U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
Amendment No.3
(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, 1995
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
(State or Other Jurisdiction of incorporation or Organization)
05-0420158
(I.R.S. Employer Identification No.)
300 High Point Avenue
Portsmouth, Rhode Island
(Address of Principal Executive Offices)
02871
(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 the past 90 days. Yes X No
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. $4,634,839
State the aggregate market value of the voting stock held by non-affiliates:
$21,058,547, computed by reference to the closing price of the issuer's Common
Stock on March 29, 1996 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 29, 1996:
21,737,842 shares of Common Stock, par value $.000009 per share
282,522 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 10, 1996 are incorporated by reference in Part III.
Transitional Business Disclosure Format (check one): Yes No X
QUADRAX is a registered trademark of Quadrax Corporation, and
CONQUEROR, QUADRAX AXIAL TAPE, QUADRAX BIAXIAL TAPE and QUADRAX COMPOSITES are
trademarks of Quadrax Corporation. This Annual Report on Form 10-KSB also
includes the trademarks of companies other than Quadrax Corporation.
Except as otherwise noted, all information in this Annual Report
on Form 10-KSB has been adjusted to reflect, on a pro forma basis, a one-for-
ten reverse stock split of Quadrax Corporation's Common Stock effected as of
July 20, 1994.
PART I
Item 1. Description of Business.
Overview
General
Quadrax Corporation ("Quadrax" or the "Company") a Delaware corporation formed
in March 1986, which prior to fiscal year 1995 was a development stage company,
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 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
activities. Although the Company historically was dedicated to the formatting
of composite materials for defense and aerospace markets, it began redirecting
its business in 1994 and 1995 to focus on commercial and consumer markets for
value-added, high-performance products. 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 1995, reflecting
the Company's history of losses 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 21 of
this Form 10-KSB.
Quadrax Corporation is organized in a holding company structure, operating
through two wholly owned subsidiaries: Quadrax Advanced Materials Systems, Inc.
and Lion Golf of Oregon, Inc. ("Lion Golf"). 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 of Quadrax in
exchange for ALS stock. In May 1994 Quadrax and ALS mutually agreed to
terminate the proposed acquisition of the Company. Because the Company
incurred significant expenses in connection with the proposed acquisition, it
required substantial additional capital to meet its operating expenses and
continue its operations after the deal was terminated.
In an effort to raise additional capital, the Company and its founder and then
Chief Executive Officer, Richard A. Fisher, entered into a series of
transactions with Pattinson Hayton, III, and certain of his affiliates. On
July 8, 1994, Mr. Hayton 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
Mr. Fisher. Conagher's ownership of the Preferred Stock entitled it to elect
three-fifths of the 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 of the Company and was nominated to serve as Chairman.
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 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 payable in equal consecutive monthly installments beginning
October 31, 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.
Conagher made payments to the Company pursuant to these promissory notes of
$1,056,563 and $5,893,088 in fiscal years ended December 31, 1995 and December
31, 1994, respectively. These payments were not in accordance with the payment
schedule which caused the Company to once again suffer a working capital
shortage. Therefore, in February 1995, the Board of Directors of the Company,
Conagher, and Mr. Hayton agreed to amend the September 1994 stock purchase
agreement.
The February 1995 agreement as subsequently amended in March and May of 1995
called for:
the resignation of Mr. Hayton as Chairman and a member of the
Company's Board of Directors;
a reduction in amount and an extension of the time for
payment of certain notes due from Conagher for the purchase of
common stock of the Company;
the issuance to Conagher, or its nominees, of an additional
1,150,000 shares of common stock of the Company, in
restricted form;
the assumption by the Company of certain outstanding
obligations owed by Conagher and guaranteed by Mr. Hayton,
personally, to Richard A. Fisher (see Note 12 to
the Consolidated Financial Statements for the Fiscal Year
1995),the founder and former Chief Executive Officer of the
Company; and the transfer of the Preferred Stock to James
Palermo, the Chief Executive Officer of the Company, as
trustee for the holders of common stock. The Preferred Stock
was converted into common stock and then repurchased by the
Company for a nominal sum in fiscal 1996.
The Company considers its relationship with Mr. Hayton and Conagher to be
terminated, and other than a current lawsuit filed by Conagher and Mr. Hayton,
(see Legal Proceedings, Item III), no further transactions are pending or are
contemplated with Conagher or Mr. Hayton. For a more complete discussion of
Conagher and Mr. Hayton's relationship and business dealings with the Company,
see the Company's Form 10-KSB as amended for the fiscal year ending December
31, 1994.
Redirection of Business
Historically, the Company was dedicated to the formatting of composite
materials for defense and aerospace markets. As defense funding for advanced
research was curtailed in the late 1980s and 1990s , and the defense industry
declined as a viable market for composite materials, the Company began to
redirect its business toward 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 material and the familiarity of customers with
more conventional materials.
The Company's strategy is to focus its resources on the design, development and
prototyping of sporting goods products in order to demonstrate the performance
attributes of Quadrax Composites, and to build demand for the Company's
materials. In furtherance of this strategy, in 1993 the Company signed a joint
development and manufacturing contract with a Taiwanese tennis racquet
manufacturer, Kunnan Enterprise Limited, through which Quadrax was able to
develop technologies suitable for manufacturing value-added products from
Quadrax Composites for various sporting goods markets.
Beginning in 1994, the Company sought to accelerate the redirection of its
business through acquisitions of assets and license rights, and through
strategic arrangements with manufacturers of sporting goods and athletic
equipment. The Company will determine, on a product-by-product basis, whether
to undertake manufacturing of a product, or to enter into a strategic
relationship with a company experienced in manufacturing such a product and
with established distribution channels in the relevant market.
The Company has taken the following steps to redirect its business in late 1994
and 1995:
In November 1994, 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. In the third quarter of 1995, the Company began
shipping "Conqueror" racquets made from the Company's thermoplastic material.
At the same time, the Company also acquired the right to make and market
certain apparel under the "Wimbledon" brand name pursuant to a licensing
agreement with the All-England Lawn Tennis and Croquet Club of Wimbledon,
England. In 1995, after a further review of this acquisition, the Company
abandoned the Wimbledon apparel license.
In November 1994, the Company acquired all of the stock of McManis Sports
("McManis"), a company which designed and developed golf clubs. This
acquisition provided the Company with lines of golf products, including irons
marketed under the "Tour Technology" and other brand names and expertise in the
design and development of golf equipment. In further evaluating the McManis
acquisition in 1995, the Company determined that the goodwill acquired with
McManis could not be successfully exploited and that the strategy of
telemarketing golf products as originally contemplated was not feasible.
Therefore, as of December 31, 1995, the remaining operations of McManis were
transferred to the Company's Lion Golf subsidiary.
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. The Company completed testing of lacrosse sticks made from
Quadrax Composites and commenced shipments in April 1995.
In December 1995, the Company acquired all of the outstanding stock of Lion
Golf of Oregon, Inc. ("Lion Golf"), a manufacturer and distributor of golf
clubs. Lion Golf was acquired by the Company to provide golf club
manufacturing expertise and distribution channels for the Tour Technology irons
previously acquired with McManis.
The Company believes that expanding sales of the foregoing golf and tennis
products, as well as other products using Quadrax thermoplastic materials, is
the key to achieving viability and profitability. 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 $9.3 million of equity capital in fiscal 1995 and
an additional $1.7 million through sales of convertible debentures early in
fiscal 1996. It expects to raise approximately $2.0 to $5.0 million through
additional security sales during the remainder of 1996 and believes that these
funds, together with cash provided by operations, will be sufficient to meet
the Company's cash requirements for the remainder of fiscal 1996. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION--Financial Position,
Liquidity and Capital Resources".
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 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
Management believes that 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:
- athletic and recreational equipment, such as racquet frames, lacrosse and
hockey sticks, golf shafts, 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.
Manufacturing and Distribution Systems
Production
Materials, Machinery and Personnel. All materials, machinery 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 such as Hercules,
Inc., Hoechst Celanese, Inc., and E.I. du Pont de Nemours & Co. 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.
Production personnel include materials and process engineers, skilled and semi-
skilled machine operators, and various shop hands. As of March 29, 1996, the
Company has a workforce of sixty-nine employees. 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.
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.
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, such as
lacrosse sticks and golf equipment, are produced domestically in Portsmouth
Rhode Island or Bend, Oregon. The golf products are then sold to
wholesale/retail distributors, while the lacrosse sticks are sold to the
original equipment manufacturer to be assembled into their products. The
Wimbledon tennis racquets are produced overseas and shipped to the Company's
Lion Golf subsidiary, which then ships to the wholesale/retail distributors 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 commenced shipments of the
Conqueror in the third quarter of fiscal 1995. The Conqueror features "Dynamic
Positioning," a strategic use of weight distribution that takes advantage of
the strength-to-weight advantages of Quadrax Composites. The Company has
introduced several additional tennis racquet models in the first quarter of
fiscal 1996, which are made out of thermoplastic material and are being
marketed under the Wimbledon name.
- - The Company is marketing lacrosse stick handles utilizing Quadrax
Composites. These handles were developed under a joint design/exclusive
manufacturing contract entered into in February 1995 with Brine, Inc. The
Company commenced shipping lacrosse stick handles to Brine, Inc. in April 1995.
- - The acquisition of Lion Golf which has absorbed McManis' "Tour Technology"
lines provides Quadrax with golf product lines that are marketed under the
"Prestige" and "Lion" brand names and other brand names. The Company has
completed a prototype of a putter produced with Quadrax Composites which also
is being marketed by Lion. Lion also continues to produce and manufacture golf
clubs which are made from conventional materials.
- - The Company is currently developing bicycle parts made from Quadrax
thermoplastic material such as handlebars and forks for bicycle original
equipment manufacturers such as Cannondale Corporation, ("Cannondale"). These
parts are currently being tested by Cannondale for acceptability and
conformance with their production standards. The Company cannot predict at
this time whether Cannondale will ultimately enter into a manufacturing
contract for the Company to produce bicycle parts for Cannondale.
- - The Company is currently developing a composite graphite golf shaft made from
its proprietary thermoplastic material. The golf shaft has recently
successfully completed a series of standard industry tests administered by an
independent testing laboratory specializing in golf clubs. The Company is now
evaluating the course of action to take to maximize the opportunity to bring
this thermoplastic shaft to market.
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, designing and developing soccer protective gear,
volleyball net poles, hockey sticks and athletic shoe inserts 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. 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 has supplied advanced composite materials systems to branches of the
United States military through three materials supply contracts with defense
contractors. Under these contracts, Quadrax Composites have been incorporated
in:
- - the F-22 "Air Superiority" tactical fighter being produced by Lockheed
Aeronautical Systems Company under contract with the United States Air Force;
- - 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 brand-name approach is being utilized through the Conqueror
tennis racquet 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 Lion Golf.
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 handlebar and fork program with Cannondale Corporation.
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 have been 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.
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 publications, 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 acquisition of Lion Golf and the Wimbledon licensing right 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 both through specialty retailers (such as pro shops) and regional mass
merchandisers.
Competition
Quadrax faces competition from other materials used in the manufacture of
sporting goods and equipment, and from other suppliers of thermoplastic
composites. Sporting goods and equipment are currently manufactured from
conventional materials such as wood, stone, steel and aluminum, less common
metals such as titanium, and epoxy-based (thermoset) composites. Quadrax is
seeking to educate the market on the competitive advantages of its composites,
including several processing efficiencies which, when measured on a total cost
of finished goods basis, enable Quadrax Composites to present an attractive
price/performance profile:
- - 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.
Like most composites, however, Quadrax Composites are more expensive than
competing conventional materials. Additionally, there is 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.
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 St. Gobain S.A. --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 St. Gobain S.A., 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.
There is no assurance that the Company will be able to successfully compete
with existing and newly emerging composite manufacturers. Maintaining a
competitive edge will involve continued investment by the Company in design and
development, sales and marketing and customer service and support, and
successfully timing new product development in relation to competitors'
products. There can be no assurance that the Company will have sufficient
resources to make such investments. 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.
In general, the Company believes that it can compete effectively by offering
products with superior performance characteristics to products offered by other
suppliers at prices substantially equivalent to those charged by other
suppliers.
Item 2. Description of Property.
The Company's corporate headquarters and manufacturing facilities are located
in Portsmouth, Rhode Island, in a leased building comprising approximately
49,000 square feet. The Company has occupied all or a portion of this building
since the building was constructed in 1988. In connection with its initial
lease of the facilities, the Company acquired a one-third interest as a limited
partner in the limited partnership that owns the building and pledged a
$250,000 certificate of deposit to secure its obligations to the institution
that provided construction financing for the building.
Under the terms of a revised operating lease executed in October 1993, the
Company agreed to lease the Portsmouth building at an annual rent of
approximately $100,000 for a ten-year term expiring in 2003. The Company has
responsibility for all repairs, maintenance and operating expenses for the
building during the lease term. In connection with the execution of the
revised lease, the lender reduced the balance of the mortgage based on the
reduction in the fair market value of the building under current market
conditions. In exchange for a net reduction in the outstanding loan balance of
approximately $1 million, the Company transferred the $250,000 certificate of
deposit to the limited partnership as a capital contribution, and the limited
partnership transferred the certificate of deposit to the lender. In exchange
for the $250,000 payment from the Company, the limited partnership executed a
second deed of trust payable to the Company in the amount of $250,000. Under
the revised lease, Quadrax has the right to purchase the building at any time
during the lease term for a price of approximately $1,000,000 (approximately
50% of the construction cost of the building), a portion of which may be paid
through cancellation of the second deed of trust.
The Company's subsidiary Lion Golf of Oregon, Inc. has its manufacturing and
distribution operations in a leased one story concrete tilt-up building in
Bend, Oregon of approximately 15,000 square feet. The rent on this building
approximates $66,000 annually and the lease extends to March 2003.
The Company believes that its existing leased facilities are adequate to meet
its currently anticipated requirements and that suitable additional or
substitute facilities will be available if required.
<PAGE>
Item 3. Legal Proceedings.
As of the filing date of this Form 10-KSB, the Securities and Exchange
Commission is conducting an informal investigation of the Company for
activities occurring in 1994 and 1995. The following discussion is based on
information learned by the Company as a result of its involvement in the
Commission's activities. There may be other significant information regarding
these matters of which the Company is, at this time, not aware.
This inquiry, being conducted by the Commission's Denver officer, is believed
to have as its principal focus, insofar as it relates to the Company, certain
transactions in the Company's stock and certain expenditures of the Company
funds from July 1994 through February 1995. The Company has cooperated with the
inquiry described above, providing documents and other information in response
to the Staff's requests. At this time, the Company does not know what
conclusions the Staff will reach or what action, if any, the Staff will
recommend to the Commission upon the termination of the inquiry.
In December 1995, the Company and its Chairman and CEO, James J. Palermo, were
named as defendants in a defamation suit brought in the Superior Court of the
State of California, County of Los Angeles. The plaintiffs in this lawsuit
were Conagher & Co., Inc. and Pattinson Hayton, III, the Company's former
Chairman of the Board. Pursuant to the Company's motion, this case was
transferred in March 1996 to the United States Federal District Court in Rhode
Island. The plantiffs' are seeking $10,000,000 in damages, along with punitive
damages to be determined. The Company is of the opinion that this lawsuit is
without merit and intends to defend itself vigorously. The ultimate outcome of
this lawsuit cannot be predicted at this time due to the early stage of the
matter.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not currently a party to any legal proceedings other than those mentioned
above, the adverse outcome of which, in management's opinion, individually or
in the aggregate, would have a material adverse effect on the Company's results
of operations or financial position.
Item 4. Submission of Matters to a Vote of Security-Holders.
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Common Stock and the Company's Non-Callable Class C Common Stock Purchase
Warrants ("Class C Warrants") trade on the Nasdaq Small Cap Market under the
symbols "QDRX" and "QDRXZ," respectively. The table below sets forth the range
of high and low bid prices for the Common Stock and the Class C Warrants on the
Nasdaq Small Cap Market for each quarter within the last two fiscal years:
Common Stock* Class C Warrants*
High Bid Low Bid High Bid Low Bid
Fiscal 1995:
Quarter Ended March 31, 1995 $3.5625 $2.4375 $2.6250 $1.7500
Quarter Ended June 30, 1995 2.8125 1.8125 2.0000 1.3750
Quarter Ended September 30, 1995 2.3125 1.3750 2.5000 1.0000
Quarter Ended December 31, 1995 1.8750 0.6875 2.5000 1.5625
Fiscal 1994:
Quarter Ended April 3, 1994 7.5000 2.2500 3.7500 0.3125
Quarter Ended July 3, 1994 5.3125 1.5625 2.1875 0.3125
Quarter Ended September 30, 1994 5.2500 2.2500 2.7500 0.6250
Quarter Ended December 31, 1994 4.5000 2.3125 3.0000 2.0000
* Adjusted to reflect, on a pro forma basis, a one-for-ten reverse
stock split of the Common Stock effected as of July 20, 1994.
The preceding price quotations reflect inter-dealer prices without retail mark-
ups, mark-downs or commissions and may not necessarily represent actual
transactions.
As of March 29, 1996, there were 21,737,842 shares of Common Stock issued and
outstanding and held of record by approximately 1,500 stockholders.
The Company did not declare any dividends on Common Stock during fiscal 1994,
fiscal 1995 or the first quarter of fiscal 1996, and does not expect to declare
dividends in the foreseeable future in that any cash generated by the Company
will be retained to fund the Company's on-going cash requirements.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain matters discussed in this section and
elsewhere in this Form 10-KSB are forward-looking statements. These forward-
looking statements involve risks and uncertainties including, but not limited
to, economic conditions, product demand and industry capacity, competition, and
other risks.
Competition. As the Company enters the sporting goods and recreational
equipment market, it faces competition from other materials used in the
manufacture of such goods and equipment, and from other suppliers of
thermoplastic composites. Quadrax's success in entering this market will
largely depend upon its ability to displace other materials currently in use.
If the Company is unsuccessful in creating a niche within the sporting goods
and recreational equipment market by convincing the market of the strategic
benefits of thermoplastic composites, the Company would be adversely affected.
Many of the companies whose product offerings compete with Quadrax's product
offerings have significantly greater financial, manufacturing and marketing
resources than Quadrax.
Development of Distribution Channels. Success in the sporting goods and
recreational equipment market will also hinge on the Company's ability to
develop distribution channels, including both retailers and distributors, and
there can be no assurance that the Company will be able to effectively develop
such channels.
Continued Investment. Maintaining the Company's technological and strategic
advantages over its competitors 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.
Technological Advances. The Company's ability to maintain a competitive edge
by making technological advances ahead of its competition will have a
significant impact on the success of the Company.
Outside Financing. The Company believes that it will need significant outside
financing over the next five years. There can be no assurance that it will be
able to obtain such financing.
The following financial table sets forth selected financial data at December
31, 1995 and at December 31, 1994 and for the fiscal years then ended.
