformers, ovens and presses that are in common use throughout the plastics
industry.
All machinery and processes are powered by electricity, which is available
in adequate quantities from the local utility. Production personnel include
materials and process engineers, skilled and semi-skilled machine operators, and
various shop hands. The Company believes that any necessary additional
production personnel can be recruited at competitive rates from within the
existing plastics, defense and general manufacturing communities.
10
<PAGE> 11
Physical Plant and Processing Systems. Production of Quadrax Composites
and pre-formed parts is a light manufacturing process. The three principal steps
in the process are:
- tape fabrication -- typically a water- and heat-based process in
which fibers are imbedded in the resin matrix;
- lay-up -- either a manual or mechanical process, depending on design
specifications, in which multiple layers of tape are assembled to
present the required strength, flexibility and other engineering
characteristics; and
- consolidation -- a heat- and pressure-based process through which
lay-ups are fused to form laminated material.
These processes typically are completed at Quadrax's manufacturing facilities in
Portsmouth, Rhode Island. See "DESCRIPTION OF PROPERTY" below.
Quadrax is developing the capacity to thermoform or compression mold
customer-specified component parts or frame assemblies on proof-of-concept,
pre-production prototype and pilot production bases at its Portsmouth facility.
Quadrax currently contemplates that it will outsource parts manufacturing once
commercial production levels are achieved.
DISTRIBUTION
Inventories. Quadrax maintains a small inventory of fabricated tape in
standard configurations at its Portsmouth facility. Sheet goods and pre-formed
parts are manufactured on a contract basis only. Finished goods (currently
limited to tennis and golf equipment) are outsourced either overseas or
domestically, and drop-shipped to the wholesale/retail distributor as orders are
received.
Delivery and Installation. Unlike thermoset composite materials systems,
Quadrax Composites do not require refrigeration or other special handling. They
can be boxed and shipped by express delivery or common carrier at standard
ground rates.
Customer Service and Support. Members of Quadrax's engineering staff are
available to visit a customer and consult on proper processing techniques or
special engineering challenges, on an as-needed basis, but generally post-sale
support is not required.
PRODUCT LINE
Quadrax fabricates and formats several standard Quadrax Composites tape
products for which data sheets have been prepared, including tape formats sold
under the brand name "Quadrax aXial Tape" and tapes sold in broad sheet format
under the brand name "Quadrax Biaxial Tape." In addition, Quadrax Composites
tape products can be customized through varying combinations of resins, fibers,
fiber areal weights and resin percentages in order to meet customers' specific
needs.
Although Quadrax's initial proprietary expertise was in the fabrication
and formatting of composite tape products, the Company is expanding its range of
know-how and capabilities to include expertise in finished goods and piece parts
for the consumer sporting goods market:
- The Company is currently marketing a high-performance tennis racquet,
the "Conqueror," under the Wimbledon brand name and expects to
commence shipments of the Conqueror in the second quarter of 1995.
The Conqueror features "Dynamic Positioning," a strategic use of
weight distribution that takes advantage of the strength-to-weight
advantages of Quadrax
11
<PAGE> 12
Composites. As a result of its acquisition of Wimbledon license
rights, the Company is also marketing and selling tennis-related
soft goods in the United States under the "Wimbledon" brand name.
- The Company has completed a prototype for lacrosse stick handles
utilizing Quadrax Composites. These handles are being developed under
a joint design/exclusive manufacturing contract entered into in
February 1995 with Brine, Inc. The Company expects to commence
shipping lacrosse stick handles to Brine, Inc. in April 1995.
- The acquisition of McManis Sports provided Quadrax with golf product
lines that include irons marketed under the "Tour Technology" and
other brand names. These irons do not incorporate Quadrax Composites.
Using design and development expertise obtained in the McManis Sports
transaction, the Company has completed a prototype of a putter
produced with Quadrax Composites and is seeking to enter into a
strategic marketing relationship with a company that is established
in the golf equipment market.
- Quadrax has signed two joint development/exclusive manufacturing
contracts with Cannondale Corporation, a manufacturer of
high-performance bicycles. These contracts call for the design,
development and production of bicycle frames, forks and other
components using Quadrax Composites. The Company has
computer-engineered the design of the bicycle frames and forks, and
currently estimates that prototypes of these components will be
completed in the second quarter of 1995. If the Company is successful
in timely providing frames and forks that meet contractual
specifications, Cannondale Corporation will be contractually
obligated to purchase specified quantities of components from Quadrax
over an 18-month period. The development and production of these
components will require the Company to design and implement new
production processes different from those used in connection with the
Company's other finished goods. As a result, there can be no
assurance that the Company will be successful in meeting the
contractual specifications on a timely basis, or at all.
The Company seeks to identify, on a regular basis, additional sports equipment
that may benefit from the functional advantages of Quadrax Composites. The
Company is, for example, in the early stages of design and development of
volleyball net poles, hockey sticks and hockey skate insoles incorporating
Quadrax Composites.