(Dollars in thousands, except per share data)
Year Ended
Statement of operations data: December 31, 1995 December. 31,
1994
Total revenue $ 4,635 $ 860
Cost of goods sold 3,413 106
Research and development expense 1,546 1,691
Selling, general and administrative expense 5,050 3,982
Depreciation and amortization 943 824
Interest expense 1,190 205
Non-recurring financing-related expenses -- 5,569
Restructuring reserve 2,600 --
Total Expenses 14,742 12,377
Net loss from continuing operations ($10,107) ($11,517)
Net loss per common share
from continuing operations ($0.71) ($2.09)
Weighted average common shares outstanding 14,265 5,506
December 31,
Balance sheet data: 1995 1994
Working capital (deficiency) $1,994 ($1,199)
Total assets 8,800 7,260
Long term liabilities 2,606 540
Total stockholders' equity 2,708 3,561
Fiscal 1995 Compared to Fiscal 1994
The Company's net loss from continuing operations in fiscal 1995 of $10,108,000
decreased by $1,409,000 as compared to the fiscal 1994 loss from continuing
operations of $11,517,000. This decrease primarily resulted from non-recurring
financing costs of $5,569,000 in 1994, which was primarily offset by
restructuring costs in fiscal 1995 of $2,600,000 (see Notes 10 and 13 to the
Consolidated Financial Statements) and increased interest expense of $985,000.
Total revenue recognized during fiscal 1995 was $4,635,000 compared to $860,000
in fiscal 1994. This increase of $3,775,000 or 439 percent from fiscal 1994
results primarily from the Company shipping product to its defense related
customers in the amount of $3,103,000. These defense related contracts have
been completed and no further such contracts exist. An additional $961,000 of
Wimbledon and McManis products were sold in fiscal 1995. These sales are
recorded as of date of shipment.
Cost of goods sold for fiscal 1995, $3,413,000, reflect costs associated with
the defense and consumer products which the Company shipped in the 1995 period.
The cost of goods sold for the 1994 period was negligible in that the Company
was a development stage company without significant sales and that the costs
associated with sales of materials for evaluation and testing in fiscal 1995
have been reclassified to cost of goods sold.
Research and development costs decreased $145,000, from $1,691,000 in fiscal
1994 to approximately $1,546,000 in fiscal 1995 an insignificant fluctuation.
During fiscal 1995, the Company's selling, general and administrative costs
were $5,050,000, an increase of approximately $1,068,000 from $3,982,000 in
fiscal 1994. The principal reason for this increase is the monies the Company
expended for its McManis Sports Associates division, $694,000 and its Wimbledon
division, $913,000, which were acquired in November 1994. Offsetting these
increases were decreases in professional fees and automobile racing related
promotions in fiscal 1995 of $423,000 and $380,000, respectively.
Depreciation and amortization expense increased $119,000 from $824,000 in
fiscal 1994 to $943,000 in fiscal 1995. The principal reason for this
fluctuation is the amortization in fiscal 1995 of the cost of the Wimbledon
license for racquets acquired in 1994.
Interest expense increased $985,000 in fiscal 1995 to $1,190,000. The primary
reason for this increase was that in 1995, the Company incurred approximately
$1,110,000 of imputed interest relating to the conversion discount convertible
debenture investors received from the Compny in private placement transactions.
The Company paid interest of $132,000 on the Regulation D debentures that the
Company sold during fiscal 1994 by issuing 48,200 shares of common stock.
Non-recurring financing related costs of $5,569,000 in fiscal 1994 as opposed
to zero amounts in fiscal 1995 relate to the Company's transactions with ALS
and Conagher. The Company incurred costs of approximately $1,481,000 in
connection with the proposed purchase of the Company by ALS. This agreement
was terminated in May 1994; the costs here relate primarily to the issuance of
stock to the Company's investor relations consultant along with professional
fees. Subsequent to the proposed ALS transaction, the Company entered into a
financing arrangement with Conagher. During this financing, which was
terminated subsequent to December 31, 1994, the Company incurred one-time costs
of $4,087,000. Due to the significance of these expenses, the fact that they
were non-recurring, and that they occurred primarily in fiscal 1994, they were
accrued for in fiscal 1994. For a more detailed discussion of these
transactions, see Notes 10 and 11 to the
Consolidated Financial Statements.
Expenses related to restructuring costs increased $2,600,000, from $-0- in
fiscal 1994 to $2,600,000 in fiscal 1995. The Company established this reserve
after evaluating the carrying value of its assets and determining that certain
of its intangibles, in particular goodwill associated with the acquisition of
McManis Sports Associates, were overvalued. The Company further decided that it
would not use the services of its former Chairman and Chief Executive Officer,
Richard Fisher, and other executives in future periods. Thus, in order not to
penalize future financial results, the Company expensed in fiscal 1995, all
future amounts it was obligated to pay to its former Chief Executive Officer,
along with reserving for other costs which the Company will not be able to
realize in future periods. For a more detailed discussion of this
restructuring reserve, see Note 13 to the Consolidated Financial Statements.
Financial Position, Liquidity and Capital Resources
At December 31, 1995, the Company had total assets of $8.8 million and
stockholders' equity of $2.7 million. Current assets were approximately $5.5
million and current liabilities were approximately $3.5 million, resulting in
working capital of approximately $2.0 million which is an increase of
approximately $3.2 million from December 31, 1994, when working capital was a
deficit of approximately $1.2 million. This increase in working capital
resulted from the Company's termination of its relationship with Conagher and
Mr. Hayton which was totally reserved for as of December 31, 1994, along with
the related professional fees. Other factors contributing to the Company's
increase in working capital at December 31, 1995, was the cash the Company had
on hand resulting from the placement of convertible debentures completed in
1995 and the build-up in accounts receivable resulting from the successful
completion of work relating to the submarine program.
Cash and accounts receivable increased $3,072,000 to $3,879,000 at December 31,
1995. This increase results from the Company's successful completion of a
convertible debenture placement in October 1995, the successful completion of
the submarine project late in fiscal 1995, along with the inclusion of the Lion
Golf of Oregon trade receivables acquired at December 31, 1995. The Company
acquired Lion Golf as of December 31, 1995.
During fiscal 1995, inventory increased $195,000 from $1,272,000 at December
31, 1994. This increase was a result of the Company booking its acquisition of
Lion Golf of Oregon with an approximate inventory of $620,000 as of December
31, 1995. This offset the decrease in inventory balances the Company
experienced upon completion of the submarine and F-22 contracts during fiscal
1995.
Accounts payable decreased during fiscal 1995 from $1,166,178 at December 31,
1994, to $870,988 at December 31, 1995. This decrease is a result of the
Company's payment in fiscal 1995 of approximately $600,000 in liabilities of
Wimbledon and McManis Sports that were issued in 1994 pursuant to the Company's
acquisitions of these businesses. Accounts payable also decreased in fiscal
1995 because of the build-up in inventory that was reflected in December 31,
1994 payable balances for defense projects and subsequently paid in fiscal
1995.
Accrued expenses decreased during fiscal 1995 from $1,547,986 at December 31,
1994, to $1,200,779 at December 31, 1995. This decrease was caused by the
payment of costs related to the termination of the Company's relationship with
Mr. Hayton in February 1995 and related professional fees, which were accrued
for as of December 31, 1994.
Long term debt of the Company increased $1,160,000. This relates to the Lion
Golf acquisition as of December 31, 1995. As part of this transaction, the
Company guaranteed Lion Golf's bank working capital line of $1,000,000 of which
$801,000 was outstanding at December 31, 1995. The balance of the increase is
primarily attributable to notes payable to the former shareholders of Lion
Golf.
In fiscal 1995, capital expenditures were approximately $160,000. The Company
anticipates capital expenditures in 1996 will be approximately $1,500,000 for
the purchase of a golf shaft manufacturing line and an additional thermoplastic
tape manufacturing line. These equipment acquisitions will be paid for through
equipment leasing programs and from funds raised through the private placement
of the Company's securities.
The Company generated revenues of approximately $4,600,000 in fiscal 1995, and
as a result, operations were not a source of funds or liquidity for the
Company. Quadrax continues to rely on financing activities for the cash
required to fund its operations. Net funds provided by financing activities in
fiscal 1995, after giving effect to the repayment of debt, totaled $9,249,000,
as compared with $5,893,000 in fiscal 1994.
The Company believes that proceeds of approximately $1,700,000 from additional
sales of debentures, together with funds provided by operations and cash on
hand (approximately $420,000 at March 24, 1996), will be sufficient to meet the
Company's near-term cash requirements. The Company also believes, based on
negotiations prior to the date of filing of this Annual Report, that it will be
able to sell additional debentures in amounts sufficient to generate proceeds
of at least $3,300,000 prior to the end of fiscal 1996.
The Company received a going concern qualification from its outside independent
auditors on its fiscal 1995 audited financial statements. While the Company
believes it has made and will continue to make substantial progress towards
achieving profitability, the results to date have not yet been sufficient to
negate the auditors' qualifications. During this transition, the management of
the Company is continuing to reorient the focus of the Company from primarily a
defense related entity to one which produces material and products for consumer
markets where its material is designed by OEM's into their end products. The
Company's management is of the opinion that it will be able to continue to
raise money from outside third party sources in sufficient amounts to support
its operations until the time that the revenues for future periods materialize
from consumer product programs in which the Company is involved.
The Company believes that it can achieve viability and profitability by
continuing to expand sales of golf and tennis products, as well as other
products that use its thermoplastic materials. The acquisition of Lion Golf in
late 1995, which provides manufacturing expertise and access to new
distribution channels, including golf and tennis pro shops and other retailers,
represents a significant element of this strategy. Sales of composite based
lacrosse sticks through Brine, and continuing efforts to develop and market
other consumer products, will also contribute to its efforts.
There is no assurance that the Company's efforts to achieve viability and
profitability or to raise money will be successful or that the forecasts will
be achieved. It is difficult for the Company to predict with accuracy the
point at which the Company will be viable and profitable or whether it can
achieve viability or profitability at all, due to the difficulty of predicting
accurately the amount of revenues that the Company will generate, the amount of
expenses that will be required by its operations, and the Company's ability to
raise additional capital.
Item 7. Financial Statements.
The Consolidated Financial Statements of the Company as of December 31, 1995
and December 31, 1994 and for the fiscal years ended December 31, 1995 and
December 31, 1994 are set forth following page F-1 hereof.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Information with respect to this item may be found in the sections captioned
"Directors and Executive Officers" and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" appearing in the definitive Proxy Statement to
be delivered to stockholders in connection with the Company's Annual Meeting of
Stockholders to be held on May 10, 1996. Such information is incorporated
herein by reference.
Item 10. Executive Compensation.
Information with respect to this item may be found in the section captioned
"Remuneration of Executive Officers and Directors" appearing in the definitive
Proxy Statement to be delivered to stockholders in connection with the Annual
Meeting of Stockholders to be held on May 10, 1996. Such information is
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Information with respect to this item may be found in the section captioned
"Security Ownership of Certain Beneficial Owners and Management" appearing in
the definitive Proxy Statement to be delivered to stockholders in connection
with the Annual Meeting of Stockholders to be held on May 10, 1996. Such
information is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions.
Information with respect to this item may be found in the section captioned
"Certain Relationships and Related Transactions" appearing in the definitive
Proxy Statement to be delivered to stockholders in connection with the Annual
Meeting of Stockholders to be held on May 10, 1996. Such information is
incorporated herein by reference. See also "Description of Business--Changes
in Control and Related Transactions."
Part IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements. Reference is made to page F-1 for all financial
statements filed as part of this report.
(b) Reports on Form 8-K. The following Current Reports on Form 8-K were filed
with the Securities and Exchange Commission since November 16, 1995, the date
of the Company's Form 10-Q for its third quarter:
On January 15, 1996, the Company filed a Form 8-K dated December 29, 1995 with
respect to the acquisition of Lion Golf of Oregon.
On March 15, 1996, the Company filed a Form 8-K dated March 15, with respect to
the pro-forma financial information in regards to the acquisition of Golf of
Oregon.
(c) Exhibits. The Exhibits that are filed with this report, or that are
incorporated herein by reference, are set forth in the Exhibit Index beginning
on page E-1.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
QUADRAX CORPORATION
By: /s/ James J. Palermo Date: January 31, 1997
James J. Palermo, Chairman and
Chief Executive Officer
By: /s/ Edward A. Stoltenberg Date: January 31, 1997
Edward A. Stoltenberg,
Senior Vice-President and Chief Financial Officer
EXHIBITS
Exhibit No. Description
3.1 Certificate of Incorporation of the Company, as amended. 15
3.2 By-laws of the Commpany, as amended. 4
4.1 Excerpt from Certificate of Incorporation of the Company,
as amended, as to rights of holders of Common Stock.15
4.2 Specimen Certificate for Common Stock.15
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
4.5(a) Certificate for $2 million convertible debenture bearing
interest at the rate of 9% per annum due January 1, 1998 issued
to Infinity Investors, Ltd.
4.5(b) Certificate for $1 million convertible debenture bearing
interest at the rate of 9% per annum due January 1, 1998
issued to Conservative Growth Advisors, Ltd.
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.15
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
Exhibit No. Description
Page
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
Company dated September 9, 1992.8
10.9 License Agreement between the Company and Phillips Petroleum Company
dated September 8, 1992.8
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, 1994.15
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 to 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
10.21(a) Settlement Agreement between the Company and Richard A. Fisher
dated December 8, 1995.
10.22 Key Employee Agreement dated October 13, 1994 between the Company and
Terry Lanning.15
10.23(a) Key Employee Agreement dated August 9, 1994 between the Company and
James J. Palermo.15
10.23(b) Form of Key Employee Agreement dated January 1, 1996 between
the Company and James J. Palermo.15
10.24 Key Employee Agreement dated September 26, 1994 between
the Company and David Park.15
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.15
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.15
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.15
10.28(d) Second Amendment to Agreement for the Creation of a Voting
Trust in settlement of claims and liabilities.16
10.30(a) Stock Purchase Agreement dated November 15, 1995 between the
Selling Stockholders of Lion Golf of Oregon, Inc. named therein
and the Company. 17
10.30(b) Unsecured Promissory Note dated December 29, 1995 between the Company
and Robert K. Cole. 17
10.30(c) Debt Repayment Note dated December 29, 1995 between Lion Golf of
Oregon, Inc. and Robert K. Cole. 17
10.30(d) Employment Agreement dated December 29, 1995 between Lion Golf
of Oregon, Inc. and Robert K. Cole. 17
10.30(e) Employment Agreement dated December 29, 1995 between Lion Golf
of Oregon, Inc. and James Cole. 17
10.31 Key Employee Agreement dated January 1, 1996 between the Company
and John McQuade.
10.32 Key Employee Agreement dated January 1, 1996 between the
Company and Edward A. Stoltenberg.
10.33 Employee Severance Agreement dated October 13, 1995 between the
Company and James T. Connell.
10.34 Key Employee Agreement dated May 1, 1995 between the Company
and Gerard McDonald.
27 Financial Data Schedule
21.1 List of Subsidiary Corporations.16
28.1 Licensing Opportunity Summary - Quadrax Biaxial Thermoplastic
Prepreg for Structural Applications, prepared
by Arthur D. Little, Inc.5
Note References
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.
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.
15 Incorporated by reference from the Company's Amendment No. 1 to Form 10-K/A
for the fiscal year ended December 31, 1994, filed April 25, 1995.
16 Incorporated by reference from the Company's Amendment No. 2 to Form 10-K/A
for the fiscal year ended December 31, 1994, filed June 9, 1995
17 Incorporated by reference from the Company's Form 8-K, dated December 29,
1995, filed January 15, 1996.
<AUDIT-REPORT>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Quadrax Corporation:
We have audited the accompanying consolidated balance sheets of Quadrax
Corporation and subsidiaries at December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' 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 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Quadrax
Corporation and subsidiaries at December 31, 1995 and 1994, and the results
of its operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note
1, the Company, since inception, has expended cash in excess of cash
generated from operations. Additionally, the Company has not achieved
sufficient revenues to support future operations without additional
financing. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 16 to the financial statements, the Company recorded the
discount to market value on conversion of convertible debentures as a cost of
capital, resulting in an understatement of interest expense. Interest expense
for the year ended December 31, 1995 has been restated by $1,109,589.
/s/LIVINGSTON & HAYNES, P.C.
LIVINGSTON & HAYNES, P.C.
Wellesley Hills, Massachusetts
March 26, 1996, except for Note 16,
as to which the date is February 13, 1997
</AUDIT-REPORT>
<TABLE>
<CAPTION>
Quadrax Corporation
Consolidated Balance Sheets
ASSETS
December 31, December 31,
1995 1994
Current assets:
<S> <C> <C>
Cash and cash equivalents, including $481,146 of
restricted cash in 1995 $2,613,555 $382,721
Accounts receivable 1,265,301 224,180
Inventories (Note 3) 1,466,813 1,271,786
Other current assets 134,197 81,756
_________ _________
TOTAL CURRENT ASSETS 5,479,866 1,960,443
Property and equipment, at cost:
Machinery and equipment 3,319,881 3,875,955
Office equipment 851,160 689,944
Leasehold improvements 1,071,532 1,035,513
_________ _________
5,242,573 5,601,412
Less accumulated depreciation and amortization 3,000,093 2,984,104
_________ _________
NET PROPERTY AND EQUIPMENT 2,242,480 2,617,308
Receivables from officers and employees (Note 13) -0- 54,728
Non-competition agreement (Note 13) -0- 641,250
Goodwill (Note 9) 118,553 709,142
Other assets 267,855 507,855
License agreement, net of amortization
of $120,000 in 1995 (Note 9) 480,000 600,000
Deferred assets, less amortization
of $61,912 and $21,145 211,498 169,437
__________ _________
TOTAL ASSETS $8,800,252 $7,260,163
</TABLE>
See accompanying notes to the consolidated financial
statements.
Quadrax Corporation
Consolidated Balance Sheets (continued)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
December 31, December 31,
1995 1994
<S> <C> <C>
Current liabilities:
Accounts payable $ 870,988 $ 1,166,178
Accrued expenses (Note 2) 1,200,779 1,547,986
Note payable to related party (Note 12) 300,000 135,000
Current portion of long-term debt (Note 6) 1,114,301 310,000
_________ _________
TOTAL CURRENT LIABILITIES 3,486,068 3,159,164
Long-term debt, less current portion (Note 6) 356,034 -0-
Convertible debentures payable (Note 6) 2,250,000 -0-
Commitments (Note 7) -0- -0-
Contingencies (Note 15) -0- -0-
Note payable to related party (Note 12) -0- 540,000
_________ _________
TOTAL LIABILITIES 6,092,102 3,699,164
Stockholders' equity (Note 4):
Original convertible preferred stock 6 7
Common stock 160 92
Additional paid-in capital 58,288,953 48,356,319
Retained earnings, deficit (54,198,191) (44,090,478)
__________ __________
4,090,928 4,265,940
Less:
Treasury stock, at cost; 656 shares of Original
convertible preferred stock and 47,420 shares of
common stock (1,043,009) (243,009)
Unearned compensation and deferred expenses (339,769) (123,932)
Note receivable for options (Note 12) -0- (338,000)
_________ _________
TOTAL STOCKHOLDERS' EQUITY 2,708,150 3,560,999
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,800,252 $ 7,260,163
</TABLE>
See accompanying notes to the consolidated financial statements.