In producing tennis and golf equipment, the Company intends to integrate
production vertically, from the manufacture of the feedstock materials (Quadrax
Composites) through distribution to product retailers. With respect to other
finished goods for the sporting goods markets, however, the Company currently
anticipates that it will seek to enter into strategic development and marketing
relationships, such as those with Brine, Inc. and Cannondale Corporation. This
strategy will facilitate the Company's entry into new sporting goods markets in
a cost-effective manner, by enabling the Company to focus its resources on
applications for its tape products. The Company believes that this approach will
increase demand for the Company's tape products both directly, by creating needs
for specific components and goods, and indirectly, by demonstrating the
advantages and potential of Quadrax Composites.
Quadrax continues to supply advanced composite materials systems to
branches of the United States military through three materials supply contracts
with defense contractors. Under these contracts, Quadrax Composites are being
incorporated in:
- the F-22 "Air Superiority" tactical fighter being produced by
Lockheed Aeronautical Systems Company under contract with the United
States Air Force;
12
<PAGE> 13
- the Seawolf class of submarines being constructed by the Electric
Boat Division of General Dynamics Corporation under contract with the
United States Navy; and
- the "Composite Armored Vehicle," an experimental armored troop
carrier (known as CAV) being developed by United Defense LP under
contract with the United States Army.
MARKETS
ATHLETIC AND RECREATIONAL EQUIPMENT
Quadrax intends to execute a two-pronged marketing strategy in the
sporting goods market. In both cases, it is pursuing the same targeted market:
serious athletes, both professional and amateur, who are willing to pay a
premium for the better "feel" that Quadrax Composites can deliver.
A high profile approach is being launched through the Conqueror tennis
racquet and tennis-related soft goods being sold under the Wimbledon brand name.
This approach may also be used to market the golf club product lines obtained by
the Company through the acquisition of McManis Sports.
A lower profile approach is being implemented through joint development
and manufacturing contracts with leading suppliers of high-performance equipment
for various games and activities. The Company is currently engaged in a bicycle
frame and fork program with Cannondale Corporation and a lacrosse stick program
with Brine, Inc.
TRUCKS AND TRANSPORTATION
The truck and transportation market represents a medium- to long-term
opportunity for Quadrax. The Company has begun to take steps to gain recognition
within the automotive industry through its sponsorship of the Roger Mears Racing
Team. The Company currently expects that it will attempt to enter the truck and
transportation market by designing and providing floor systems for specialty
trailers. If successful, the Company may then seek to migrate to the production
of other systems for general purpose truck and other heavy equipment.
DEFENSE
Through a combination of internal initiatives and the acquisitions from
Phillips and Amoco, Quadrax has established itself as a supplier of advanced
composite materials systems to branches of the United States military. Quadrax
Composites are currently being incorporated in products provided under contracts
with the United States Air Force, the United States Navy and the United States
Army.
AEROSPACE
Quadrax continues to receive orders for unformatted Quadrax aXial Tape
from companies active in the non-defense aerospace industries. Most of these
orders have been, and any future orders are expected to be, for purposes of
testing and evaluation in connection with research and development products,
with a limited number of sales being made for commercial production purposes.
13
<PAGE> 14
MARKETING AND SALES
REPUTATION
As one of a small number of fabricators in the relatively new
thermoplastic composite tapes market, Quadrax is often sought out by customers
interested in purchasing its tapes. This is particularly true in the defense
market, where Quadrax receives invitations to bid on projects in which Quadrax
Composites may be used to advantage, and in aerospace markets, where Quadrax
periodically receives unsolicited orders, usually from advanced prototyping
engineers purchasing the material for testing and evaluation. These orders
historically have not been received in volumes sufficient to support profitable
operations, and they are not expected to become profitable without an increase
in acceptance of Quadrax Composites by the market through successful marketing
of the Company's finished goods. See "Product Line" above.
Quadrax works to maintain and enhance its reputation within these market
sectors by periodic advertising in trade publication, the regular submission of
technical papers for publication in professional journals and frequent
attendance at industry conferences, conventions and trade shows.
DIRECT SALES
Quadrax's marketing and sales programs are the responsibility of its Vice
President--Sales and Marketing, who, supported by the Company's engineering
staff and other sales personnel, is charged with calling directly on top
decision makers at manufacturing companies that the Company has identified as
attractive candidates for the incorporation of components made out of Quadrax
Composites into finished goods or parts assemblies.
CONSUMER MARKETING
With the recent acquisitions of McManis Sports and the Wimbledon licensing
rights previously held by Time Sports, Inc., Quadrax has added expertise to
assist it in its efforts to begin marketing finished goods directly to
consumers. The Company contemplates that distribution of tennis and golf
equipment initially will be made through specialty retailers (such as pro
shops), with sales being supported by limited-scope promotional campaigns. These
campaigns may include sponsoring tournaments and other competitive events,
high-profile advertisements in limited circulation specialty magazines, and
other techniques calculated to associate the Quadrax name with a performance
advantage.
COMPETITION
MATERIALS COMPETITION
Thermoplastic composites (such as Quadrax Composites) compete with
conventional materials (including wood, stone, steel and aluminum), less common
metals such as titanium, and thermoset (epoxy-based) composites. The materials
considered by Quadrax to be most vulnerable to displacement are thermosets.
Thermosets are an earlier form of polymer resin/fiber matrix composite material
that are the accepted standard for a variety of sporting goods and recreational
equipment. Weight savings alone will not give thermoplastics the edge over
thermosets, but improved strength and vibration dampening qualities, combined
with the ability to achieve a strategic distribution of weight through the
precision engineering of Quadrax aXial Tape, can provide an improved "feel" and
more precise control, particularly in the critical follow-through swing. In
addition, thermoplastics are safer to manufacture and use.
Compared with metals such as steel and, to a lesser extent, aluminum and
titanium, thermoplastic composites offer substantial weight savings at
equivalent tensile and mechanical strength levels, making thermoplastic
composites easier to handle and transport. Since thermoplastic composites do not
oxidize, they
14
<PAGE> 15
do not require paints or other special coatings as protection against rust or
corrosion, making them cheaper to maintain. Compared with wood and other
laminates, thermoplastic composites offer substantial weight savings and, more
importantly, structural characteristics that enable them easily to assume almost
any shape through heat and compression molding, while presenting aesthetic and
acoustic qualities comparable to wood. The primary competitive disadvantage of
thermoplastic composites is their comparatively high cost.
SUPPLIER COMPETITION
Composite materials are an emerging industry, and it is difficult to
identify those competitors that will be the most successful. A significant part
of the early discovery and development work in thermoplastic composites was
performed by major international oil companies, many of which subsequently
exited the business as the size of the defense market decreased. Three of the
largest multinational chemical companies -- E.I. du Pont de Nemours & Co.,
Imperial Chemical Industries PLC and Saint Goban --continue to develop composite
product offerings that may compete with the Company's product offerings. The
Company faces potential competition from new companies as well as established
companies that may migrate from related industries. Many of the Company's
current and prospective competitors, including E.I. du Pont de Nemours & Co.,
Imperial Chemical Industries PLC and Saint Goban, have significantly greater
financial, manufacturing and marketing resources than the Company. There can be
no assurance that the Company's products will compete effectively with products
offered by established and new competitors of the Company.
The Company believes that its ability to compete depends on elements both
within and outside its control, including the success and timing of new product
development and introduction by the Company and its competitors, product
performance and price, distribution and customer support. There can be no
assurance that the Company will be able to compete successfully with respect to
these factors. Although the Company believes that it has certain technological
and other advantages over its competitors, maintaining such advantages will
require continued investment by the Company in design and development, sales and
marketing and customer service and support. There can be no assurance that the
Company will have sufficient resources to make such investments or that the
Company will be able to make the technological advances necessary to maintain
such competitive advantages. In addition, as the Company enters new markets,
distribution channels, technical requirements and levels and bases of
competition may be different than those in the Company's current markets and
there can be no assurance that the Company will be able to compete favorably.
15
<PAGE> 16
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this Form 10-KSB, or have
previously been filed with the Securities and Exchange Commission and are hereby
incorporated by reference pursuant to Item 601 of Regulation S-K:
3.1 Certificate of Incorporation of the Company, as amended.
3.2 By-laws of the Company, as amended.(4)
4.1 Excerpt from Certificate of Incorporation of the Company, as
amended, as to rights of holders of Common Stock.
4.2 Specimen Certificate for Common Stock.
4.3 Specimen Certificate for Class C Warrants.(6)
4.4 Form of Warrant Agreement with American Stock Transfer & Trust
Company, as Warrant Agent for Class C Warrants.(5)
10.1 Form of Proprietary Information and Invention Agreement
executed by certain employees of the Company.(1)
10.2 1989 Non-Qualified Stock Option Plan.(7)
10.3 1993 Stock Plan.(10)
10.4 1994 Non-Qualified Stock Option Plan.
10.5 Patent and Technology License Agreement between the Company and
the Joss Company.(2)
10.6(a) Agreement and Certificate of Limited Partnership of A.S.C.
Development, Inc./Quadrax Corporation Limited Partnership as
General Partner with Quadrax Corporation as Limited Partner
dated June 28, 1988.(3)
10.6(b) Building Sub-Lease dated October 5, 1993 between the Company
and A.S.C. Development, Inc./Quadrax Corporation, L.P. (a Rhode
Island limited partnership).(11)
10.6(c) Second Amendment to Limited Partnership Agreement and
Certificate of A.S.C. Development, Inc./Quadrax Corporation
Limited Partnership as General Partner with Quadrax Corporation
as Limited Partner dated October 7, 1993.(11)
10.7 Amendment to partnership agreement dated September 21, 1988
between the Company and A.S.C. Development, Inc.(3)
10.8 Equipment Sales Agreement between the Company and Phillips
Petroleum Company dated September 9, 1992.(8)
10.9 License Agreement between the Company and Phillips Petroleum
Company dated September 8, 1992.(8)
16
<PAGE> 17
10.10 Stock Purchase Warrant issued by the Company to Emanuel and
Company dated November 27, 1991 (similar warrant for 250,000
shares, dated March 3, 1992, also issued to Emanuel and
Company).(6)
10.11 Form of Class D Warrant issued in connection with the 1992
Private Placement of 10% Unsecured Promissory Notes.(8)
10.12 Form of Class F Warrant issued in connection with the 1993
Private Placement of stock and warrants.(8)
10.13 Stock Purchase Warrant issued by the Company to George Beyts
and Stock Purchase Warrant issued by the Company to Mohammed
Manzur, each dated December 1, 1994.