<TABLE>
<CAPTION>
Quadrax Corporation
Consolidated Statements of Operations
<C> <S> <S>
Year Ended December 31,
1995 1994
Revenue:
Sales $ 4,601,113 $ 833,999
Interest income 33,726 2,316
Other income -0- 24,104
__________ ___________
TOTAL REVENUE 4,634,839 860,419
Expenses:
Cost of goods sold 3,413,130 106,453
Research and development 1,546,317 1,690,871
Selling, general and administrative 5,049,988 3,981,999
Depreciation and amortization 943,074 824,298
Interest expense 1,190,043 204,700
Financing related expenses (Note 10) -0- 5,568,733
Reserve for restructuring costs (Note 13) 2,600,000 -0-
___________ __________
TOTAL EXPENSES 14,742,552 12,377,054
NET LOSS ($10,107,713) ($11.516,635)
=========== ============
NET LOSS PER COMMON SHARE ($0.71) ($2.09)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 14,265,310 5,506,121
</TABLE>
See accompanying notes to the consolidated financial statements.
<TABLE>
<CAPTION>
QUADRAX CORPORATION
Consolidated Statement of Shareholders' Equity
<S> <C> <C> <C> <C> <C>
Preferred Shares Outstanding Common Shares
Class A
Original Series A Convertible Issued Outstanding
--------------------------------------------------------------
Balances, January 2,1994 873 1,800,074 0 3,574,821 3,542,786
Common stock issued for
services performed 556,199 556,199
Issuance of common stock for
financing services (Note 10) 625,000 625,000
Issuance of common stock in private
placement to Conagher Co., Inc. net of
monies not paid as of December 31,
1994, of $1,606,878 (Note 10) 3,750,000 3,750,000
Exercise of 240,000 shares of
common stock options 240,000 240,000
Conversion of preferred stock
to common stock
Original preferred (357) 63,725 63,725
Series A preferred (1,800,074) 402,351 402,351
Conversion of previously
granted compensatory options
to market value options
Amortization of unearned compensation
and deferred expenses
Warrants exercised
Issuance of stock for
commissions (Notes 9 & 10) 250,000 250,000
Issuance of stock for
acquisitions of assets 450,000 450,000
Interest paid on Regulation D
convertible debentures 48,200 48,200
Net loss for the year
______________________________________________________________
Balances, December 31, 1994 516 0 0 9,960,296 9,928,261
Issuance of Common Stock to Conagher
& Co. (Note 11) 1,150,000 1,150,000
Issuance of Common Stock for
services to be performed 200,000 200,000
Common stock issued for
services performed 331,000 331,000
Issuance of common stock for
financing services (Note 10) 234,444 234,444
Issuance of stock in private placements
Class A Convertible Preferred 150,000
Common Stock 2,967,885 2,967,885
Exercise of common stock options 293,826 293,826
Conversion of convertible instruments
Original preferred (198) 75,265 75,265
Class A convertible preferred (150,000) 1,489,946 1,489,946
Convertible debentures 1,052,185 1,052,185
Amortization of unearned
compensation and deferred expenses
Purchase of Treasury Stock (Note 12)
Termination of relationship with
Company's founder (Note 12)
Issuance of stock for
acquisition of Lion Golf 50,000 50,000
Expenses incurred in raising of capital
Net loss for the year
______________________________________________________________
Balances, December 31, 1995 318 0 0 17,804,847 17,772,812
==============================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUADRAX CORPORATION
Consolidated Statement of Shareholders' Equity
(Continued)
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock Retained
Class A Common Additional Paid Earnings
Original Series A Convertible Stock In Capital (Deficit)
------------------------------------------------------------------------
Balances, January 2,1994 $10 $18,001 $0 $35 $36,146,826 ($32,524,341)
Common stock issued for
services performed 5 2,218,608
Issuance of common stock for
financing services (Note 10) 6 1,528,607
Issuance of common stock in private
placement to Conagher Co., Inc. net of
monies not paid as of December 31,
1994, of $1,606,878 (Note 10) 34 5,893,088
Exercise of 240,000 shares of
common stock options 2 337,998
Conversion of preferred stock
to common stock
Original preferred (3) 3
Series A preferred (18,001) 4 67,499 (49,502)
Conversion of previously
granted compensatory options
to market value options (174,375)
Amortization of unearned compensation
and deferred expenses
Warrants exercised 5,835
Issuance of stock for
commissions (Notes 9 & 10) 2 499,998
Issuance of stock for
acquisitions of assets 4 1,699,996
Interest paid on Regulation D
convertible debentures 0 132,236
Net loss for the year (11,516,635)
________________________________________________________________________
Balances, December 31, 1994 7 0 0 92 48,356,319 (44,090,478)
Issuance of Common Stock to Conagher
& Co. (Note 11) 10 1,056,563
Issuance of Common Stock for
services to be performed 2 462,498
Common stock issued for
services performed 3 578,357
Issuance of common stock for
financing services (Note 10) 2 246,448
Issuance of stock in private placements
Class A Convertible Preferred 13 1,339,187
Common Stock 27 4,620,059
Exercise of common stock options 2 420,566
Conversion of convertible instruments
Original preferred (1) 1
Class A convertible preferred
Convertible debentures 9 1,859,580
Amortization of unearned
compensation and deferred expenses
Purchase of Treasury Stock (Note 12)
Termination of relationship with
Company's founder (Note 12)
Issuance of stock for
acquisition of Lion Golf 42,200
Expenses incurred in raising of capital (692,825)
Net loss for the year ($10,107,713)
________________________________________________________________________
Balances, December 31, 1995 $6 $0 $0 $160 $58,288,953 ($54,198,191)
========================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPION>
QUADRAX CORPORATION
Consolidated Statement of Shareholders' Equity
(Continued)
<S> <C> <C> <C> <C> <C>
Receivable
Treasury Deferred Unearned From Related
Stock Expense Compensation Parties Total
------------------------------------------------------------
Balances, January 2,1994 ($243,009)($22,250) ($166,902) $0 $3,208,370
Common stock issued for
services performed (171,599) 2,047,014
Issuance of common stock for
financing services (Note 10) 1,528,613
Issuance of common stock in private
placement to Conagher Co., Inc. net of
monies not paid as of December 31,
1994, of $1,606,878 (Note 10) 5,893,122
Exercise of 240,000 shares of
common stock options (338,000)
Conversion of preferred stock
to common stock
Original preferred
Series A preferred
Conversion of previously
granted compensatory options
to market value options 166,902 (7,473)
Amortization of unearned compensation
and deferred expenses 69,917 69,917
Warrants exercised 5,835
Issuance of stock for
commissions (Notes 9 & 10) 500,000
Issuance of stock for
acquisitions of assets 1,700,000
Interest paid on Regulation D
convertible debentures 132,236
Net loss for the year (11,516,635)
____________________________________________________________
Balances, December 31, 1994 (243,009)(123,932) 0 (338,000) 3,560,999
Issuance of Common Stock to Conagher
& Co. (Note 11) 1,056,573
Issuance of Common Stock for
services to be performed (462,500) 0
Common stock issued for
services performed 578,360
Issuance of common stock for
financing services (Note 10) 246,450
Issuance of stock in private placements 0
Class A Convertible Preferred 1,339,200
Common Stock 4,620,086
Exercise of common stock options (50,000) (337,000) 33,568
Conversion of convertible instruments 0
Original preferred 0
Class A convertible preferred 0
Convertible debentures 1,859,589
Amortization of unearned 0
compensation and deferred expenses 123,932 122,731 246,663
Purchase of Treasury Stock (Note 12) (750,000) (750,000)
Termination of relationship with 0
Company's founder (Note 12) 675,000 675,000
Issuance of stock for 0
acquisition of Lion Golf 42,200
Expenses incurred in raising of capital (692,825)
Net loss for the year (10,107,713)
____________________________________________________________
Balances, December 31, 1995 ($1,043,009) $0 ($339,769) $0 $2,708,150
============================================================
</TABLE>
<TABLE>
<CAPTION>
Quadrax Corporation
Consolidated Statements of Cash Flows
Year Ended December 31,
1995 1994
<S> <C> <C>
Operating Activities
Net loss ($10,107,713) ($11,516,635)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization of fixed assets 531,057 798,106
Amortization of intangibles 144,142 7,482
Amortization of unearned compensation -- (7,473)
Amortization of deferred expense 40,767 33,750
Amortization of deferred financing cost -- 69,917
Common stock issued for expenses 1,137,723 2,047,014
Common stock issued for financing related
expenses (Note 9) -- 2,028,607
Common stock issued for interest 1,109,589 132,236
Write down of restructured assets 813,783 --
Termination of former chief executive officer
(Note 12) 213,296 --
Cash acquired in corporate acquisitions 151,518 --
Loss on investment -- 11,550
Cancellation of indebtedness (Note 11) -- 107,342
Provision for loss contract (Note 12) -- (145,000)
Other assets reclassified as cash 100,000 --
Increase (decrease) in cash resulting
from changes in:
Accounts receivable and other (578,713) 94,049
Inventories 421,479 (330,464)
Other current assets (27,131) (257)
Accounts payable (398,249) 382,506
Accrued expenses (373,070) 967,171
_________ ________
Net cash used in operating activities ($6,821,522) ($5,320,099)
</TABLE>
See accompanying notes to the consolidated financial statements.
<TABLE>
<CAPTION>
Quadrax Corporation
Consolidated Statements of Cash Flows (continued)
Year Ended December 31,
1995 1994
<S> <C> <C>
Investing Activities
Capital expenditures (160,957) (388,396)
Other intangible assets (35,786) (111,357)
Payments for businesses acquired, net of
cash acquired -- (359,172)
________ ________
Net cash used in investing activities (196,743) (858,925)
Financing Activities
Net proceeds from sale of stock and
warrants 6,413,034 4,932,964
Issuance of convertible debentures, net of
costs 2,910,000 1,491,000
Repayment of debt (73,935) (531,000)
__________ __________
Net cash provided by financing activities 9,249,099 5,892,964
Net increase (decrease) in cash and cash
equivalents 2,230,834 (286,060)
Cash and cash equivalents at beginning of
period 382,721 668,781
__________ _________
Cash and cash equivalents at end of period $2,613,555 $382,721
</TABLE>
See accompanying notes to the consolidated financial statements.
Quadrax Corporation
Consolidated Statements of Cash Flows (continued)
Supplemental Schedule of Significant Noncash Transactions:
1994:
Common stock was issued for consulting services, commissions and expenses
totaling $4,075,621.
Common stock was issued to ALS for debt reduction and accrued interest
totaling $958,094.
The Company agreed to issue common stock valued at $600,000 to acquire the
right to use the Wimbledon trademark license in the United States.
Common stock was issued to acquire assets which were valued at $1,100,000.
The Company entered into a non-competition agreement with its founder and
former chairman and chief executive officer for $675,000.
Company stock was issued to pay interest on Regulation D debentures in the
amount of $132,236.
1995:
The Company purchased capital equipment for notes totaling $101,636.
The Company acquired Lion Golf of Oregon, Inc. for common stock valued at
$42,200, a contingent note based on future earnings and a guarantee of Lion
Golf's existing bank line of credit of $1,000,000.
The Company acquired 15,384 shares of common stock for the Treasury via the
exercise of stock options by a former employee.
See accompanying notes to the consolidated financial statements.
<PAGE>
Quadrax Corporation
Notes to Consolidated Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Quadrax
Corporation (the Company) and its wholly-owned subsidiaries. The December 31,
1995 Consolidated Balance Sheet includes Lion Golf of Oregon, Inc. All
intercompany transactions have been eliminated. The consolidated financial
statements have been prepared on a going-concern basis. The Company from its
inception, through December 31, 1995, has expended cash in excess of cash
generated from operations. Additionally, the Company has not achieved
sufficient revenues to support future operations. Management believes that to
continue as a going concern the Company will require additional financing and
anticipates adequate additional financing will be available in fiscal 1996.
The 1995 consolidated financial statements do not include any adjustments
related to the uncertainty of future financing. As of April 1996, the Company
has raised approximately $1,700,000 from the sale of its common stock in an
exempt transaction with a private party and believes that sufficient
additional funds will be available to meet its cash needs in 1996.
Fiscal Year
The Company converted its fiscal year, effective December 31, 1994, from a
52-53 week period ending on the Sunday closest to December 31 to a calendar
year ending December 31. All references to years in these notes to
consolidated financial statements represent fiscal years unless otherwise
noted.
Revenue Recognition
Revenues are recorded as services are performed. Revenues derived from
services provided under fixed-price contracts are recognized on a percentage-
of-completion basis. If it is determined that a contract may result in a
loss, a provision for the loss is accrued at such time. For revenues derived
from product sales other than fixed price contracts, sales are recognized
based on shipment of products. Returned goods are recorded in inventory at cost
if they are salable, or at scrap value if the goods cannot be sold.
Cash Equivalents
The Company considers all short term investments, consisting of money market
funds and certificates of deposits, with original maturities of three months
or less, to be cash equivalents for purposes of the statements of cash flows.
Accounts Receivable
The Company performs periodic credit evaluations and generally does not
require collateral.
Inventories
Inventories are valued at the lower of first-in, first-out cost or market and
finished goods are valued at standard cost which approximates the lower of
cost or market. Market for parts and materials is determined based on
replacement cost; market for finished goods is determined based on net
realizable value.
Property and Equipment
Depreciation is provided on the straight-line method over the estimated
useful lives of the assets, ranging from three to five years. Amortization of
leasehold improvements is provided on the straight-line method over the
remaining term of the lease.
Patents
The Company capitalizes certain patent costs related to patent applications.
The costs of these assets are amortized using the straight-line method over
the lesser of the useful life of the asset or its statutory life. Costs
relating to patent applications are written off to expense at the time such
costs are deemed to have no continuing value.
Goodwill
The Company has classified as goodwill the cost in excess of the fair value
of the net assets of companies acquired in purchase transactions. Goodwill is
amortized on a straight-line method over 15 years. The carrying value of
goodwill is evaluated in relation to the operating performance of the
underlying business. Adjustments are made if the sum of expected future net
undiscounted cash flows is less than book value.
Convertible Debenture Conversion Discount
The discount to market value rights on conversion of convertible debentures to
common stock is recorded as interest expense over the period from the sale of
the debentures to the first conversion date.
Research and Development
Research and development costs are expensed as incurred. These expenses
include costs related to product development, engineering and other wages,
overhead and materials used. All costs associated with revenues from sale of
materials for evaluation and testing and research income have been classified
as research and development.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes which was adopted prior to fiscal 1994. The implementation of SFAS
No. 109 did not have a material effect on the Company's consolidated
financial position or its results of operations.
Under Statement 109, the liability method is used in accounting for income
taxes. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities as well as net operating loss carryforwards and are measured
using the enacted tax rates and laws that will be in effect when the
differences reverse. Deferred tax assets may be reduced by a valuation
allowance to reflect the uncertainty associated with their ultimate
realization. Prior to the adoption of Statement 109, income tax expense was
determined using the deferred method. Deferred tax assets and liabilities
are determined based on the estimated future tax effects of differences
between the financial statement and tax bases of assets and liabilities. For
financial statement purposes, all deferred tax assets and liabilities have
been fully reserved for in that the ultimate realization of such assets and
liabilities is uncertain at December 31, 1995.
Net Loss Per Common Share
Net loss per share is based on the weighted-average number of shares
outstanding during each year. The exercise of stock options and warrants
would not have an effect on the net loss per share since the effect would be
anti-dilutive.
2. Accrued Expenses
Accrued expenses consist of the following:
December 31, December 31,
1995 1994
Payroll $212,935 $239,451
Professional fees 251,439 555,022
Insurance 60,580 46,531
Interest 65,689 -0-
Royalties and license fees -0- 212,000
Expenses and professional fees related to
financing arrangements (Note 10) -0- 400,000
Reserve for restructuring costs (Note 13) 590,136 -0-
Other 20,000 94,982
________ _______
$1,200,779 $1,547,986
3. Inventories
Inventories consist of the following:
December 31, December 31,
1995 1994
Raw materials $875,783 $1,059,213
Finished goods 591,031 212,573
________ _________
$1,466,813 $1,271,786
4. Stockholders' Equity
On July 20, 1994, the Company amended its Certificate of Incorporation to
provide for a 1-for-10 reverse split, effective July 20, 1994. All numbers
of shares of common stock and related per share amounts in the accompanying
consolidated financial statements and notes thereto have been adjusted to
reflect this reverse split.
The Company's capital structure is as follows:
Original Convertible Preferred Stock, $.01 par value, 1,172 shares authorized
at December 31, 1995 and December 31, 1994, 318 and 516 shares issued and
outstanding at December 31, 1995 and December 31, 1994, respectively. During
the twelve months ended December 31, 1995 and December 31, 1994, 198 and 357
shares of the Original Convertible Preferred Stock were converted to 75,268
and 63,725 shares of Common Stock, respectively. Subsequent to the end of
fiscal 1995, all shares of Original Convertible Preferred Stock were
converted into common stock which was then redeemed by the Company for a
nominal consideration. <PAGE>
Class A Convertible Preferred Stock, First Series, $10.00 par value, 300,000
shares and -0- shares authorized at December 31, 1995 and December 31, 1994,
respectively, and -0- shares issued and outstanding at December 31, 1995 and
December 31, 1994. During the twelve month period ending December 31, 1995,
150,000 shares of Class A Convertible Preferred Stock were issued and then
converted into 1,489,946 shares of Common Stock.
Common Stock, $.000009 par value, 90,000,000 shares authorized December 31,
1995 and December 31, 1994, 17,804,847 and 9,960,296 shares issued at
December 31, 1995 and December 31, 1994, respectively and 17,772,812 and
9,928,261 shares outstanding at December 31, 1995 and December 31, 1994,
respectively.
A summary of shares issuable upon exercise of warrants at December 31, 1995,
is as follows:
Number of Exercise Expiration
Class Shares Price Date
Class C (traded OTC as QDRXZ*) 898,420 $4.53 July 2001
Class D 322,500 5.50 October 1998
D.H. Blair Unit Purchase Option 19,398 5.50 September 1997
D.H. Blair "A" Warrants 19,398 17.00 September 1997
D.H. Blair "B" Warrants 19,398 23.70 September 1997
Emanuel Co. Warrants 23,000 5.50 March 1997
The Wall Street Group 13,913 7.19 May 1998
Manbey Partners 270,000 3.00 November 1999
Total 1,586,027
=========
* There are a total of 282,522 warrants outstanding with each warrant
entitling the holder to purchase 3.18 shares of common stock.
5. Stock Option Plans
The Company has three stock option plans; a 1989 Plan, a 1993 Plan and a 1994
Plan. The 1989 Plan has been terminated except with respect to options to
purchase 69,856 shares of common stock which are outstanding.
The 1993 Plan provides for the grant of options to purchase stock in the form
of incentive stock options, non-qualified stock options and stock
appreciation rights. As of December 31, 1995, the stockholders of the Company
had authorized the issuance of 988,539 options pursuant to the 1993 Plan.
During 1994, the Company adopted a Non-Qualified Stock Option Plan which
permits the issuance of up to 1,000,000 shares of the Company's common stock
to key executives. Under the terms of the plan, options granted are non-
qualified stock options and are issued at prices as determined by the
Company's Board of Directors. Options granted under the Plan are exercisable
as determined by the Board of Directors of the Company. As of December 31,
1995, the Board of Directors had authorized the issuance of 814,000 options
pursuant to the 1994 Plan.
Stock Option activity for the two prior years is summarized as follows:
Price Per
Options Share
Outstanding at January 2, 1994 680,939 $1.00 to $40.00
Granted 1,371,197 $2.00 to $ 3.13
Exercised (240,000) $1.00 to $ 1.56
Canceled and forfeited (539,433) $1.00 to $40.00
_________
Outstanding at December 31, 1994 1,272,703 $1.00 to $ 8.40
Granted 905,267 $0.10 to $ 2.03
Exercised (293,826) $1.00 to $ 1.56
Canceled and forfeited (11,749) $1.56 to $ 5.50
_________
Outstanding at December 31, 1995 1,872,395 $1.00 to $ 8.40
At December 31, 1995, options to purchase 1,596,481 shares were exercisable
under all option plans.
6. Debt
Long-term debt consists of the following:
December 31, December 31,
1995 1994
Note payable - bank $ 801,000 $ -0-
Notes payable - Lion shareholders
bearing interest at the rate of 8% 331,634 -0-
Equipment Notes payable, secured
by the equipment 87,701 -0-
Other non-interest bearing Note 250,000 310,000
_______ _______
1,470,335 310,000
Less current maturities (1,114,301) (310,000)
_________ _______
$ 356,034 $ -0-
========= =======
Note Payable - Bank
The Company's Lion Golf subsidiary has a $1,000,000 revolving line of credit
with its bank which is secured by substantially all of the subsidiary's
assets and which is guaranteed by the former majority shareholder of Lion
Golf and the Company. The note was renewed January 2, 1996 and bears
interest at 10.75%. Loan advances are limited to 75% of eligible accounts
receivable (as defined) plus 45% of eligible inventories to a maximum of
$650,000. At December 31, 1995, the Bank had over advanced, based on
availability, approximately $57,000.
The loan agreement with the bank contains various covenants and restrictions,
including limitations on capital expenditures, officer compensation and other
borrowings; requirements to maintain certain levels of annual income and
financial ratios not less than specified levels. At December 31, 1995, Lion
Golf was in violation of covenants related to annual income and certain
financial ratios as to which the Bank has granted waivers.
Notes Payable - Lion Shareholders
The Company's Lion Golf subsidiary has three unsecured notes bearing interest
at the rate of 8% per annum, payable to the former shareholders of this
subsidiary. These notes are subordinated to the bank credit line. The first
of the Notes, $270,000, has annual principal payments of $54,000 commencing
March 31, 1997. These annual payments can be limited to the extent of the
subsidiary's pretax profits as defined. The second note, $50,200, has
monthly principal payments of $2,400 until paid-in-full. The third note of
$10,500 is a demand note.
Maturities of long-term debt outstanding at December 31, 1995 are as follow:
For the year ending December 31,
1996 $1,113,642
1997 100,352
1998 74,714
1999 69,127
2000 58,500
Thereafter 54,000
_________
$1,470,335
Convertible Debentures
In October 1995, the Company issued $3,000,000 of its Convertible Debentures
bearing interest at the rate of nine percent per annum for net proceeds to
the Company of $2,910,000. These debentures are convertible at the option of
the holders on or after the forty-first day of issuance into a number of
shares of common stock that can be purchased for a price equal to seventy-
three percent of the closing bid price of the common stock on the ten trading
days immediately prior to the conversion date. At December 31, 1995, the
holders of the convertible debentures had converted $750,000 of these
debentures into 1,052,185 shares of common stock of the Company. As of
December 31, 1995, the balance of the debentures outstanding, $2,250,000, are
convertible into 4,009,266 shares of common stock of the Company. Interest
paid was $1,190,043 and $14,220 for 1995 and 1994, respectively. Included in
interest expense for 1995 is $1,109,955 of imputed interest which represents the
twenty seven percent discount on conversion of the convertible debentures into
common stock.
7. Commitments
At December 31, 1995, the Company has outstanding employment agreements with
five senior officers and two other personnel. One agreement for one senior
officer expires on December 31, 1998 and provides for a base salary of
$250,000 with severance pay in the amount of $250,000. The other four
agreements for senior officers expire from September 30, 1996 to December 31,
1998, and provide for base compensation ranging from $90,000 to $120,000 and
severance pay equal to one-half of base compensation. The Company recorded
approximately $84,000 and $39,000 in fiscal years 1995 and 1994,
respectively, for compensation expense for 200,000 shares of common stock
issued to Mr. Palermo pursuant to his employment contract. These amounts
represent the amount of the total compensation expense ($462,500), amortized
over five years, which is attributable to the period from August 9, 1994 to
December 31, 1995. The $462,500 represents the market value of 200,000
shares of the Company's common stock on the date of the stock grant.
The Company has a commitment, under the agreement to acquire the outstanding
stock of McManis Sports Associates (Note 9) to issue additional shares of
common stock if, at the date that the 250,000 shares originally issued become
freely tradeable, the average market value for the previous thirty days is
less than $4.40 per share.
Rent expense amounted to approximately $102,000, and $133,000 in fiscal 1995,
and 1994, respectively.
Minimum rental payments under operating leases in future years are as
follows:
1996 $173,260
1997 $185,237
1998 $178,045
1999 $171,969
2000 $171,969
Thereafter $480,918
8. Income Taxes
Due to net losses incurred by the Company in each year since its inception,
no provision for income taxes has been recorded. The Company has net
operating loss carryforwards in the amount of approximately $45,563,000 and
$37,540,000, and research and development tax credit carryforwards in the
amount of $325,000 at December 31, 1995 and December 31, 1994. These
carryforwards expire at various times from 2002 to 2010. The utilization of
these carryforwards may be limited by Internal Revenue Code Section 382.
Under Section 382, losses and other carryforwards are limited whenever a
Company experiences a greater than 50% change in ownership. The amount, if
any, of such limitation has not been determined at this time. Net operating
loss carryforwards include $480,000 acquired through the acquisition of Lion
Golf of Oregon, Inc. The effect, if realized, of these carryforwards will be
applied to reduce goodwill in the period realized.
The relationship of tax expense to loss before income taxes differs from the
U.S. statutory rate primarily because of the net operating loss carryforward. A
valuation allowance has been recognized to offset net deferred tax assets which
consist primarily of the tax benefits associated with the net operating losses,
since the realization of tax benefits of net operating loss carryforward is not
assured. The valuation allowance has been increased by $2,588,000 and
$4,109,000 in 1995 and 1994, respectively, to recognize the increases in
deferred tax benefits that may not be fully realized prior to expiration.
December 31, December 31,
1995 1994
Deferred tax assets:
Net operating loss $18,225,000 $15,677,000
Other 1,700,000 1,700,000
__________ __________
19,925,000 17,377,000
Less valuation allowance (19,780,000) (17,192,000)
Total deferred tax assets 145,000 185,000
Deferred tax liabilities:
Other (145,000) (185,000)
_______ _______
Total deferred tax liabilities (145,000) (185,000)
_______ _______
Net deferred taxes $-0- $-0-
9. Acquisitions
In November 1994, the Company acquired all of the outstanding stock of
McManis Sports Associates, a manufacturer of and marketing representative for
golf equipment, for $1,465,600 in restricted common stock of the Company and
$109,500 in cash. Included therein, the Company issued to Ablewood European
Services, Limited, 150,000 shares of common stock (see Notes 10 and 11) as
compensation for acting as an agent in bringing this opportunity to the
Company. The Company issued 250,000 shares of common stock to the former
shareholders of McManis (the "McManis Shareholders"). In addition, the
Company agreed to issue additional shares to the McManis Shareholders if on
the date that the 250,000 shares issued in connection with this acquisition
become free-trading stock, the average market price for the Company's common
stock for the preceding 30 trading days is less than $4.40 per share.
The acquisition was accounted for using the purchase method. Accordingly, the
purchase price was allocated to the assets acquired based on their estimated
fair values. This treatment results in approximately $709,100 of cost in
excess of assets acquired based on their estimated fair values as of December
31, 1994. This excess of $709,100, net of the common stock issued to Ablewood
European Services, Limited, was expected to be amortized on a straight-line
basis over 15 years. McManis Sports Associates is a development stage
business and did not have significant operations in fiscal 1994. Therefore,
no results of operations were included in the Company's financials for the
year ended December 31, 1994.
A summary of the assets acquired from McManis Sports Associates at December
31, 1994 is as follows:
Current assets $149,100
Other assets, primarily molds and equipment 416,900
Intangibles, primarily goodwill 709,100
_________
$1,275,100
During fiscal 1995, the Company upon further review of the McManis
acquisition determined that these costs in excess of estimated fair values
could not be realized in the foreseeable future and accordingly were written
off (see Note 13).
In November 1994, the Company acquired the exclusive right to utilize the
Wimbledon trademark in the United States for tennis rackets for $600,000 by
the issuance of 200,000 shares of its common stock. This asset was recorded
on the books of the Company as an intangible asset.
Also, in November 1994, the Company acquired certain assets and liabilities
of Time Sports for approximately $360,000 in cash and notes payable to
facilitate transfer of the Wimbledon license. The Company also issued to
Ablewood European Services, Limited, 100,000 shares of common stock (see
Notes 10 and 11), as compensation for acting as an agent in bringing this
opportunity to the Company. This acquisition is being accounted for as a
purchase of assets. Accordingly, the purchase price was allocated to the
assets acquired based on their estimated net realizable values.
The Time Sports assets acquired at December 31, 1994 are as follows:
Current assets $660,000
Equipment 100,000
Liabilities assumed (400,000)
_______
Net value of assets $360,000<PAGE>
The 250,000 shares of stock issued to Ablewood European Services, Limited as
compensation for acting as the Company's agent for the Company acquiring
McManis Sports Associates, certain assets and liabilities of Time Sports and
the trademark rights were expensed in fiscal 1994 as a financing cost (Notes
10 and 11).
10. Financing Related Expenses
Financing related costs during fiscal 1994 were incurred in connection with
two transactions that the Company entered into during the fiscal year which
were subsequently terminated. The first financing transaction was a proposed
acquisition of the Company by Applied Laser Systems (ALS). The cost of the
termination of this agreement was approximately $1,482,000 and consisted of
170,000 shares of common stock issued to the Company's investor relations
consultant and other professional costs. The second financing transaction was
the Conagher & Co., Inc. funding relationship which was terminated in
February 1995 (Note 11).
11.Changes in Control
On February 13, 1995, the Company entered into an agreement which was
accounted for in the fiscal year ended December 31, 1994, with Pattinson
Hayton, III, the Company's former Chairman, and two of his affiliated
companies, Conagher & Co., Inc., a California corporation (Conagher), and
Allied-Asian Consolidated Limited, a Hong Kong corporation (Allied-Asian)
pursuant to which Mr. Hayton caused voting control over the corporation to be
returned to its common stockholders in exchange for, among other things:
- a reduction in amount and an extension of the time for payment of
certain notes due from Conagher for the purchase of common stock of
the Company;
- the issuance to Allied-Asian, or its nominees, of 1,150,000 shares
of common stock of the Company, in restricted form; and
- the assumption by the Company of certain outstanding obligations
owed by Conagher and guaranteed by Mr. Hayton, personally, to Richard
A. Fisher (see Note 12), the founder and former Chief Executive
Officer of the Company.
Mr. Hayton had acquired financial and voting control over the Company in July
1994, when Conagher purchased 1,500,000 restricted shares of the Company's
common stock for an aggregate price of $3 million, and also purchased from
Mr. Fisher approximately 62% of the Company's original preferred stock (the
Control Block), which gave Conagher the right to elect 3/5 of the members of
the Company's Board of Directors.
Subsequently, in September 1994, Conagher purchased an additional 2,250,000
shares for an additional $4.5 million, bringing its total commitment to $7.5
million for 3,750,000 shares. Each of these stock purchases were paid for
through promissory notes issued by Conagher. Conagher made payments to the
Company pursuant to these promissory notes of $1,056,563 and $5,893,088 in
fiscal years ended December 31, 1995 and December 31, 1994, respectively.
<PAGE>
Subsequent to December 31, 1994, Conagher failed to meet the payment schedule
for the notes dated September 1994 which caused the Company a working capital
shortage. Therefore, in February 1995, the Board of Directors of the Company
agreed to amend the September 1994 stock purchase agreement for the
consideration described above and Mr. Hayton's resignation as chairman and a
member of the Company's Board of Directors.
12. Related Party Transactions
In connection with the change of control (Note 11), the Company's founder
resigned as a director and chief executive officer in September 1994 and the
Company retained him as a consultant at the rate of $6,250 per month through
January 1995. Subsequent to this date, the monthly payment was increased to
$12,500 per month due to an increased level of effort by the Company's
founder. The contract extends through December 31, 1996, and also provides
for the continuing payment of certain benefits, including medical and life
insurance. This severance agreement was revised in December 1995 when the
Company formalized the termination of its former chief executive officer and
founder whereby all contractual obligations, consulting fees, and benefits
were terminated as of December 31, 1995, in return for the Company paying him
$108,000 and an additional $74,000 in February 1996.
The Company also secured a non-competition agreement from its founder
extending for a five year period for a fee of $675,000 payable over five
years; accelerated the cancellation of certain amounts due from him in the
amount of approximately $40,000; and agreed to accept payment for stock to be
acquired by him upon exercise of stock options in promissory notes payable
over five years.
During fiscal 1994 and fiscal 1995, the former chief executive officer
exercised options covering 240,000 shares and 216,326 shares, respectively,
of the Company's common stock, delivering notes therefore aggregating
approximately $675,000. These notes were subsequently offset in fiscal 1995
against the Company's note payable to its founder for a covenant not to
compete.
In connection with the repurchasing of the voting control over the Company
from Pattinson Hayton, III and his affiliated corporate entities (Note 11),
the Company assumed the obligation of Conagher & Co. to pay the former chief
executive officer $750,000 for the convertible preferred stock which he had
previously sold to Conagher & Co. The note is payable in monthly installments
of $75,000 plus interest, over a ten month period commencing April 1995.
This note plus accrued interest was paid in full in February 1996.
The Company has a one-third interest in a limited partnership which is the
owner of the Company's corporate headquarters. The Company occupies these
facilities pursuant to a ten-year lease which expires in October 2003. The
Company's ownership interest in the limited partnership which owns the
corporate headquarters is a second deed of trust payable to the Company in
the amount of $250,000. The Company's investment in the limited partnership
is reflected on its books at December 31, 1995, at the cost of $250,000.
13. Reserve for Restructuring Costs
Subsequent to amending the preferred stock repurchase agreement, the Company
determined that its long-term objectives did not require the services of its
former chairman and chief executive officer, Richard A. Fisher, and other
executives. Additionally, it was determined that certain intangibles
acquired in the McManis Sports acquisition in 1994 should be revalued.
Therefore in connection with this determination, all such liabilities to Mr.
Fisher and other executives reflected in the books and records of the Company
were reserved for. <PAGE>
The total amount reserved was $2,600,000 and consists
of the following:
1) A consulting agreement for Mr. Fisher's services from
July 1, 1995 to December 31, 1996 along with the related
employee benefits, the issuance of 100,000 shares of
common stock, and interest paid in arrears to Mr. Fisher
pursuant to acquisition of the Company's original preferred
stock (See Note 12). $ 482,000
2) Write-off of the unamortized portion of Mr. Fisher's
non-competition agreement from July 1, 1995 to
September 30, 1999. 575,000
3) Expenses and other costs incurred or to be incurred in
terminating company executives and the Company's
relationship with its investor relations consultant. 608,000
4) Write-off of unamortized costs and related expenses
for CMI machinery and equipment initially capitalized
in 1989. 250,000
5) Write-off of unamortized portion of goodwill
associated with acquisition of McManis Sports Associates. 685,000
Total Restructuring Costs $2,600,000
14. Pro Forma Financial Information
On December 29, 1995, the Company acquired all of the outstanding stock of
Lion Golf of Oregon, Inc., ("Lion Golf"), a manufacturer and distributor of golf
equipment, for $42,200 in common stock of the Company. The Company is accounting
for this acquisition using the purchase method. Accordingly, the purchase price
was allocated to the assets acquired based on their estimated fair values. This
treatment resulted in approximately $119,000 of cost over assets acquired as of
December 31, 1995.
The Company's Pro Forma Condensed Consolidated Statements of
Operations for the years ended December 31, 1995 and December 31, 1994 have
been adjusted to reflect the issuance of 50,000 shares of the Company's
common stock to Lion Golf's former shareholders. No other pro forma
adjustments have been made to the condensed consolidated statements
of operations.
Condensed Consolidated Pro-Forma Statements of Operations
1995
Total Revenue $7,323,005
Cost of sales 5,484,503
----------
GROSS PROFIT 1,838,502
Expenses:
Selling, general and administrative 8,370,270
Interest 1,330,596
Financing related costs -0-
Reserve for restructuring costs 2,600,000
-----------
TOTAL EXPENSES 12,300,866
-----------
PRO FORMA (LOSS) BEFORE INCOME TAXES ($10,462,364)
PRO FORMA INCOME TAX CREDIT 42,000
----------
PRO FORMA (LOSS) ($10,420,364)
PRO FORMA LOSS PER COMMON SHARE ($0.73)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 14,315,310
15. Contingencies
In December 1995, the Company and its Chairman and CEO, James J. Palermo,
were named as defendants in a defamation suit brought in the Superior Court
of the State of California, County of Los Angeles. The plaintiffs in this
lawsuit were Conagher & Co., Inc. and Pattinson Hayton, III, the Company's
former Chairman of the Board. This case for venue reasons was transferred in
March 1996 to the United States Federal District Court in Rhode Island. The
Company is of the opinion that this lawsuit is without merit and intends to
defend itself vigorously. The ultimate outcome of this lawsuit in respect to
the defendants is unknown.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company
is not currently a party to any legal proceedings, the adverse outcome of
which, in management's opinion, individually or in the aggregate, would have
a material adverse effect on the Company's results of operations or financial
position.
16. Accounting Changes
Previously, the Company accounted for the conversion of convertible debentures,
issued with conversion rights at a discount to market, as sales of securities
and treated the discount as a cost of capital. The Company has restated its
financial statements for the year ended December 31, 1995 to reclassify the
discount as interest and record it as a cost of borrowing. The effect on income
for the year ended December 31, 1995 was $1,109,589 in additional interest
expense.
EXHIBIT 4.5(a)
No 1 $2,000,000.000
USD
QUADRAX CORPORATION
9% Convertible Debenture due January 1, 1998
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1993, AS AMENDED
(THE ACT), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO OR
FOR THE ACCOUNT OR BENEFIT OF US PERSONS (AS DEFINED IN
REGULATION S UNDER THE ACT) EXCEPT PURSUANT TO REGISTRATION
UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT.
THIS DEBENTURE is one of a duly authorized issue of
Debentures of Quadrax Corporation, a corporation duly
organized and existing under the laws of the state of
Delaware (the ISSUER) designated as its Nine Percent (9%)
Convertible Debenture Due January 1, 1998, in an aggregate
principal amount not exceeding Three Million (USD
$3,000,000.00), issuable in Ten Thousand (USD $10,000.00)
par value face amount.