10.14 Unit Purchase Option dated September 1, 1992, between the
Company and D.H. Blair Investment Banking Corporation.(9)
10.15 Consulting Agreement dated January 20, 1994, between the
Company and Liviakis Financial Communications, as amended as of
May 13, 1994.(11)
10.16 Letter Agreement dated March 3, 1993 between the Company and
First Flushing Securities, Inc. to pay warrant solicitation fee
upon exercise of the Company's Class D, E and F Warrants.(11)
10.17 Release, Settlement and Severance Agreement dated July 5, 1994
among the Company and its subsidiaries, Richard A. Fisher and
Andrew J. MacGowan.(12)
10.18 Stock Purchase Agreement between the Company and Conagher & Co.
Inc., dated July 8, 1994, and as amended November 15,
1994.(13)
10.19 Stock Purchase Agreement between the Company and Conagher & Co.
Inc., dated August 26, 1994.(13)
10.20 Amendment Stock Purchase Agreement between the Company and
Conagher & Co. Inc., dated September 16, 1994.(13)
10.21 Severance Agreement between the Company and Richard A. Fisher
dated September 30, 1994.(13)
10.22 Key Employee Agreement dated October 13, 1994 between the
Company and Terry Lanning.
10.23 Key Employee Agreement dated August 9, 1994 between the Company
and James J. Palermo.
10.24 Key Employee Agreement dated September 26, 1994 between the
Company and David Park.
10.25 Agreement for the Purchase and Sale of Common Stock dated
November 14, 1994 between the Selling Stockholders of McManis
Sports Associates, Inc. named therein and the Company.(14)
10.26 Asset Purchase Agreement dated November 17, 1994 between the
Company and Time Sports, Inc.(14)
17
<PAGE> 18
10.27(a) Conversion Agreement, Settlement and Release dated September
15, 1994 by and among the Company, Kuo Yu Chiang and Hinckley,
Allen & Snyder, as escrow agent.
10.27(b) Conversion Agreement, Settlement and Release dated September
15, 1994 by and among the Company, Li-Chiun Chiang and
Hinckley, Allen & Snyder, as escrow agent.
10.27(c) Conversion Agreement dated September 15, 1994 by and among the
Company, Franklyn B. Neville and Hinckley, Allen & Snyder, as
escrow agent.
10.27(d) Conversion Agreement and Release dated December 30, 1994 by and
among the Company, the holders of Original Preferred Stock
named therein and Hinckley, Allen & Snyder, as escrow agent
(collated).
10.28(a) Agreement for the Creation of a Voting Trust in Settlement of
Claims and Liabilities dated February 13, 1995 by and among
Allied-Asian Consolidated Limited, the Company, Conagher & Co.,
Inc., Pattinson Hayton, III, Richard A. Fisher and James J.
Palermo.
10.28(b) Declaration of Trust "The Quadrax Preferred Stock Voting Trust"
dated February 13, 1995 by and among Allied-Asian Consolidated
Limited and James J. Palermo, for the benefit of the Holders of
the Common Stock of the Company.
10.28(c) Letter Agreement dated March 17, 1995 among the Company,
Allied-Asian Consolidated Limited, Conagher & Co., Inc.,
Pattinson Hayton, III, Richard A. Fisher and James J. Palermo.
10.28(d) Second Amendment to Agreement for the Creation of a Voting
Trust in Settlement of Claims and Liabilities Dated May 30,
1995, by and among Allied-Asian Consolidated Limited, the
Company, Conagher & Co., Inc., Pattinson Hayton, III, Richard
A. Fisher and James J. Palermo (including Exhibits C and D
thereto).*
21.1 List of Subsidiary Corporations.
28.1 Licensing Opportunity Summary - Quadrax Biaxial Thermoplastic
Prepreg for Structural Applications, prepared by Arthur D.
Little, Inc.(5)
- ---------------------
* Filed herewith. All exhibits without footnote references were filed with
the Annual Report on Form 10-KSB amended hereby, as initially filed on
April 13, 1995.
1 Incorporated by reference from the Company's Registration Statement on
Form S-1, File No. 33-14275, filed May 19, 1987.
2 Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-1, File No. 33-14275, filed July 1, 1987.
3 Incorporated by reference from the Company's Form 10-K for the fiscal year
ended January 1, 1989.
4 Incorporated by reference from the Company's Form 10-K for the fiscal year
ended December 31, 1989.
5 Incorporated by reference from the Company's Registration Statement on
Form S-2, File No. 33-40089, filed April 19, 1991.
6 Incorporated by reference from Amendment No. 2 to the Company's
Registration Statement on Form S-3, File No. 33-48998, filed June 24,
1991.
(Footnotes continued on next page)
18
<PAGE> 19
7 Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-3, File No. 33-48998, filed August 31,
1992.
8 Incorporated by reference from Amendment No. 3 to the Company's
Registration Statement on Form S-3, File No. 33-48998, filed September 23,
1992.
9 Incorporated by reference from the Company's Form 10-K for the fiscal year
ended January 3, 1993.
10 Incorporated by reference from the Company's Registration Statement on
Form S-3, File No. 33-66348 filed October 8, 1993.