FOR VALUED RECEIVED, the ISSUER promised to pay to
INFINITY INVESTORS LTD.
the registered holder hereof and its successors and assigns
(the HOLDER), the principal sum of
Two Million and no/100
($2,000,000.00),
on January 1, 1988 (the Maturity Date), and to pay interest
on the principal sum outstanding at the rate of 9% per annum
due and payable quarterly in arrears commencing on January 1,
1996, and subsequently on April 1, July 1, October 1, for the
term of the note or until the Debenture is completely
converted. Accrual of Interest shall commence on the first
business day to occur after the date hereof and shall
continue until payment in full of the principal sum has been
made or duly provided for. The interest so payable will be
paid to the person in whose name this Debenture (or one or
more predecessor Debentures) is registered on the records of
the ISSUER regarding registration and transfers of the
Debenture (the Debenture Register), provided, however, that
the ISSUER'S obligation to a transferee of this Debenture
arises only if such transfer, sale or other disposition is
made in accordance with the terms and conditions of the
Offshore Subscription Agreement dated as of Oct. 5, 199 5
between the ISSUER and HOLDER (the Offshore Debentures
Securities Subscription Agreement). The principal of, and
interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of
payment is legal tender for payment of public and private
debts, at the address last appearing on the Debenture
register of the ISSUER as designated in writing by the Holder
hereof from time to time. The Issuer will pay the principal
of and all accrued and unpaid interest due upon this
Debenture on the Maturity Date, less any amounts required by
law to be deducted or withheld, to the Holder at the last
address on the Debenture Register. The forwarding of such
check shall constitute a payment of principal and interest
hereunder and shall satisfy and discharge the
liability for principal and interest on this Debenture to
the extent of the sum represented by such check plus any
amounts so deducted.
<PAGE>
The Debenture is subject to the following additional
provisions:
1. The Debenture is issuable in integral multiples. The
Debentures are exchangeable for in equal aggregate
principal amount of Debentures of different authorized
denominations, as requested by the HOLDERS surrendering
the same. No service charge will be made for such
registration or transfer or exchange.
2. The ISSUER shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture
any amounts required to be withheld under the applicable
provisions of the United States Income Tax or other
applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment
representations of the original HOLDER hereof and may be
transferred or exchanged in the US only in compliance
with the Securities Act of 1933, as amended (the ACT)
and applicable state securities laws. Prior to the due
presentment for such transfer of this Debenture, the
ISSUER and any agent of the ISSUER may treat the person
in whose name this Debenture is duly registered on the
ISSUER'S Debenture Registrar as the owner hereof for the
purpose of receiving payment as herein provided and all
other purposes, whether or
not this Debenture is overdue, and neither the ISSUER nor
any such agent shall be affected by notice to the
contrary. The transferee shall be bound, as the original
HOLDER, by the same representations and terms described
herein and under the Offshore Debenture Securities
Agreement.
4. THE HOLDER of this Debenture is entitled, at its
option, at any time commencing from and after Nov.
19 , 1995 (forty-five (45) days after issue hereof)
(the First Conversion Date) to convert
up to one-half, 50% of the original principal amount of
this Debenture into shares of Common Stock. of the ISSUER
(the Common Stock) at a conversion price for each share
of common stock equal to Seventy-three (73%) of the
Market Price (as defined below) of the Common Stock.
Thereafter the HOLDER of this Debenture is entitled, at
its option, to convert up to the remaining one-half, 50%
of the original principal amount of this Debenture at any
time from and after the thirtieth (30) day after such
First Conversion Date, at a conversion price for each
share of common Stock equal to Seventy-three (73%) of the
Market Price (as defined below) of the Common Stock.
For purposes of this Section 4, the market Price shall
be the average closing bid price of the Common Stock for
the Ten (10) New York Stock Exchange Trading Days
immediately preceding the applicable Conversion Date (as
hereafter defined), as reported by the National
Association of Securities Dealers
Automated Quotation System. Such conversion shall be
effected by surrendering the Debenture to
be converted (with a copy, by facsimile or courier) to
the ISSUERS Transfer Agent, with the form
of conversion notice attached hereto as Exhibit 1,
executed by the HOLDER of this Debenture or a specified
portion (as provided) hereof, and accompanied, if
required by the ISSUER, by proper assignment hereof in
blank. Accrued but unpaid interest shall, at the sole
option of the HOLDER,
be subject to conversion under the same terms and
conditions as the principal amount of this
Debenture at the time of conversion of this Debenture of
any portion thereof. No fractional shares or script
representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be
rounded to the nearest whole share, with the fraction
paid in cash at the discretion of the ISSUER. For
purposes of this Debenture, the Conversion Date on
which notice of conversion is givenby the HOLDER shall be
deemed to be close of business on the date on which the
Holder
<PAGE>
has delivered this Debenture, with the conversion notice
duly executed, to the Transfer Agent via recognized
overnight courier.
5. No provision of this Debenture shall alter or impair
the obligation of the ISSUER, which is absolute and
unconditional, to pay the principal of, and interest on,
this Debenture at the place, time, and rate, and in the
coin or currency, herein prescribed.
6. The ISSUER hereby expressly waives demand and
presentment for payment, notice of nonpayment, protest,
notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, bringing of suit
and diligence in taking any action to collect amounts
called for hereunder and shall be directly and primarily
liable for the payment of all sums owing and to be owing
hereon, regardless of and without any notice, diligence,
act or omission as or with respect to the collection of
any amounts called for hereunder.
7. The ISSUER agrees to pay all costs and expenses,
including reasonable attorneys fees, which may be
incurred by the Holder in collecting any amount due or
exercising the conversion rights under this Debenture.
8. If one or more of the following described Events of
Default shall occur:
(a) The ISSUER shall default in the payment of
principal or Interest on this Debenture and
continuance for thirty (30) days; or
(b) Any on the representations or warranties made by
the ISSUER herein, or in the Subscription Agreement
shall have been incorrect in any material respect;
or
(c) The ISSUER shall fail to perform or observe any
other covenant, term, provision, condition,
agreement or obligation of the ISSUER under this
Debenture and such failure shall
continued uncured for a period of seven (7) days
after notice from the Holder of such failure; or
(d) A trustee, liquidator or receiver shall be
appointed for the ISSUER or for a substantial part
of its property or business without its consent and
shall not be discharged within thirty (30)
days after such appointment; or
(e) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the ISSUER and shall not be dismissed
within thirty (30) calendar days thereafter; or
(f) Bankruptcy reorganization, Insolvency or
liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against
the ISSUER, and if instituted against the ISSUER,
ISSUER shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in
answering a petition filed in any such proceeding;
or
(d) The ISSUERS Common Stock is delisted from the
exchange or over-the-counter markets.
Then, or at any time thereafter, and in each and every
such case, unless such Event or Default shall have been
waived in writing by the HOLDER (which waiver shall not
be deemed to be a waiver of any subsequent default) at
the option of the HOLDER and in the HOLDER'S sole
discretion, the HOLDER may consider
this Debenture immediately due and payable, without
presentment,
demand protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note
of other instruments contained to the contrary
notwithstanding, and the HOLDER may immediately, and
without expiration of any period of grace, enforce any
and all of the HOLDER'S rights and remedies provided
herein or any other rights or remedies afforded by law.
9. If changes or modification to the rules governing the
transaction restriction period and/or the exemptions for
resales of the securities under Regulation S are enacted
during the period when any amounts due under this
Debenture remain outstanding then the ISSUER undertakes,
upon the written demand of the HOLDER for conversion of
the Debentures, to file a Registration Statement
to register the Common Shares to be issued upon
conversion with the United States Securities Exchange
Commission within Twenty (20) New York Stock Exchange
Trading Days of receipt of such demand. If such
Registration Statement is not effective within one
hundred twenty (120) Calendar days of such demand, then
the ISSUER agrees to increase the interest rate payable
any outstanding principal and interest due under this
Debenture by four (4) per cent per annum effective from
sixty (60) days from the date of the demand, payable in
cash, quarterly.
10. In case any provision of this Debenture is held by a
court of competent jurisdiction to be
excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather
than voided, if possible, so that is enforceable to the
maximum extent possible, and the validity and
enforceability of the remaining provision of this
Debenture will not in any way be affected or impaired
thereby.
11. This Debenture and the agreements referred to in
this Debenture constitute the full and entire
understanding and agreement between the ISSUER and the
HOLDER with respect hereof. Neither this Debenture nor
any terms hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by
the ISSUER and the HOLDER.
12. This Debenture shall be governed by and construed in
accordance with the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the ISSUER has caused this instrument
to be duly executed by an officer thereunto duly
authorized.
QUADRAX CORPORATION
by: /s/ James J. Palermo
Official Signatory of Issuer
Name (Printed): James J. Palermo
Title: Chairman and Chief Executive Officer
Date: October 4, 1995
<PAGE>
EXHIBIT 1
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Debenture
The undersigned (The HOLDER) hereby irrevocably elects
to convert _____________(USD
$______________) of the above Debenture No. ____________
into __________________(______)
common shares of Common Stock of QUADRAX CORPORATION (The
ISSUER) and a remaining exchange debenture in the amount
of ________________ (USD$__________) according to the
conditions set forth in such Debenture, as of the date
written below. The shares are to be issued in the Street
Name written below.
The undersigned represents and warrants as follows:
(1) The offer to purchase the Debenture was made to it
outside of the United States, and the undersigned was,
at the time the subscription form was executed and
delivered, and in now outside the United States;
(2) It is not a U.S. person (as such term is defined in
Section 902(a) of Regulation S (Regulation S)
promulgated under the United States Securities Act of
1933 (the Securities Act); and it has purchased the
Debenture and the shares for its own account and not for
the account or benefit of any U.S. person;
(3) All offers and sales by the undersigned of the
shares issuable upon the conversion of the Debenture
acquired pursuant to the Offshore Debenture Securities
Subscription Form shall be made pursuant to an effective
registration statement under the Securities Act or
pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the
Securities Act;
(4) It is familiar with and understands the terms and
conditions, and requirements contained in Regulation S
and definitions of US person contained in Regulation S;
and
(5) The undersigned has not engaged in any direct
selling efforts (as such term is defined Regulation S)
with respect to the Shares;
Holder:
By:
Official Signatory of HOLDER
Title: Country of execution:
Date of Conversion
Applicable Conversion Price
Name of Holder for Registration:
Address for Registration
*The original Debenture and this Notice of Conversion must
be received by the ISSUER within five (5) New York Stock
Exchange Trading Days following the Date of Conversion..
EXHIBIT 4.5(b)
No 2 $1,000,000.000 USD
QUADRAX CORPORATION
9% Convertible Debenture due January 1, 1998
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1993, AS AMENDED (THE ACT), AND MAY NOT BE OFFERED
OR
SOLD IN THE UNITED STATES (AS DEFINED IN REGULATION S UNDER THE ACT) OR TO OR
FOR THE ACCOUNT OR BENEFIT OF US PERSONS (AS DEFINED IN REGULATION S UNDER
THE
ACT) EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT.
THIS DEBENTURE is one of a duly authorized issue of
Debentures of Quadrax Corporation, a corporation duly
organized and existing under the laws of the state of
Delaware (the ISSUER) designated as its Nine Percent (9%)
Convertible Debenture Due January 1, 1998, in an aggregate
principal amount not exceeding Three Million (USD
$3,000,000.00), issuable in Ten Thousand (USD $10,000.00)
par value face amount.
FOR VALUED RECEIVED, the ISSUER promised to pay to
CONSERVATION GROWTH ADVISORS LTD.
the registered holder hereof and its successors and assigns
(the HOLDER), the principal sum of
One Million and no/100 ($1,000,000.00),
on January 1, 1988 (the Maturity Date), and to pay
interest on the principal sum outstanding at the rate of 9%
per annum due and payable quarterly in arrears commencing on
January 1, 1996, and subsequently on April 1, July 1,
October 1, for the term of the note or until the Debenture
is completely converted. Accrual of Interest shall commence
on the first business day to occur after the date hereof and
shall continue until payment in full of the principal sum
has been made or duly provided for. The interest so payable
will be paid to the person in whose name this Debenture (or
one or more predecessor Debentures) is registered on the
records of the ISSUER regarding registration and transfers
of the Debenture (the Debenture Register), provided,
however, that the ISSUER'S obligation to a transferee of
this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and
conditions of the Offshore Subscription Agreement dated as
of Oct. 5, 1995 between the ISSUER and HOLDER (the
Offshore Debentures Securities Subscription Agreement).
The principal of, and interest on, this Debenture are
payable in such coin or currency of the United States of
America as at the time of payment is legal tender for
payment of public and private debts, at the address last
appearing on the Debenture register of the ISSUER as
designated in writing by the Holder hereof from time to
time. The Issuer will pay the principal of and all accrued
and unpaid interest due upon this Debenture on the Maturity
Date, less any amounts required by law to be deducted or
withheld, to the Holder at the last address on the Debenture
Register. The forwarding of such check shall constitute a
payment of principal and interest hereunder and shall
satisfy and discharge the liability for principal and
interest on this Debenture to the extent of the sum
represented by such check plus say amounts so deducted.
<PAGE>
The Debenture is subject to the following additional
provisions:
1. The Debenture is issuable in integral multiples. The
Debentures are exchangeable for in equal aggregate principal
amount of Debentures of different authorized denominations,
as requested by the HOLDERS surrendering the same. No
service charge will be made for such registration or
transfer or exchange.
2. The ISSUER shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture
any amounts required to be withheld under the applicable
provisions of the United States Income Tax or other
applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment
representations of the original HOLDER hereof and may be
transferred or exchanged in the US only in compliance with
the Securities Act of 1933, as amended (the ACT) and
applicable state securities laws. Prior to the due
presentment for such transfer of this Debenture, the ISSUER
and any agent of the ISSUER may treat the person in whose
name this Debenture is duly registered on the ISSUER'S
Debenture Registrar as the owner hereof for the purpose of
receiving payment as herein provided and all other purposes,
whether or not this Debenture is overdue, and neither the ISSUER nor
any such agent shall be affected by notice to the contrary.
The transferee shall be bound, as the original HOLDER, by
the same representations and terms described herein and
under the Offshore Debenture Securities Agreement.
4. THE HOLDER of this Debenture is entitled, at its option,
at any time commencing from and after Nov. 19 ,
1995 (forty-five (45) days after issue hereof) (the First
Conversion Date) to convert
up to one-half, 50% of the original principal amount of this
Debenture into shares of Common Stock. of the ISSUER (the
Common Stock) at a conversion price for each share of
common stock equal to Seventy-three (73%) of the Market
Price (as defined below) of the Common Stock. Thereafter
the HOLDER of this Debenture is entitled, at its option, to
convert up to the remaining one-half, 50%
of the original principal amount of this Debenture at any
time from and after the thirtieth (30) day after such First
Conversion Date, at a conversion price for each share of
common Stock equal to Seventy-three (73%) of the Market
Price (as defined below) of the Common Stock. For purposes
of this Section 4, the market Price shall be the average
closing bid price of the Common Stock for the Ten (10) New
York Stock Exchange Trading Days immediately preceding the
applicable Conversion Date (as hereafter defined), as
reported by the National Association of Securities Dealers
Automated Quotation System. Such conversion shall be
effected by surrendering the Debenture to
be converted (with a copy, by facsimile or courier) to the
ISSUERS Transfer Agent, with the form
of conversion notice attached hereto as Exhibit 1, executed
by the HOLDER of this Debenture or a specified portion (as
provided) hereof, and accompanied, if required by the
ISSUER, by proper assignment hereof in blank. Accrued but
unpaid interest shall, at the sole option of the HOLDER, be
subject to conversion under the same terms and conditions as
the principal amount of this Debenture at the time of
conversion of this Debenture of any portion thereof. No
fractional shares or script representing fractions of shares
will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share, with
the fraction paid in cash at the discretion of the ISSUER.
For purposes of this Debenture, the Conversion Date on
which notice of conversion is givenby the HOLDER shall be
deemed to be close of business on the date on which the
Holder
<PAGE>
has delivered this Debenture, with the conversion notice
duly executed, to the Transfer Agent via recognized
overnight courier.
5. No provision of this Debenture shall alter or impair the
obligation of the ISSUER, which is absolute and
unconditional, to pay the principal of, and interest on,
this Debenture at the place, time, and rate, and in the coin
or currency, herein prescribed.
6. The ISSUER hereby expressly waives demand and
presentment for payment, notice of nonpayment, protest,
notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, bringing of suit and
diligence in taking any action to collect amounts called for
hereunder and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless
of and without any notice, diligence, act or omission as or
with respect to the collection of any amounts called for
hereunder.
7. The ISSUER agrees to pay all costs and expenses,
including reasonable attorneys' fees, which may be incurred
by the Holder in collecting any amount due or exercising the
conversion rights under this Debenture.
8. If one or more of the following described Events of
Default shall occur:
(a) The ISSUER shall default in the payment of principal
or Interest on this Debenture and continuance for thirty
(30) days; or
(b) Any on the representations or warranties made by the
ISSUER herein, or in the Subscription Agreement shall
have been incorrect in any material respect; or
(c) The ISSUER shall fail to perform or observe any other
covenant, term, provision, condition, agreement or
obligation of the ISSUER under this Debenture and such
failure shall
continued uncured for a period of seven (7) days after
notice from the Holder of such failure; or
(d) A trustee, liquidator or receiver shall be appointed
for the ISSUER or for a substantial part of its property
or business without its consent and shall not be
discharged within thirty (30)
days after such appointment; or
(e) Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any
substantial portion of the properties or assets of the
ISSUER and shall not be dismissed within thirty (30)
calendar days thereafter; or
(f) Bankruptcy reorganization, Insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the ISSUER, and if
instituted against the ISSUER, ISSUER shall by any
action or answer approve of, consent to, or acquiesce in
any such proceedings or admit the material allegations
of, or default in answering a petition filed in any such
proceeding; or
(d) The ISSUERS Common Stock is delisted from the exchange
or over-the-counter markets.
Then, or at any time thereafter, and in each and every
such case, unless such Event or Default shall have been
waived in writing by the HOLDER (which waiver shall not
be deemed to be a waiver of any subsequent default) at the
option of the HOLDER and in the HOLDER'S sole
discretion, the HOLDER may consider
this Debenture immediately due and payable, without
presentment,
demand protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note
of other instruments contained to the contrary
notwithstanding, and the HOLDER may immediately, and
without expiration of any period of grace, enforce any
and all of the HOLDER'S rights and remedies provided
herein or any other rights or remedies afforded by law.
9. If changes or modification to the rules governing the
transaction restriction period and/or the exemptions for
resales of the securities under Regulation S are enacted
during the period when any amounts due under this
Debenture remain outstanding then the ISSUER undertakes,
upon the written demand of the HOLDER for conversion of
the Debentures, to file a Registration Statement
to register the Common Shares to be issued upon
conversion with the United States Securities Exchange
Commission within Twenty (20) New York Stock Exchange
Trading Days of receipt of such demand. If such
Registration Statement is not effective within one
hundred twenty (120) Calendar days of such demand, then
the ISSUER agrees to increase the interest rate payable
any outstanding principal and interest due under this
Debenture by four (4) per cent per annum effective from
sixty (60) days from the date of the demand, payable in
cash, quarterly.
10. In case any provision of this Debenture is held by a
court of competent jurisdiction to be
excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather
than voided, if possible, so that is enforceable to the
maximum extent possible, and the validity and
enforceability of the remaining provision of this
Debenture will not in any way be affected or impaired
thereby.
11. This Debenture and the agreements referred to in
this Debenture constitute the full and entire
understanding and agreement between the ISSUER and the
HOLDER with respect hereof. Neither this Debenture nor
any terms hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by
the ISSUER and the HOLDER.
12. This Debenture shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the ISSUER has caused this
instrument to be duly executed by an officer thereunto
duly authorized.
QUADRAX CORPORATION
by: /s/ James J. Palermo
Official Signatory ofIssuer
Name (Printed): James J. Palermo
Title: Chairman and Chief Executive Officer
Date: October 4, 1995
<PAGE>
EXHIBIT 1
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Debenture
The undersigned (The HOLDER) hereby irrevocably
elects to convert _____________(USD
$______________) of the above Debenture No. ____________
into __________________(______)
common shares of Common Stock of QUADRAX CORPORATION
(The ISSUER) and a remaining exchange debenture in the
amount of ________________ (USD$__________) according to
the conditions set forth in such Debenture, as of the
date written below. The shares are to be issued in the
Street Name written below.
The undersigned represents and warrants as follows:
(1) The offer to purchase the Debenture was made to it
outside of the United States, and the undersigned was,
at the time the subscription form was executed and
delivered, and in now outside the United States;
(2) It is not a U.S. person (as such term is defined in
Section 902(a) of Regulation S (Regulation S)
promulgated under the United States Securities Act of
1933 (the Securities Act); and it has purchased the
Debenture and the shares for its own account and not for
the account or benefit of any U.S. person;
(3) All offers and sales by the undersigned of the
shares issuable upon the conversion of the Debenture
acquired pursuant to the Offshore Debenture Securities
Subscription Form shall be made pursuant to an effective
registration statement under the Securities Act or
pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the
Securities Act;
(4) It is familiar with and understands the terms and
conditions, and requirements contained in Regulation S
and definitions of US person contained in Regulation S;
and
(5) The undersigned has not engaged in any direct
selling efforts (as such term is defined Regulation S)
with respect to the Shares;
Holder:
By:
Official Signatory of HOLDER
Title: Country of execution:
Date of Conversion
Applicable Conversion Price
Name of Holder for Registration:
Address for Registration
*The original Debenture and this Notice of Conversion must
be received by the ISSUER within five (5) New York Stock
Exchange Trading Days following the Date of Conversion..
EXHIBIT 10.21(a)
SETTLEMENT AGREEMENT
This Settlement Agreement is entered into as of
December 8, 1995 between Quadrax Corporation, a Delaware
Corporation ("Quadrax") and Richard A. Fisher, an individual
domiciled in Rhode Island ("Fisher").
Whereas, Quadrax and Fisher have entered into a
Severance Agreement dated September 30, 1994, a copy of
which is attached hereto as Exhibit A ("the Severance
Agreement"); and
Whereas, Quadrax and Fisher have entered into a
Consulting Agreement dated October 1, 1994, a copy of which
is attached hereto as Exhibit B (the "Consulting
Agreement"), such Severance and Consulting Agreements
collectively referred to herein as the "Service Agreements";
and
Whereas, Quadrax and Fisher have entered into a
Non-Competition Agreement, dated October 1, 1994, a copy of
which is attached hereto as Exhibit C; and
Whereas, Quadrax executed and delivered to Fisher on
February 13, 1995 a promissory note in the original
principal amount of $750,000, a copy of which is attached
hereto as Exhibit D (the "Note"); and
Whereas, Quadrax and Fisher and James J. Palermo, as
trustee, have entered into an Agreement dated July 13, 1995
which, among other things, modified various provisions of
the Note, a copy of which is attached hereto as Exhibit E
(the "Repayment Agreement"); and
Whereas, Quadrax and Fisher wish to terminate the
Service Agreements, amend the Repayment Agreement, establish
an escrow to secure the payment of various Quadrax
obligations to Fisher, and to enter a Security Agreement to
further secure such obligations, all on the terms and
conditions set forth herein.
Now, therefore, for good and valuable consideration,
the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Payment of Consulting Fees and Severance Benefits
Through December 31, 1995.
(a) Quadrax agrees to pay Fisher, without deduction,
consulting fees under the Consulting Agreement ("Fees") and
severance benefits under the Severance Agreement
("Benefits") for the period December 4, 1995 through
December 31, 1995.
(b) Quadrax and Fisher agree that the remaining amount
of Fees for the period December 4, 1995 through December 31,
1995 is $11,538, of which $5,769 under Quadrax payroll
policies is payable on January 5, 1996.
(c) Quadrax and Fisher agree that the remaining
Benefits for the period December 4, 1995 through December
31, 1995 are approximately $8,200, which includes (but is
not limited to) premium payments due to Northwestern Mutual
Life Insurance Company ("NML") of approximately $5,082 with
respect to five life insurance policies and $606 with
respect to two disability policies.
2. Termination of Service Agreements.
(a) Subject to the performance in full by Quadrax of
this Settlement Agreement, the Repayment Agreement, as
amended hereby, and the Escrow Agreement of even date
herewith, a copy of which is attached hereto as Exhibit F
and made a part hereof (the "Escrow Agreement"), the
obligations of Quadrax and Fisher under each of the Service
Agreements are terminated and discharged, effective (other
than as provided in 8) January 1, 1996.
(b) In consideration of the termination of Quadrax's
obligations to Fisher under the Service Agreements, as of
the date hereof Quadrax shall (i) pay Fisher $108,000 in
cash, and (ii) deposit $73,650 in cash in the escrow account
("Escrow Account") as established by the Escrow Agreement.
(c) For purposes of 2 (a), "performance in full by
Quadrax of . . . the Escrow Agreement" shall mean (i)
Quadrax issues to Fisher or his designee fully registered
and freely transferable shares of Quadrax common stock
computed in the manner set forth in, and as required by, 1
(d) of the Repayment Agreement, as amended by 4 hereof, or,
in the event that such shares of Quadrax common stock are
not issued to Fisher, (ii) the escrow agent disburses to
Fisher $373,650 in cash plus interest at the rate of $65.75
per day for the period October 16, 1995 until the date such
disbursement is made, inclusive.
(d) Quadrax agrees to execute all insurance forms,
releases and assignments which may be required by NML to
carry out the purposes of this Agreement.
3. Stock Option.
(a) Quadrax hereby confirms under the Non-Qualified
Stock Option Agreement for 250,000 shares of common stock
("options") effective as of August 9, 1994 between Quadrax
and Fisher ("Option Grant"), a copy of which is attached
hereto as Exhibit G, that:
(i) The purchase price under 1 of the Option Grant is
$1.81 per share; and
(ii) The options are fully exercisable under 2
(b) of the Option Grant, i.e., the options are
fully vested; and
(iii) 250,000 shares of Quadrax common stock are
reserved under the Quadrax Corporation 1993 Stock
Plan for the options under the Option Grant; and
(iv) The options shall be exercisable in whole or in
part under 2 (d) of the Option Grant until 5 p.m.,
Eastern Standard Time, on December 31, 1997.
(b) Fisher and Quadrax agree that Quadrax shall not be
required to extend any financing to Fisher in connection
with Fisher's exercise of the options under the Option
Grant.
(c) Except as modified hereby, the Option Grant shall
remain in full force and effect.
<PAGE>
4. Amendment of Repayment Agreement; Deposit into
Escrow.
(a) 1 (c) of the Repayment Agreement is deleted in its
entirety.
(b) 1 (d) of the Repayment Agreement is amended by
deleting, in the first sentence, "January 7, 1996" and
substituting therefor "5 p.m. February 7, 1996," and by
adding in the first sentence after the parenthetical
"(computed as provided in clause 1(b) above)" a "," followed
by the words "plus $73,650".
(c) The last sentence of 1 (d) of the Repayment
Agreement is deleted in its entirety and replaced by the
following sentence:
"No later than the first business day after the
Effective Date, Quadrax shall instruct its transfer
agent by facsimile transmission to deliver such stock
certificate to Fisher or his designee. Quadrax shall
provide Fisher a copy of such instructions by facsimile
transmission."
Such letter shall be substantially in the form attached
hereto as Exhibit H.
(d) Quadrax shall deposit as of the date hereof
$307,496 (consisting of $300,000 of principal and $7,496
representing the maximum amount of interest payable at the
rate of $65.75 per day with respect to the unpaid balance of
the Note through February 7, 1996) in cash in the Escrow
Account as provided in the Escrow Agreement. All cash
deposited in the Escrow Account (including pursuant to 2
(b) hereof) shall be disbursed by the escrow agent solely in
accordance with the provisions of the Escrow Agreement.
5. Registration Statement. Quadrax agrees that,
through its chief financial officer, it will provide Fisher,
upon Fisher's oral or written requests from time to time,
periodic reports as to the status of the Registration
Statement (as defined in the Repayment Agreement). Quadrax
agrees that it will notify Fisher immediately by telephone
with written facsimile confirmation (i) when the
Registration Statement is declared effective by the
Securities and Exchange Commission, (ii) if the Registration
Statement is abandoned or withdrawn by Quadrax, or (iii) if
the Securities and Exchange Commission makes a written
determination to Quadrax that it will not declare the
Registration Statement effective.
6. Offsetting Obligations under Non-Competition
Agreement and Certain Fisher Notes; Amendment of Notes;
Continuing Obligations under the Non-Competition Agreement.
(a) Quadrax and Fisher agree that, for purposes of this
Agreement, the payment obligation (including interest) of
Quadrax to Fisher under the Non-Competition Agreement as
evidenced by an Unsecured Promissory Note ("Non-Competition
Note") dated October 1, 1994 in the principal amount of
$675,000, and the payment obligations (including interest)
of Fisher to Quadrax as evidenced by various Unsecured
Promissory Notes executed in connection with the exercise by
Fisher of options to purchase Quadrax common stock ("Stock
Notes") in the aggregate principal amount of $673,068, shall
be treated as fully offsetting and that neither party will
pay cash to the other under the Non-Competition Note and the
Stock Notes. For tax purposes, Quadrax will continue to
report the payments made under the Non-Competition Agreement
on a periodic basis as provided therein.
(b) The original of the Non-Competition Note and the
original of each of the Stock Notes shall be amended by
adding the following sentence to each page thereof: THIS
PROMISSORY NOTE IS NON-TRANSFERABLE AND NON-NEGOTIABLE.
Quadrax shall furnish Fisher with a copy of each Stock Note,
as so amended, and Fisher shall furnish Quadrax with a copy
of the Non-Competition Note, as so amended.
(c) Fisher reaffirms his continuing obligations under
1 and 2 of the Non-Competition Agreement.
7. Ownership of Certain Equipment and Furniture.
Quadrax agrees to convey to Fisher ownership of certain
equipment and furniture which are in Fisher's possession by
delivery of the General Conveyance, Assignment and Bill of
Sale which is attached hereto as Exhibit I.
8. Vehicle Lease. Quadrax agrees to assign, and Fisher
agrees to assume, the lease for one Jeep Grand Cherokee
vehicle pursuant to the Assignment and Assumption attached
hereto as Exhibit J and made a part hereof, effective as of
the date the first payment is required to be made to the
lessor under such lease in January 1996. Fisher will
thereafter hold Quadrax harmless from any obligations under
such lease.
9. COBRA Benefits. Quadrax will extend to Fisher the
right under COBRA to continue the health insurance coverage
that is currently being paid for by Quadrax on behalf of
Fisher under 9 of the Severance Agreement.
10. Tax Filings. Quadrax agrees that it will disclose
to Fisher the content of each report of a payment or
payments to Fisher which Quadrax proposes to file with
federal or state tax authorities and will afford Fisher the
opportunity, in advance of the filing of any such report, to
discuss the content thereof with Quadrax's firm of
independent auditors. Quadrax's obligation under this 10
shall extend to proposed reports under the Service
Agreements, the Non-Competition Agreement, the Repayment
Agreement, the Note, the Escrow Agreement and this
Agreement.
11. Disclosures to Stockholders and Securities
Regulators; Other Public Statements.
(a) Quadrax represents and warrants that disclosures to
stockholders and securities regulators which pertain to
Fisher will be made in accordance with its legal obligations
and otherwise in a prudent and conscientious manner.
(b) Neither party shall make any public statements,
press releases or announcements (collectively, a "statement"
or "statements") regarding the other party unless it or he
reasonably determines that such statement is required by
law, provided however, that if a party does make any such
statement, the other party shall be entitled to respond to
it. For purposes of this 11 (b), a statement about Quadrax
shall include its directors, officers and employees, and a
statement about Fisher shall include (but shall not be
limited to) a statement about the performance of management
of Quadrax during the period March 1986 through September
1995.
12. Mutual Releases. The parties shall execute mutual
releases in the form attached hereto as Exhibit K.
13. Security Agreement. To further secure the
obligations of Quadrax to Fisher under this Settlement
Agreement and the Repayment Agreement, as amended hereby,
Quadrax shall execute a Security Agreement in the form
attached hereto as Exhibit L
.
14. Board of Directors and Compensation Committee
Approval. Quadrax represents and warrants that this
Agreement, the Escrow Agreement and the Security Agreement
have been approved by the unanimous consent of its directors
or by the directors at a meeting properly noticed and called
for that purpose. Quadrax further represents and warrants
that the Compensation Committee of the Board of Directors
has approved the amendment of the Option Grant as set forth
in 3 hereof. No later than five business days after the
date herreof, Quadrax shall provide Fisher with an executed
copy of a Secretary's Certificate with respect to such Board
of Directors and Compensation Committee approvals.
15. Provisions of General Application.
(a) Amendments and Supplements. This Settlement
Agreement may not be amended, modified or supplemented by
the parties hereto in any manner, except by instrument in
writing signed on behalf of each of the parties hereto by
their duly authorized officers or representatives.
(b) Waivers. No term of provision of this Agreement
shall be deemed waived by either party and no breach or
default shall be deemed excused by either party unless such
waiver or consent shall be in writing ad signed by such
party. The failure of either party to enforce at any time
any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any
way to affect the validity of this Agreement or any part
hereof or the right of such party thereafter to enforce each
and every such provision. No waiver of any breach of or
noncompliance with this Agreement shall be held to be a
waiver of any other or subsequent breach or noncompliance.
(c) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given (i)
three business days after posting with the United States
Postal Service when mailed by certified mail, return receipt
requested, properly addressed and with the correct postage,
(ii) one business day after pick-up by a courier service
when sent by overnight courier, properly addressed and
prepaid, or (c) one business day after the date of the
sender's electronic confirmation of receipt when sent by
facsimile transmission. Such notices and other
communications shall be sent to the addresses or facsimile
numbers set forth below, unless either party notifies the
other in writing, in accordance with this 13 (c), of an
address or facsimile change.
To Quadrax: Quadrax Corporation
300 High Point Avenue
Portsmouth, RI 02871
Facsimile: 401-683-6606
With a copy to: Fried, Frank, Harris, Shriver &
Jacobson
1001 Pennsylvania Avenue, N.W.
Washington, D.C 20004-2505
Facsimile: 202-639-7008
Attention: James H. Schropp
To Fisher: Richard A. Fisher
P.O. Box 1120
Newport, RI 02840
Facsimile: 401-847-4895
With a copy to: Flanders & Medeiros
One Turks Head Place
Suite 700
Providence, RI 02903-2215
Attention: Robert Karmen
(d) Construction. The headings in this Agreement are
included only for convenience and shall not in any way
affect the meaning or interpretation of this Agreement.
Except as otherwise indicated, references to a section or
refer to such section of this Agreement. The words "herein"
and "hereof" and other words of similar import refer to this
Agreement as a whole and not to any particular part of this
Agreement.
(e) Disputes. Quadrax and Fisher agree than any
dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this
Settlement Agreement shall be settled by arbitration to be
held in Providence, Rhode Island in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association before a single arbitrator who shall have
experience in the area of the matter in dispute or
controversy. The arbitrator may grant relief in the nature
of injunctions or other relief in such dispute or
controversy. The decision by the arbitrator shall be final,
conclusive and binding on the parties. Judgment may be
entered on the arbitrator's behalf in any court having
jurisdiction. Each party shall pay that percentage of the
total costs and expenses of such arbitration, including fees
of legal counsel for both parties, equal to the percentage
of the total amount in controversy awarded by the arbitrator
to the other party.
(f) Conveyance of Rights; Binding Effect. This
Settlement Agreement (i) is not intended to confer upon any
person other than the parties hereto any rights or remedies
hereunder, and (ii) shall be binding upon, and inure to the
benefit of, both parties and their respective successors and
assigns, including any person or entity with which, or into
which, Quadrax may be merged or consolidated or which may
succeed to its assets or business.
(g) Validity. The invalidity or unenforceability of
any provisions of this Agreement shall not affect the
validity or enforceability of any other provisions of this
Agreement, each of which shall remain in full force and
effect.
(h) Counterparts. This Settlement Agreement may be
executed in counterparts, each of which shall be deemed an
original but all of which together shall constitute one and
the same instrument.
(i) Governing Law. This Settlement Agreement shall be
governed by the laws of the State of Rhode Island.
In Witness Whereof, Quadrax and Fisher have executed,
or caused to be executed, this instrument under seal as of
the date first set forth above.
Quadrax Corporation
By: /s/James J. Palermo
_____________________
James J. Palermo
Chairman of the
Board and Chief
Executive Officer
/s/Richard A. Fisher
____________________
Richard A. Fisher
EXHIBIT 10.21(a) Continued
ESCROW AGREEMENT
This Agreement is entered into as of December 8, 1995
between Quadrax
Corporation, a Delaware Corporation ("Quadrax"), Richard A.
Fisher, an
individual domiciled in Rhode Island ("Fisher") and Fried, Frank,
Harris,
Shriver & Jacobson as escrow agent ("Escrow Agent").
Whereas, Quadrax and Fisher have entered into an agreement
of even date
herewith ("Settlement Agreement") with respect to the settlement
of payment
obligations of Quadrax to Fisher under various agreements and
instruments
("Payment Obligations"), including a promissory note in favor of
Fisher in the
original principal amount of $750,000 (the "Note"), a copy of
which is attached
hereto as Exhibit 1;
Whereas, the Note was amended by an Agreement dated July
13, 1995 by and
among Quadrax, Fisher and James J. Palermo, as trustee, a copy of
which is
attached hereto as Exhibit 2, which agreement was amended by the
Settlement
Agreement (such agreement, as so amended by the Settlement
Agreement, herein
the "Amended Repayment Agreement"); and
Whereas, pursuant to the terms of the Settlement Agreement,
Quadrax has
agreed to deposit cash in an escrow account for purposes of
securing Quadrax's
Payment Obligations in the event that a registration statement
which Quadrax
has filed with the Securities and Exchange Commission ("SEC") is
not declared
effective by a date certain; and
Whereas, the Settlement Agreement further provides that all
cash deposited
pursuant to the terms thereof in the Escrow Account shall be
disbursed by the
escrow agent solely in accordance with the provisions of Escrow
Agreement.