11 Incorporated by reference from the Company's Form 10-K for the fiscal year
ended January 2, 1994.
12 Incorporated by reference from the Company's Form 10-Q for the fiscal
quarter ended July 3, 1994.
13 Incorporated by reference from the Company's Form 10-Q for the fiscal
quarter ended September 30, 1994.
14 Incorporated by reference from the Company's Form 8-K dated as of November
14, 1994.
(b) Reports on Form 8-K. The following Current Reports on Form 8-K were
filed with the Securities and Exchange Commission during the last quarter of
fiscal 1994:
- - On October 13, 1994, the Company filed a Form 8-K containing a copy of a
press release of the Company with respect to the trading volume in the
Common Stock.
- - On October 21, 1994, the Company filed a Form 8-K with respect to a change
in its accountants from Arthur Andersen LLP to Livingston & Haynes, P.C.
In addition, on April 10, 1995, the Company filed a Form 8-K dated November 14,
1994 with respect to the acquisition of McManis Sports and the Wimbledon license
rights.
19
<PAGE> 20
SIGNATURE
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, as of the ninth day of June, 1995.
QUADRAX CORPORATION
(Registrant)
By /s/ JAMES J. PALERMO
----------------------------------
James J. Palermo
Chairman of the Board of Directors
and Chief Executive Officer
<PAGE> 21
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, as amended.
3.2 By-laws of the Company, as amended.(4)
4.1 Excerpt from Certificate of Incorporation of the Company, as
amended, as to rights of holders of Common Stock.
4.2 Specimen Certificate for Common Stock.
4.3 Specimen Certificate for Class C Warrants.(6)
4.4 Form of Warrant Agreement with American Stock Transfer & Trust
Company, as Warrant Agent for Class C Warrants.(5)
10.1 Form of Proprietary Information and Invention Agreement
executed by certain employees of the Company.(1)
10.2 1989 Non-Qualified Stock Option Plan.(7)
10.3 1993 Stock Plan.(10)
10.4 1994 Non-Qualified Stock Option Plan.
10.5 Patent and Technology License Agreement between the Company and
the Joss Company.(2)
10.6(a) Agreement and Certificate of Limited Partnership of A.S.C.
Development, Inc./ Quadrax Corporation Limited Partnership as
General Partner with the Company as Limited Partner dated June
28, 1988.(3)
10.6(b) Building Sub-Lease dated October 5, 1993 between the Company
and A.S.C. Development, Inc./Quadrax Corporation, L.P. (a Rhode
Island limited partnership).(11)
10.6(c) Second Amendment to Limited Partnership Agreement and
Certificate of A.S.C. Development, Inc./Quadrax Corporation
Limited Partnership as General Partner with Quadrax Corporation
as Limited Partner dated October 7, 1993.(11)
10.7 Amendment to partnership agreement dated September 21, 1988
between the Company and A.S.C. Development, Inc.(3)
10.8 Equipment Sales Agreement between the Company and Phillips
Petroleum Company dated September 9, 1992.(8)
10.9 License Agreement between the Company and Phillips Petroleum
Company dated September 8, 1992.(8)
[Footnotes appear at end of index]
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
10.10 Stock Purchase Warrant issued by the Company to Emanuel and
Company dated November 27, 1991 (similar warrant for 250,000
shares, dated March 3, 1992, also issued to Emanuel and
Company).(6)
10.11 Form of Class D Warrant issued in connection with the 1992
Private Placement of 10% Unsecured Promissory Notes.(8)
10.12 Form of Class F Warrant issued in connection with the 1993
Private Placement of stock and warrants.(8)
10.13 Stock Purchase Warrant issued by the Company to George Beyts
and Stock Purchase Warrant issued by the Company to Mohammed
Manzur, each dated December 1, 1994.
10.14 Unit Purchase Option dated September 1, 1992, between the
Company and D.H. Blair Investment Banking Corporation.(9)
10.15 Consulting Agreement dated January 20, 1994, between the
Company and Liviakis Financial Communications, as amended as of
May 13, 1994.(11)
10.16 Letter Agreement dated March 3, 1993 between the Company and
First Flushing Securities, Inc. to pay warrant solicitation fee
upon exercise of the Company's Class D, E and F Warrants.(11)
10.17 Release, Settlement and Severance Agreement dated July 5, 1994
among the Company and its subsidiaries, Richard A. Fisher and
Andrew J. MacGowan.(12)
10.18 Stock Purchase Agreement between the Company and Conagher & Co.
Inc., dated July 8, 1994, and as amended November 15, 1994.(13)
10.19 Stock Purchase Agreement between the Company and Conagher & Co.
Inc., dated August 26, 1994.(13)
10.20 Amendment Stock Purchase Agreement between the Company and
Conagher & Co. Inc., dated September 16, 1994.(13)
10.21 Severance Agreement between the Company and Richard A. Fisher
dated September 30, 1994.(13)
10.22 Key Employee Agreement dated October 13, 1994 between the
Company and Terry Lanning.
10.23 Key Employee Agreement dated August 9, 1994 between the Company
and James J. Palermo.
10.24 Key Employee Agreement dated September 26, 1994 between the
Company and David Park.