Now, therefore, for good and valuable consideration, the
receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as
follows:
1. Establishment of Escrow Account. As security for the
performance by
Quadrax of the Payment Obligations, the parties hereby establish
an escrow
account (the "Escrow Account") with the Escrow Agent.
2. Deposit into the Escrow Account by Quadrax. Quadrax
hereby deposits,
and the Escrow Agent hereby accepts, $381,146 in cash ("the
"Escrow Fund").
Escrow Agent shall certify promptly to Fisher that it has
received the Escrow
Fund in good funds.
3. Deposit into the Escrow Account by Fisher. Fisher
hereby deposits, and
the Escrow Agent hereby accepts, the Note.
4. Investments. Escrow Agent shall deposit the Escrow Fund
in an
interest-bearing federally insured (subject to applicable limits)
client trust
fund account. Income from any such investment shall be held by
Escrow Agent,
shall be reinvested in accordance with this 4 and, provided
that the Escrow
Agent has distributed the full of the amount of cash required to
be distributed
to Fisher pursuant to 5 (a), shall be payable, upon termination
of the Escrow
Account, to Quadrax.
5. Disbursements from Escrow Account. Disbursements of
cash from the
Escrow Account in the amounts set forth below shall be made by
Escrow Agent
solely upon the occurrence of the following conditions:
(a) The sum of $373,650 and the product of $65.75 and the
number of days
that have elapsed between October 16, 1995 and the date of
disbursement,
inclusive, shall be disbursed by wire transfer to Fisher, and the
balance of
any funds in the Escrow Account shall be disbursed by wire
transfer to Quadrax:
(i) if the registration statement on Form SB-2 or equivalent
filed by Quadrax
with the SEC registering the number of shares to which Fisher is
entitled under
1 (d) of the Amended Repayment Agreement ("Registration
Statement") has not
been declared effective by 5:00 p.m. Eastern Standard Time on
February 7,1996;
or (ii) if the Registration Statement has been declared effective
by 5:00 p.m.
Eastern Standard Time on February 7,1996 , if Quadrax has not
issued to Fisher
the number of shares of Quadrax common stock to which Fisher is
entitled
pursuant to 1 (d) of the Amended Repayment Agreement by 5:00
p.m. Eastern
Standard Time on February 14,1996;
(b) All of the funds in the Escrow Account shall be
disbursed by wire
transfer to Quadrax in the event that the Registration Statement
has been
declared effective by 5:00 p.m. Eastern Standard Time on February
7,1996, and
Quadrax has issued to Fisher the number of shares of Quadrax
common stock to
which Fisher is entitled pursuant to 1 (d) of the Amended
Repayment Agreement
by 5:00 p.m. Eastern Standard Time on February 14,1996;
(c) Fisher shall provide instructions under oath in the
form of Exhibit
3-A to the Escrow Agent regarding the disbursement of funds in
the Escrow
Account following satisfaction of the conditions to disbursement
set forth in
5 (a) above. Quadrax shall provide instructions under oath in
the form of
Exhibit 3-B to the Escrow Agent regarding the disbursement of
funds in the
Escrow Account following satisfaction of the conditions to
disbursement set
forth in 5 (b) above. The Escrow Agent shall have no
responsibility for
determining whether any conditions to disbursement set forth
above have been
satisfied. The Escrow Agent shall disburse funds in strict
compliance with
instructions provided by Fisher or Quadrax, as the case may be.
In the event
that Fisher and Quadrax provide conflicting instructions, the
Escrow Agent
shall take no action until the dispute has been resolved.
(d) The Escrow Agent shall disburse the Escrow Fund in
strict compliance
with the instructions provided by Quadrax or Fisher and shall not
refuse or
fail to disburse the Escrow Fund for any reason not specifically
set forth
herein, including, but not limited to, any right of set-off that
any party may
assert.
6. Termination. The Escrow Account shall terminate upon
the disbursement
of the Escrow Fund as directed by 5 hereof.
7. Rights and Liabilities of Escrow Agent.
(a) Quadrax and Fisher agree that the Escrow Agent's duties
hereunder are
only as specifically provided herein and are purely ministerial
in nature.
Quadrax and Fisher agree that the Escrow Agent will incur no
liability to
either of them or otherwise except for willful misconduct.
(b) The Escrow Agent may consult with counsel and will be
protected fully
in any action taken or omitted in good faith in accordance with
the advice of
such counsel. The Escrow Agent will have no responsibility for
verifying the
genuineness or validity of any certificate, document or other
items deposited
with or delivered to it, including any instructions from Quadrax
or Fisher, and
the Escrow Agent will be fully protected in acting upon any
written document,
certificate or other item which the Escrow Agent in good faith
believes to be
genuine and what it purports to be.
(c) Quadrax and Fisher agree that they are responsible for
providing
written instructions to the Escrow Agent and that the Escrow
Agent's
responsibilities hereunder will not require the Escrow Agent to
act other than
in the ordinary course of business. The Escrow Agent will not be
liable in any
manner whatsoever for any failure by the Escrow Agent to invest,
withdraw or
transfer any of the funds on any specific date as a result of the
Escrow
Agent's failure to receive such instructions in a timely fashion
that would
allow the Escrow Agent to take such action in the ordinary course
of business.
Subject to the foregoing, in the event Quadrax and Fisher desire
that specific
action be taken on a specific date, they will be required to
provide such
instructions to the Escrow Agent no later than 11:00 a.m. on such
date.
(d) Quadrax agrees to indemnify the Escrow Agent against,
and hold the
Escrow Agent harmless from, any claim, liability, cost or
reasonable expense,
in any manner arising out of, or in connection with, the
performance of the
Escrow Agent's undertakings under this Escrow Agreement, except
as a result of
the Escrow Agent's own willful misconduct.
(e) Quadrax and Fisher each acknowledge that the Escrow
Agent has acted as
counsel to Quadrax in connection with the negotiation and
documentation of the
settlement arrangements to which this Escrow Agreement is a part.
Quadrax and
Fisher each agrees that it and he will not challenge the validity
or
enforceability of this Escrow Agreement, or the appointment of
Fried, Frank,
Harris, Shriver & Jacobson as Escrow Agent, on the ground that
such firm has
acted as counsel for Quadrax.
8. Fees of Escrow Agent. Any fees of the Escrow Agent
shall be paid by
Quadrax, and the Escrow Agent shall not seek to satisfy its fees
from the
Escrow Fund.
9. Provisions of General Application.
(a) Amendments and Supplements. This Agreement may not be
amended,
modified or supplemented by the parties hereto in any manner,
except by
instrument in writing signed on behalf of each of the parties
hereto by their
duly authorized officers or representatives.
(b) Waivers. No term of provision of this Agreement shall
be deemed
waived by either party and no breach or default shall be deemed
excused by
either party unless such waiver or consent shall be in writing ad
signed by
such party. The failure of either party to enforce at any time
any of the
provisions of this Agreement shall in no way be construed to be a
waiver of any
such provision, nor in any way to affect the validity of this
Agreement or any
part hereof or the right of such party thereafter to enforce each
and every
such provision. No waiver of any breach of or noncompliance with
this
Agreement shall be held to be a waiver of any other or subsequent
breach or
noncompliance.
(c) Notices. All notices and other communications
hereunder shall be in
writing and shall be deemed given (i) three business days after
posting with
the United States Postal Service when mailed by certified mail,
return receipt
requested, properly addressed and with the correct postage, (ii)
one business
day after pick-up by a courier service when sent by overnight
courier, properly
addressed and prepaid, or (c) one business day after the date of
the sender's
electronic confirmation of receipt when sent by facsimile
transmission. Such
notices and other communications shall be sent to the addresses
or facsimile
numbers set forth below, unless either party notifies the other
in writing, in
accordance with this 13 (c), of an address or facsimile change.
To Quadrax: Quadrax Corporation
300 High Point Avenue
Portsmouth, RI 02871
Facsimile: 401-683-6606
With a copy to: Fried, Frank, Harris, Shriver &
Jacobson
1001 Pennsylvania Avenue, N.W.
Washington, D.C 20004-2505
Facsimile: 202-639-7008
Attention: James H. Schropp
To Fisher: Richard A. Fisher
P.O. Box 1120
Newport, RI 02840
Facsimile: 401-847-4895
With a copy to: Flanders & Medeiros
One Turks Head Place
Suite 700
Providence, RI 02903-2215
Attention: Robert Karmen
To the Escrow Agent:Fried, Frank, Harris,
Shriver & Jacobson
1001 Pennsylvania Avenue, N.W.
Washington, D.C 20004-2505
Facsimile: 202-639-7008
Attention: James H. Schropp
(d) Construction. The headings in this Agreement are
included only for convenience and shall not in any way
affect the meaning or interpretation of this Agreement.
Except as otherwise indicated, references to a section
refer to such section of this Agreement. The words "herein"
and "hereof" and other words of similar import refer to this
Agreement as a whole and not to any particular part of this
Agreement.
(e) Disputes. Quadrax and Fisher agree than any
dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this
Escrow Agreement shall be settled by arbitration to be held
in Providence, Rhode Island in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association before a single arbitrator who shall have
experience in the area of the matter in dispute or
controversy. The arbitrator may grant relief in the nature
of injunctions or other relief in such dispute or
controversy. The decision by the arbitrator shall be final,
conclusive and binding on the parties. Judgment may be
entered on the arbitrator's behalf in any court having
jurisdiction. Each party shall pay that percentage of the
total costs and expenses of such arbitration, including fees
of legal counsel for both parties, equal to the percentage
of the total amount in controversy awarded by the arbitrator
to the other party.
(f) Validity. The invalidity or unenforceability of
any provisions of this Agreement shall not affect the
validity or enforceability of any other provisions of this
Agreement, each of which shall remain in full force and
effect.
(g) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same
instrument.
(h) Governing Law. This Agreement shall be governed by
the laws of the State of Rhode Island.
In Witness Whereof, Quadrax, Fisher and the Escrow
Agent have executed, or caused to be executed, this
instrument under seal as of the date first set forth above.
Quadrax Corporation
/s/James J. Palermo
By: __________________________
James J. Palermo
Chairman of the Board and
Chief
Executive Officer
/s/Richard A. Fisher
__________________________
Richard A. Fisher
Fried, Frank, Harris, Shriver &
Jacobson,
as Escrow Agent
By: __________________________
Authorized Signature
EXHIBIT 10.23(b)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this Agreement) is
entered into as of January 1, 1996, by and between:
Quadrax Corporation, a Delaware corporation (Quadrax), as the employer; and
James J. Palermo, an individual (Mr. Palermo), as the employee.
Recital
A. Quadrax is a publicly owned corporation whose shares of
common stock are traded in The NASDAQ SmallCap Stock Market, Inc.
B. Quadrax manufactures, distributes and sells thermoplastic
composite materials and goods manufactured out of its materials
throughout the United States and abroad.
B. Mr. Palermo currently serves as President and Chief
Executive Officer of Quadrax pursuant to a Key Employee
Agreement, dated August 9, 1994 (the Original Agreement).
C. On or about February 15, 1995, Mr. Palermo assumed the
additional responsibilities of Chairman of the Board of
Directors, and was officially elected as Chairman on April 17,
1995.
D. In recognition of these additional contributions to the
success of the company, Quadrax now desires to terminate the
Original Agreement and to replace it with this Agreement.
Provisions
1. Termination of the Original Agreement. Quadrax and Mr. Palermo
hereby agree to terminate the Original Agreement, which is
superseded in its entirety by this Agreement.
2. Authorities and Responsibilities. Quadrax hereby employs Mr.
Palermo and Mr. Palermo hereby accepts employment with Quadrax
and agrees to provide his full-time exclusive services to Quadrax
as Chairman of the Board of Directors and Chief Executive
Officer. In that capacity, Mr. Palermo agrees to perform the
functions and duties incident to the positios of Chairman and
Chief Executive Officer. Furthermore, Mr. Palermo shall have all
the authority and responsibility commonly associated with those
titles, and in particular, shall have full authority:
2.1 to employ (and to terminate), on behalf of the corporation,
any and all such Vice Presidents of Quadrax, Presidents of any
subsidiaries of Quadrax, General Managers, Managers, Supervisors
and other employees as Mr. Palermo shall deem necessary or
appropriate to the conduct of the business of the corporation; to
delegate to such employees such authority as he shall determine;
and to determine the compensation to be paid to any such
employee, all consistent with the employee policies and
procedures as promulgated by the Board of Directors of Quadrax;
and
2.2 to authorize expenditures by and to contract liabilities for
the corporation in the ordinary course of business in amounts up
to $50,000 without special Board approval.
3. Term. The term of this Agreement commenced on January 1, 1996,
and shall continue for a term ending on December 31, 1998.
4. Restrictive Covenants.
4.1 Covenant Not To Compete. Mr. Palermo agrees that for the
term of this Employment Agreement (the Restrictive Period), he
will not engage, participate, or have any interest or be involved
in any capacity, whether as an owner, agent, stockholder
(excluding ownership of not more than 5% of the outstanding
shares of a publicly held corporation if such ownership does not
involve, and neither Mr. Palermo or any of his respective
affiliates otherwise has, any managerial or operational
responsibility in respect thereof), officer, director, manager,
partner, joint venturer, employee, consultant, advisor, agent or
otherwise, in any business enterprise which is, or shall at any
time during the Restrictive Period be, directly or indirectly
engaged in activities which are competitive with the business of
Quadrax as conducted on the date of this Employment Agreement, or
during Mr. Palermo's tenure with Quadrax, in the United States
and in any other countries or territories where Quadrax sells its
services and products.
4.2 Non-Disclosure of Confidential Information.
a. Mr. Palermo acknowledges that it is the policy of
Quadrax to maintain as secret and confidential all valuable and
unique information heretofore or hereafter acquired, developed or
used by Quadrax relating to the business, operations, employees
and customers of Quadrax, which information gives Quadrax a
competitive advantage in its industry, and which information
includes technical knowledge, know-how or trade secrets and
information concerning the operations, sales, personnel,
suppliers, customers, costs, profits, markets, pricing policies,
Confidential Materials (as hereinafter defined), and the results
of any investigations or experiments of Quadrax (such information
is hereinafter referred to as Confidential Information,
provided, that Confidential Information shall not include any of
the foregoing items which are in the public domain or which are
available from third-party sources without any violation of this
Agreement). Mr. Palermo recognizes that the services to be
performed by Mr. Palermo are special and unique, and that by
reason of his duties he will acquire Confidential Information.
Mr. Palermo recognizes that all such Confidential Information is
the sole and exclusive property of Quadrax. In consideration of
Quadrax entering into this Agreement, Mr. Palermo agrees that:
(i) he shall never for so long as such information is
valuable and unique (but in no case for longer than three years
following the termination of Mr. Palermo's employment by
Quadrax), directly or indirectly, use, publish, disseminate or
otherwise disclose any Confidential Information obtained during
his employment by Quadrax without the prior written consent of
the Quadrax Board of Directors, it being understood that this
subparagraph shall survive the term of this Agreement;
(ii) the parties hereto agree that Mr. Palermo, during
the course of his employment, may be directed to perform services
for the benefit of a customer of Quadrax, in which case such
customer shall be deemed a third party beneficiary of the
provisions of this Agreement and, in addition to the
proscriptions contained in subparagraph (i) above, shall not
disclose any Confidential Information which relates to the
customer (defined with respect to such customer in the same
manner as for Quadrax) to any person, firm or enterprise without
the prior written consent of Quadrax and such customer;
(iii) during the term of his employment by Quadrax, he
shall exercise all due and diligent precautions to protect the
integrity of Quadrax customer lists, mailing lists and sources
thereof, statistical data and compilations, agreements,
contracts, manuals or other documents and any and all other
materials embodying any Confidential Information (the
Confidential Materials) and, upon termination of his employment
hereunder, or such earlier time as Quadrax may so request, he
shall immediately return to Quadrax all such Confidential
Materials (and copies thereof) then in his possession or control;
(iv) Mr. Palermo agrees that he will at all times
comply with all security regulations (a) in effect from time to
time at Quadrax or its customers premises and (b) in effect for
materials belonging to Quadrax or its customers; and
(v) Mr. Palermo agrees that the provisions of this
subsection (a) are reasonably necessary to protect the
proprietary rights of Quadrax in the Confidential Information and
its trade secrets, good will and reputation.
b. Mr. Palermo acknowledges that any breach of the provisions
of this Section 4 can cause irreparable harm to Quadrax for which
Quadrax would have no adequate remedy at law. In the event of a
breach or threatened breach by Mr. Palermo of any of such
provisions, in addition to any and all other rights and remedies
it may have under this Agreement or otherwise, Quadrax may
immediately seek any judicial action deemed necessary, including,
without limitation, temporary and preliminary injunctive relief.
5. Salary. In consideration of, and in exchange for, the services
to be provided by Mr. Palermo to Quadrax, Quadrax shall pay to
Mr. Palermo the following compensation:
5.1 Base Salary. During the continuance of this Agreement,
Quadrax shall pay to Mr. Palermo a minimum base salary of
$250,000 per year. Quadrax shall pay such salary in
bi-weekly installments on Quadrax's regular pay days.
Regular installments of base salary shall be paid less
all applicable taxes, social security payments and other
items that Quadrax is required by law to withhold or
deduct therefrom.
a. Automatic Annual Raises. During the continuance of this
Agreement, Mr. Palermo's base salary shall be increased,
effective as of each anniversary of the date of this Agreement,
by a percentage amount equal to the Providence area COLA as
reported by the U.S. Department of Labor.
b. Merit Raises. The Board of Directors of Quadrax may, in its
absolute and sole discretion, increase the salary payable to Mr.
Palermo for merit.
5.2 Performance Bonuses. During the continuance of this
Agreement, Quadrax shall award Mr. Palermo performance
bonuses as described herein. All cash bonuses shall be
less all applicable taxes, social security payments and
other items that Quadrax is required by law to withhold
or deduct therefrom. No stock bonuses shall be reduced
for income taxes, social security payments and other
items, except to the extent that Quadrax is specifically
required by law to withhold or deduct such items. Mr.
Palermo will receive a performance bonus in each year of
this Employment Agreement as follows:
1. If Quadrax achieves net revenue of at least $10
million and net income of at least $zero in fiscal
1996, a bonus of $50,000 cash plus fully vested options
to purchase 125,000 shares of the common stock of
Quadrax under the 1993 Stock Option Plan exercisable at
the fair market value of the common stock on December
31, 1996, exercisable for a period of five years from
vesting.
2. If the average of the closing bid prices of the common
stock of Quadrax for any ten consecutive trading day period in
December 1996 equals or exceeds $2.00 per share, a further bonus,
independent of the revenue-based bonus, of fully vested options
to purchase 75,000 shares of common stock of Quadrax under the
1993 Stock Option Plan exercisable at the fair market value of
the common stock on December 31, 1996, exercisable for a period
of five years from vesting.
3. If Quadrax achieves net revenue of at least $20 million
and net income of at least $1.5 million in fiscal 1997, a bonus
of $50,000 cash plus fully vested options to purchase 125,000
shares of common stock of Quadrax under the 1993 Stock Option
Plan exercisable at the fair market value of the common stock on
December 31, 1997, exercisable for a period of five years from
vesting.