</TABLE>
[Footnotes appear at end of index]
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
10.25 Agreement for the Purchase and Sale of Common Stock dated
November 14, 1994 between the Selling Stockholders of McManis
Sports Associates, Inc. named therein and the Company.(14)
10.26 Asset Purchase Agreement dated November 17, 1994 between the
Company and Time Sports, Inc.(14)
10.27(a) Conversion Agreement, Settlement and Release dated September
15, 1994 by and among the Company, Kuo Yu Chiang and Hinckley,
Allen & Snyder, as escrow agent.
10.27(b) Conversion Agreement, Settlement and Release dated September
15, 1994 by and among the Company, Li-Chiun Chiang and
Hinckley, Allen & Snyder, as escrow agent.
10.27(c) Conversion Agreement dated September 15, 1994 by and among the
Company, Franklyn B. Neville and Hinckley, Allen & Snyder, as
escrow agent.
10.27(d) Conversion Agreement and Release dated December 30, 1994 by and
among the Company, the holders of Original Preferred Stock
named therein and Hinckley, Allen & Snyder, as escrow agent
(collated).
10.28(a) Agreement for the Creation of a Voting Trust in Settlement of
Claims and Liabilities dated February 13, 1995 by and among
Allied-Asian Consolidated Limited, the Company, Conagher & Co.,
Inc., Pattinson Hayton, III, Richard A. Fisher and James J.
Palermo.
10.28(b) Declaration of Trust "The Quadrax Preferred Stock Voting Trust"
dated February 13, 1995 by and among Allied-Asian Consolidated
Limited and James J. Palermo, for the benefit of the Holders of
the Common Stock of the Company.
10.28(c) Letter Agreement dated March 17, 1995 among the Company,
Allied-Asian Consolidated Limited, Conagher & Co., Inc.,
Pattinson Hayton, III, Richard A. Fisher and James J. Palermo.
10.28(d) Second Amendment to Agreement for the Creation of a Voting
Trust in Settlement of Claims and Liabilities Dated May 30,
1995, by and among Allied-Asian Consolidated Limited, the
Company, Conagher & Co., Inc., Pattinson Hayton, III, Richard
A. Fisher and James J. Palermo (including Exhibits C and D
thereto).*
21.1 List of Subsidiary Corporations.
28.1 Licensing Opportunity Summary - Quadrax Biaxial Thermoplastic
Prepreg for Structural Applications, prepared by Arthur D.
Little, Inc.(5)
</TABLE>
- -----------------
* Filed herewith. All exhibits without footnote references were filed with
the Annual Report on Form 10-KSB amended hereby, as initially filed on
April 13, 1995.
1 Incorporated by reference from the Company's Registration Statement on
Form S-1, File No. 33-14275, filed May 19, 1987.
[Footnotes continued on next page]
<PAGE> 24
2 Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-1, File No. 33-14275, filed July 1, 1987.
3 Incorporated by reference from the Company's Form 10-K for the fiscal year
ended January 1, 1989.
4 Incorporated by reference from the Company's Form 10-K for the fiscal year
ended December 31, 1989.
5 Incorporated by reference from the Company's Registration Statement on
Form S-2, File No. 33-40089, filed April 19, 1991.
6 Incorporated by reference from Amendment No. 2 to the Company's
Registration Statement on Form S-3, File No. 33-48998, filed June 24,
1991.
7 Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-3, File No. 33-48998, filed August 31,
1992.
8 Incorporated by reference from Amendment No. 3 to the Company's
Registration Statement on Form S-3, File No. 33-48998, filed September 23,
1992.
9 Incorporated by reference from the Company's Form 10-K for the fiscal year
ended January 3, 1993.
10 Incorporated by reference from the Company's Registration Statement on
Form S-3, File No. 33-66348 filed October 8, 1993.
11 Incorporated by reference from the Company's Form 10-K for the fiscal year
ended January 2, 1994.
12 Incorporated by reference from the Company's Form 10-Q for the fiscal
quarter ended July 3, 1994.
13 Incorporated by reference from the Company's Form 10-Q for the fiscal
quarter ended September 30, 1994.
14 Incorporated by reference from the Company's Form 8-K dated as of November
14, 1994.
<PAGE> 1
SECOND AMENDMENT TO AGREEMENT
FOR THE CREATION OF A VOTING TRUST
IN SETTLEMENT OF CLAIMS AND LIABILITIES
This Second Amendment to Agreement for the Creation of a Voting Trust in
Settlement of Claims and Liabilities is entered into as of this 30th day of May
1995 by and between Allied-Asian Consolidated, Limited ("Allied-Asian"), Quadrax
Corporation ("Quadrax"), Conagher & Co., Inc. ("Conagher"), Pattinson Hayton III
("Hayton"), Richard A. Fisher ("Fisher") and James J. Palermo ("Palermo").
Whereas, on February 13, 1995, all parties hereto entered into an Agreement for
the Creation of a Voting Trust in Settlement of Claims and Liabilities (the
"Settlement Agreement"); and
Whereas, on March 17, 1995, all parties hereto entered into the First Amendment
to the Settlement Agreement (the "First Amendment"); and
Whereas, it is the desire of all parties hereto to enter into this instant
agreement to further amend the Settlement Agreement, whereby this instant
agreement shall be the Second Amendment to the Settlement Agreement;
Now, therefore, in consideration of the mutual covenants, promises,
representations and warranties, the parties agree as follows:
1. The parties hereby agree that the Form 10-KSB filed by Quadrax on April
13, 1995 with the U.S. Securities & Exchange Commission, shall be amended
by Quadrax by Quadrax filing an Amended Form 10-KSB, at the end of section
titled "Changes in Control and Related Transactions" (page 5),
incorporating a statement in the form attached hereto as Exhibit A, and
incorporated herein by reference ("the 10-K Amendment"). Quadrax hereby
agrees which shall be a material term of this agreement that it shall
cause the 10-K Amendment to be filed with the U.S. Securities & Exchange
Commission not later than ten (10) days from May 30, 1995, and Quadrax
shall deliver a copy of the 10-K Amendment, in the form filed to the Law
Offices of Barry K. Rothman, by facsimile transmission, not later than May
30, 1995. Additionally, Quadrax hereby agrees that immediately after
filing the 10-K Amendment, Quadrax shall initiate the process to
distribute the 10-K Amendment to all of its current shareholders in the
same manner the original Form 10-KSB was distributed. Quadrax agrees that
any recipients of the original 10-KSB, which shall be received after the
date of this Agreement, shall concurrently receive the 10-K Amendment.
Hayton, Allied-Asian and Conagher hereby release Palermo, Fisher, Quadrax
and each of its present and former officers and directors, employees,
agents, attorneys, accountants and other advisors, from any and all
liability based on any cause of action arising from the Form 10-KSB filed
by Quadrax on or about April 13, 1995, or any statement contained therein.
Each of the parties hereto confirms to each of the other parties that
there is a full and final satisfaction of any and all claims or
liabilities, known and unknown, which each party has or may assert against
any other party in respect to any and all accountings previously rendered
by any party to the other regarding payment for Quadrax stock purchased by
Conagher and Allied-Asian, and each party hereby waives, releases and
discharges, fully and finally, any and all claims any party may have or
assert against any other party or parties, their successors, assigns,
agents, attorneys, officers, directors and employees, whether at law or in
equity, in respect to any and all accountings previously rendered by any
party for the other regarding payment for Quadrax stock.
Page 1 of 4
<PAGE> 2
2. Quadrax hereby represents and warrants to Hayton that as of the date of
this Agreement, no report has been issued to any trading authority
respecting monies received by Hayton from Quadrax. Quadrax agrees to issue
to the IRS a Form 1099 for Hayton in the amount of $79,873 for the
calendar year 1994, in the form attached hereto as Exhibit B, and
incorporated herein by reference. Quadrax hereby agrees that Hayton shall
not be issued any Form 1099 by Quadrax for the calendar year 1995.
3. Quadrax hereby agrees that, with respect to any new information regarding
Hayton, Allied-Asian, or Conagher, to be set forth in any document
authored and filed by Quadrax as a public document, including, but not
limited to, any Form 10-Q's, Form 8-K's, or Form 10-K's filed by Quadrax,
Quadrax will provide to Hayton, an advance copy of such documents and
allow a reasonable opportunity to review and propose Amendments to said
documents prior to filing, with the understanding that Hayton's proposals
shall be reasonable, and that Quadrax shall not unreasonably decline to
effect such Amendments.
4. Quadrax hereby agrees that, with respect to any inquiry that Quadrax may
receive from any regulatory agency regarding Hayton, Allied-Asian or
Conagher, Quadrax shall, unless prohibited by applicable law or regulation
from doing so, advise and consult with Hayton on the existence and nature
of said inquiry.
5. Quadrax hereby acknowledges that, prior to the date of this Agreement,
both Hayton and Conagher guaranteed a Performance Bond, issued by an
insurance bonding company for the Seawolf Submarine tile contract, Quadrax
agrees that immediately subsequent to the execution of this Agreement,
Quadrax shall use its best efforts to
Page 2 of 4
<PAGE> 3
release Hayton and Conagher from their guarantee of the Performance Bond
hereunder and Quadrax agrees to offer an amount equal to $50,000.00 to the
insurance bonding company to attempt to effect said releases.
6. Quadrax hereby agrees that, pursuant to paragraph 12(ii) of the Settlement
Agreement, concurrently upon the execution of this Agreement, Quadrax
shall execute an assignment of Quadrax's judgment against J. Albert
Garcia, in favor of Hayton, in the form attached hereto as Exhibit C and
incorporated herein by reference.
7. Quadrax hereby agrees, represents and warrants that, at its next Annual
Meeting of Stockholders, presently scheduled for May 31, 1995, Palermo
shall read a "Statement to Shareholders," in the form attached hereto as
Exhibit D, and incorporated herein by reference, to all persons convened.
8. Quadrax and Palermo hereby represent and warrant that Palermo has the
authority and consent of the Board of Directors of Quadrax, to execute
this Agreement on behalf of Quadrax and to bind Quadrax pursuant to the
terms of this Agreement. Allied-Asian, Conagher and Hayton hereby
represent and warrant that Hayton has the authority and consent of the
Board of Directors of Allied-Asian and Conagher to execute this Agreement
on behalf of Allied-Asian and Conagher and to bind Allied-Asian and
Conagher pursuant to the terms of this Agreement.
9. Fisher is a party to the Settlement Agreement, the First Amendment and
this Agreement solely for the purposes of accommodating the desires of the
other parties thereto by approving the assignment to Quadrax of certain of
Conagher's prior obligations to Fisher, the release of Hayton's personal
guarantee of Conagher's obligations and the transfer of certain securities
to a voting trust, all as set forth in the Settlement Agreement. The
parties to this Agreement other than Fisher agree that Fisher has
satisfied all of his obligations and shall have no further obligations,
responsibilities or liabilities with respect to the performance of any
other matter set forth in or pertaining to the Settlement Agreement, the
First Amendment and this Agreement.
10. All parties hereby agree that a facsimile signature shall be deemed to be
an original signature for all purposes. Additionally, all parties hereby
agree that this Agreement may be executed in counterparts, whereby all
counterparts taken together shall constitute a fully executed original
Agreement.
11. The parties hereby agree that, except as amended herein, the Settlement
Agreement and the First Amendment remain unchanged.
Page 3 of 4
<PAGE> 4
In witness whereof, the parties hereto have executed this Agreement, as of the
date first set forth above.
Quadrax Corporation
By: /s/ JAMES J. PALERMO
----------------------------------------
James J. Palermo
Chief Executive Officer
Allied-Asian Consolidated, Limited
By: /s/ PATTINSON HAYTON III
----------------------------------------
Conagher & Company, Inc.
By: /s/ PATTINSON HAYTON III
----------------------------------------
/s/ PATTINSON HAYTON III
- ----------------------------------------------
Pattinson Hayton III, Individually
/s/ RICHARD A. FISHER
- ----------------------------------------------
Richard A. Fisher, Individually
/s/ JAMES J. PALERMO
- ----------------------------------------------
James J. Palermo, Individually
Page 4 of 4
<PAGE> 5
EXHIBIT C
ASSIGNMENT OF GARCIA JUDGMENT
FROM QUADRAX CORPORATION
TO PATTINSON HAYTON III
<PAGE> 6
ASSIGNMENT
For valuable consideration, receipt of which is hereby acknowledged,
Quadrax Corporation does hereby irrevocably assign and transfer to Pattinson
Hayton III the judgment entered against J. Albert Garcia in favor of Quadrax,
Inc. in the amount of $50,000.00 for compensatory damages, in the Superior
Court, State of Rhode Island, Newport S.C., case number C.A. no 94-530.
Quadrax Corporation hereby specifically agrees that in respect to the
assignment of aforesaid judgment by Quadrax Corporation ("Quadrax") to Pattinson
Hayton III ("Hayton"), Hayton shall have the right to pursue the collection of
said judgment, in any manner Hayton may elect, at Hayton's sole discretion, and
Hayton shall have the right to compromise the judgment, in any manner Hayton may
elect at Hayton's sole discretion, without the approval, consent or consultation
of Quadrax Corporation.
Quadrax Corporation
By:
------------------------
Dated: May ____, 1995
STATE OF RHODE ISLAND
COUNTY OF
In ______________________________ in said County on the ______ day of
May, 1995, before me personally appeared ________________________________ of
Quadrax Corporation, to me known and known by me to be the party executing the
foregoing instrument on behalf of Quadrax Corporation, and be acknowledged said
instrument by him executed to be his free act and deed and the free act and deed
of said Quadrax Corporation.
---------------------------------
Notary Public
<PAGE> 7
EXHIBIT D
STATEMENT TO SHAREHOLDERS
<PAGE> 8
STATEMENT TO SHAREHOLDERS
At this time, I am pleased to announce that Quadrax Corporation has
agreed to file an Amendment to Quadrax's Form 10-KSB filed on April 13, 1995,
reflecting certain developments with respect to our previous chairman, Pattinson
Hayton III, Allied-Asian Consolidated, Limited, and Conagher and Company, Inc.
Copies of the 10-KSB, as previously amended, have been handed out to you and are
also available in the back of the room.
The Amended Form 10-K will principally address certain issues relating
to expenses incurred by or on behalf of the Company in connection with its
efforts to raise additional capital during 1994, to broaden and diversify its
lines of business, and to restructure itself. Through discussions with Mr.
Hayton and his representatives, certain financial issues relating to corporate
expenses incurred during Mr. Hayton's tenure as chairman have now been fully
resolved to the mutual satisfaction of both Quadrax and Mr. Hayton. In addition,
the Amendment notes that Allied-Asian and Mr. Hayton have now fully satisfied
all payment obligations pursuant to the promissory notes issued by Allied-Asian
in connection with the Settlement Agreement entered into by these parties on
February 13, 1993, as subsequently amended on March 17, 1995 and May 30, 1995.
The Company acknowledges at this time that Mr. Hayton was instrumental,
during his chairmanship, in obtaining critical financing for Quadrax, was
instrumental in obtaining commercial contracts for Quadrax respecting Quadrax's
core business and helped to guide the Company through difficult times through
his foresight and persistence. We sincerely appreciate Mr. Hayton's hard work
and effort during his tenure as Chairman of Quadrax, and we wish him the best of
success in his future endeavors.