4. If the average of the closing bid prices of the common
stock of Quadrax for any ten consecutive trading day period in
December 1997 equals or exceeds $4.00 per share, a further bonus,
independent of the revenue-based bonus, of fully vested options
to purchase 75,000 shares of common stock of Quadrax under the
1993 Stock Option Plan exercisable at the fair market value of
the common stock on December 31, 1997, exercisable for a period
of five years from vesting.
5. If Quadrax achieves net revenue of at least $40 million
and net income of at least $3.0 million in fiscal 1998, a bonus
of $50,000 cash plus fully vested options to purchase 125,000
shares of common stock of Quadrax under the 1993 Stock Option
Plan exercisable at the fair market value of the common stock on
December 31, 1998, exercisable for a period of five years from
vesting.
6. If the average of the closing bid prices of the common
stock of Quadrax for any ten consecutive trading day period in
December 1998 equals or exceeds $8.00 per share, a further bonus,
independent of the revenue-based bonus, of fully vested options
to purchase 75,000 shares of common stock of Quadrax under the
1993 Stock Option Plan exercisable at the fair market value of
the common stock on December 31, 1998, exercisable for a period
of five years from vesting.
5.3 Annual Stock Option Bonus. In addition to, and not in lieu of,
the above bonuses, Mr. Palermo shall also be granted options to
purchase 100,000 shares of the common stock of Quadrax under the
1993 Stock Option Plan at January 1, 1996, 1997 and 1998,
respectively, with an exercise price of their fair market value
on such date each year, fully vested, with an exercise period of
five years from the date of the grant.
6. Benefits. In addition to the compensation described in Paragraph
4, above, Mr. Palermo shall be entitled to participate in or
receive all other benefits normally provided to Quadrax's
executive-level employees. These benefits will include, but not
be limited to:
group health, life and disability insurance;
participation in any Quadrax sponsored retirement savings or
pension plan;
participation in all stock or stock option plans;
use of a company car;
business expense allowance as permitted by the Internal Revenue
Code
paid vacation accruing at the rate of six weeks per year;
paid sick leave accruing at the rate of 10 days per year; and
paid religious and other holidays to the extent provided under
Quadrax's holiday and personal leave policies.
6.1 Employer's Deductibility. Any expense items which are to be
paid or reimbursed by Quadrax must be allowable as business
expense deductions on Quadrax's federal income tax returns,
except for medical and life insurance premiums and any portion of
otherwise allowable entertainment expenses which are not
deductible under applicable provisions of law.
a. Documentation. Mr. Palermo agrees to furnish Quadrax
with all supporting documents necessary to substantiate any
expenses which are to be reimbursed or paid by Quadrax, including
time, place, business purposes and individuals included in the
expenditure, when appropriate.
6.2 Life Insurance. In addition to the benefits hereinabove
provided for, Quadrax shall purchase and maintain in full force
and effect one or more policies of insurance on the life of Mr.
Palermo, with benefits payable as Mr. Palermo may direct in the
aggregate amount of not less than $1.5 Million.
7. Severance. Notwithstanding any other term or provision
contained in this Agreement, this Agreement and the employment of
Mr. Palermo may be terminated under the following circumstances:
7.1 Termination By Quadrax for Cause. Quadrax may terminate
this Agreement at any time, without notice, for just cause shown.
Just cause shall include, and be limited to:
a. violation of Mr. Palermo's conditions of service, as
specified in paragraph 2, above, including, without limitation,
operating another active business outside of Quadrax, aiding
competitors of Quadrax or revealing confidential or proprietary
information without the knowledge and consent of the Board of
Directors;
b. dishonesty, insobriety, abuse of alcohol or use of
illegal drugs; or
c. conviction or entering into a plea of nolo contendere
to:
(1) a crime involving moral turpitude; or
(2) any other crime materially
impairing or materially hindering Mr. Palermo's
ability to perform his duties for Quadrax.
7.2 Voluntary Terminating By Mr. Palermo. Mr. Palermo may, at
any time upon two months prior written notice, terminate this
Agreement and his employment hereunder.
7.3 Termination on Death or Permanent Disability. This
Agreement shall terminate upon Mr. Palermo's death or permanent
disability. For purposes of this Agreement, Mr. Palermo will be
considered to be permanently disabled when he is unable to
perform the principal duties that he has been hired to perform
for an aggregate of eight months in any nine month period.
8. Severance Benefits. Upon termination of this Agreement, Mr.
Palermo shall be entitled to receive the following termination
benefits, after receipt of which the rights and obligations of
the parties hereunder shall become void and of no further force
and effect; provided, however, that if Mr. Palermo is terminated
for cause by reason of breach of the confidentiality or
proprietary information provisions of Section 4 hereof, Quadrax
shall retain whatever rights it may have under law to seek and
obtain remedies for such breach.
8.1 Termination for Cause or Voluntary Termination by Mr.
Palermo. If this Agreement is terminated for cause by Quadrax or
voluntarily by Mr. Palermo, then the following severance benefits
shall be due.
a. Base Salary. Base salary shall be paid, on a pro-rated
basis, for a period of six months from the date of termination.
b. Bonus. Any bonus that may otherwise have become due
for the fiscal year in which this Agreement is terminated shall
be forfeited.
c. Benefits. Health and disability insurance shall
be continued for as long as Mr. Palermo is entitled to salary
continuation payments, as provided in (a), above. All other
benefits, including all life insurance policies maintained
pursuant to paragraph 5.2, above, may be terminated or canceled
by Quadrax at any time from and after the last day of employment.
8.2 Termination by Death or Disability. If this Agreement is
terminated by Quadrax upon the death or disability of Mr.
Palermo, then the following severance benefits shall be due.
a. Base Salary. Mr. Palermo (or his estate) shall be
entitled to continue receiving his base salary in regular
installments for 12 months following the date of termination, or,
at the election of Quadrax, an amount equal to 12 months base
salary paid in one lump-sum on the date of termination.
b. Bonus. Mr. Palermo (or his estate) shall be entitled
to receive a bonus for the fiscal year in which this Agreement is
terminated. Any such bonus shall be paid in cash to Mr. Palermo
as and when other bonuses are paid.
c. Benefits. All benefits shall continue for a period of
12 months from the date of termination. In the case of
termination by reason of the death of Mr. Palermo, then benefits
shall continue as aforesaid for the benefit of any dependents who
survive him.
d. Life Insurance. All policies of insurance on the life
of Mr. Palermo maintained by Quadrax pursuant to Paragraph 6.2,
above, shall (except in the case of termination by reason of Mr.
Palermo's death) be assigned to Mr. Palermo, without charge,
effective on the last day of employment, and thereafter, Quadrax
shall have no further obligation to maintain those policies or to
pay additional premiums thereon.
9. Wrongful Discharge. If this Agreement is terminated by Quadrax
other than for just cause shown or by reason of death or
disability, then the following severance benefits shall be due.
9.1 Base Salary. Mr. Palermo shall be entitled to continue
receiving his base salary in regular installments for the balance
of the term of this Agreement, plus an additional 36 months, or,
at the option of Quadrax, a like amount paid in one lump-sum on
the date of termination.
9.2 Bonus. Mr. Palermo shall be entitled to receive, within 30
days of the last date of employment, registered on Form S-8 or
otherwise, the stock options provided for in Paragraphs 5.2 and
5.3, above, (to the extent not previously earned and issued)
without regard to whether or not any of the conditions specified
therein have been achieved. Mr. Palermo shall also be entitled
to receive any cash bonus provided for in paragraph 5.2, above,
for the fiscal year in which this Agreement is terminated. Any
such bonus shall be paid in cash to Mr. Palermo as and when other
bonuses are paid.
9.3 Benefits. All benefits shall continue for the balance of
the term of this Agreement, plus an additional 36 months.
9.4 Life Insurance. Quadrax shall convert all policies of
insurance on the life of Mr. Palermo that are required to be
maintained by Quadrax pursuant to Paragraph 6.2, above, into
single-premium whole life policies; shall promptly pay in full
the premiums thus due; and shall assign such policies to Mr.
Palermo, without charge, effective on the last day of employment.
10. Changes in Control. Upon any Change in Control of the Company
resulting in Mr. Palermo's termination or constructive
termination, all of the options in Section 5.2 and 5.3 of this
Employment Agreement shall be granted and vest immediately. For
the purposes of these minutes, a Change in Control is defined
as the sale, exchange or transfer of (i) 20% or more of the
outstanding common stock of the Company or (ii) substantially all
of the assets of the Company to any party who does not currently
hold at least 5% of the outstanding common stock of the Company.
11. Relationship Created. The relationship created by this Agreement
is that of employer and employee and nothing contained in this
Agreement shall be construed in any way as creating any
partnership, joint venture or other relationship between the
parties. Nothing contained in this Agreement shall be construed
as granting Mr. Palermo any right to bind or obligate Quadrax in
any manner not herein granted, without the express written
consent of Quadrax.
12. Payment of Undisputed Amounts. If there is a dispute between the
parties with respect to any amount claimed to be due hereunder,
any portion that is not disputed shall be paid by the obligor to
the payee. Any such partial payment shall not, however,
constitute a waiver by the payee of any other rights.
13. Notices. All notices, requests, payments, demands or other
communication under this Agreement shall be in writing and shall
be deemed to have been given on the date of actual receipt.
14. Severability of Provisions. If any provision in this Agreement
is held to be invalid, void or unenforceable, the remaining
provisions shall continue in full force and effect.
15. Time. Time is of the essence of this Agreement.
16. Counterparts. This Agreement may be executed in two or more
counterparts, all of which, taken together, shall constitute one
and the same agreement.
17. Business Day. If any date on which action is to be taken under
this Agreement occurs, or if any period during which action is to
be taken under this Agreement ends, on a Saturday, Sunday or
holiday, the date or period shall be extended to the next
succeeding day which is not a Saturday, Sunday or holiday.
18. Jurisdiction. Each party hereby consents and submits itself to
the jurisdiction of the State of Rhode Island and agrees that the
parties to this Agreement shall be entitled to a judgment and
decree and enforcement by the Courts of the State of Rhode Island
for any amount which may be adjudged to be due, including, but
not limited to, attorney's fees, costs and damages.
19. Entire Agreement. This Agreement contains the entire
understanding between the parties concerning Mr. Palermo's
employment with Quadrax and supersedes any prior understanding or
agreement between them. Thereof are no other representations,
agreements or understandings, oral or written, between the
parties relating to the subject of this Agreement. This
Agreement may be amended only by a writing signed by the party to
be charged.
<PAGE>
IN WITNESS WHEREOF, Quadrax Corporation has caused this
Agreement to be signed and delivered by its duly authorized
representative and James J. Palermo has signed and delivered this
Agreement, both as of the date first above written.
Quadrax Corporation
______________________________ /s/James J. Palermo
James J. Palermo
by:/s/ Sven Kraumanis
Sven Kraumanis
Director and Member of the
Compensation Committee of the
Board of Directors, duly authorized
By:/s/Gordon Werner
Gordon Werner
Director and Member of the
Compensation Committee of the
Board of Directors, duly authorized
EXHIBIT 10.31
Key Employee Agreement
TO:
John A. McQuade Date of this Agreement:
P.O. Box 1095
White River Junction,
VT 05001
April 25, 1995
The undersigned, Quadrax Corporation, a Delaware corporation (the
Company), hereby agrees with you as follows:
1. Position and Responsibilities.
You shall serve in the position specified in paragraph
2 of Exhibit A hereto as your Primary Position and shall
perform the duties customarily associated with such position from
time to time and at such place or places as the Company shall
designate as appropriate and necessary in connection with such
employment; provided, however, that the Company shall not require
you to relocate without your consent.
1.1 You will, to the best of your ability, devote
substantially full time and your best efforts to the performance
of your duties hereunder and the business and affairs of the
Company. You agree to perform such additional executive duties
as may be assigned to you from time to time by or on authority of
the Company's President.
2. Term of Employment.
2.1. The initial term of this Agreement shall begin on
the date hereof and end on the Expiration Date specified in
paragraph 1 of Exhibit A hereto. Thereafter, this Agreement
shall be automatically renewed for successive periods of one
year, unless the Company shall give you not less then three (3)
months written notice of non-renewal. In the event of
non-renewal, the Company shall pay you the sum specified (and in
the manner specified) in paragraph 3 of Exhibit A as Severance
Pay, such payment to be in consideration of services performed
by you before the date of termination, to have been earned
thereby, and to be payable irrespective of whether you seek or
obtain employment elsewhere after your termination by the
Company. In addition, in the event of such non-renewal, the
Company shall continue to provide you with such health coverage
as it provided under paragraph 6 of Exhibit A hereto, or the
equivalent, for a period of three (3) months after such
expiration.
2.2. The Company shall have the right, on written
notice to you, to terminate your employment immediately, for
cause, in which event you shall not be entitled to severance pay
upon, nor to benefits after, such termination.
2.3. For the purposes of Section 2.2, the term cause
shall include only the following:
Your intentional failure or refusal to perform the
duties of your Primary Position as specified in
paragraph 2 of Exhibit A hereto, or to carry out
any reasonable and lawful directives of the
Company with respect to such duties to be rendered
or the manner of rendering such duties by you;
provided, however, that (i) such failure or
refusal is material and repetitive, and (ii) with
respect to the first two such failures or refusals
you have been given reasonable written notice and
explanation thereof and reasonable opportunity to
cure and no cure has been effected within a
reasonable time after such notice; or
Fraud or embezzlement involving a material amount of
the assets of the Company, its customers,
suppliers, or affiliates.
Any dispute, controversy, or claim arising out of, in connection
with or in relation to this definition of cause shall be
settled by arbitration in Providence, Rhode Island, pursuant to
the rules then in effect of the American Arbitration Association.
Any award or determination shall be final, binding, and
conclusive upon the parties, and a judgment thereon may be
entered in any court having jurisdiction thereof.
2.4 You shall have the right to terminate this
Agreement upon not less than three (3) months prior written
notice to the Company. If you terminate this Agreement, you
shall not be entitled to severance pay upon, nor to benefits
after, such termination.
3. Compensation. You shall receive the compensation and
benefits set forth in paragraphs 4, 5, and 6 of Exhibit A hereto
(Compensation) for all services to be rendered by you hereunder
and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions previously
signed by you and delivered to the Company (the Proprietary
Information and Inventions Agreement).
4. Other Activities During Employment.
4.1 You hereby agree that, except with the approval of
the Board of Directors of the Company, during your employment
hereunder, you will not, directly or indirectly, participate in
any capacity (including as an agent or consultant), in any firm,
corporation, partnership, trust, association, or other
organization that is engaged in the research, development,
production, manufacture, or marketing of equipment, materials,
and/or processes in direct competition with those of the Company
now in existence or any other line of business engaged in or
under demonstrable development by the Company.
5. Former Employers.
5.1. You represent and warrant that your employment by
the Company will not conflict with and will not be constrained by
an prior or current employment, consulting agreement, or
relationship, whether oral or written. You represent and warrant
that you do not possess confidential information arising out of
any such employment, consulting agreement, or relationship which,
in your best judgment, would be utilized in connection with your
employment by the Company in the absence of Section 5.2.
5.2. If, in spite of the second sentence of Section
5.1, you should find that confidential information belonging to
any other person or entity might be usable in connection with the
Company's business, you will not intentionally disclose to the
Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of
your duties all information that is generally known and used by
persons with training and experience comparable to your own and
all information that is common knowledge in the industry or
otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to
be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1. For a period of one (1) year after the
termination or expiration, for any reason, of your employment
with the Company hereunder, absent the Company's prior written
approval, you will not directly or indirectly engage in
activities similar or reasonable related to those in which you
shall have engaged hereunder during the two (2) years immediately
preceding termination or expiration for, nor render services
similar or reasonable related to those that you shall have
rendered here under during such two (2) years to, any person or
entity whether now existing or hereafter established that
directly competes with (or proposes or plans to directly compete
with) the Company (a Direct Competitor) in any line of business
engaged in or under development by the Company. Nor shall you
entice, induce, or encourage any of the Company's other employees
to engage in any activity which, were it done by you, would
violate any provision of the Proprietary Information and
Inventions Agreement or this Section 7. As used in this Section
7.1, the term any line of business engaged in or under
development by the Company shall be determined as at the date of
termination of your employment. It is understood and agreed that
the Company is, and is likely to continue to be, engaged in a
business that is worldwide in scope and that, therefore, the
parties have agreed that no geographical limitation on the scope
of this covenant is appropriate and that a worldwide scope is
reasonable.
7.2. Notwithstanding anything to the contrary
contained herein, the provisions of Section 7.1 hereof shall be
enforceable by the Company only if the Company notifies you
within thirty (30) days following receipt of written notification
from you that you propose to become associated with a Direct
Competitor that the Company wishes to enforce Section 7.1 hereof,
and, at the time of such notice, agrees to pay to you as
compensation for your non-competition with the Company the
Non-Competition Compensation specified in paragraph 7 of
Exhibit A, in addition to any severance pay and benefits due to
you pursuant to Section 2.2(b) hereof. Such compensation shall
be payable as specified in paragraph 7 of Exhibit A.
7.3. No provision of this Agreement shall be construed
to preclude you from performing the same services that the
Company hereby retains you to perform for any person or entity
that is not a Direct Competitor of the Company upon the
expiration or termination of your employment so long as you do
not thereby violate any term of the Proprietary Information and
Inventions Agreement.
8. Remedies. Your obligations under the Proprietary
Information and Inventions Agreement and the provisions of
Sections 4, 5, 6 and 7 of this Agreement (as modified by Section
10, if applicable) shall survive the expiration or termination of
your employment (whether through your resignation or otherwise)
with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the
Proprietary Information and Inventions Agreement or Section 7
would be inadequate and you therefore agree that the Company
shall be entitled to injunction relief in case of any such breach
or threatened breach.
9. Assignment. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the
benefit of any successor or successors of the Company by
reorganization, merger, or consolidation and any assignee of all
or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this
Agreement nor any rights or benefits hereunder may be assigned by
the Company or by your (except with respect to benefits earned
hereunder or to benefits to which you may be entitled upon death
or disability, to any trust established by your for estate
planning or similar purposes), except by will or by operation of
law.
10. Interpretation. It is the intent of the parties that
in case any one or more of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been
contained herein. Moreover, it is the intent of the parties that
in case any one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as
to duration, geographical scope, activity, or subject, such
provision shall be construed by limiting and reducing it as
determined by a court of competent jurisdiction, so as to be
enforceable to the intent compatible with applicable law.
11. Notices. Any notice that the Company is required to or
may desire to give you shall be given by personal delivery or
registered or certified mail, return receipt requested, addressed
to you at your address of record with the Company, or at such
other place as you may from time to time designate in writing.
Any notice that you are required or may desire to give to the
Company hereunder shall be given by personal delivery or by
registered or certified mail, return receipt requested, addressed
to the Company as its principal office, or at such other office
as the Company may from time to time designate in writing. The
date of personal delivery or the date of mailing any notice under
this Section 11 shall be deemed to be the date of delivery
thereof.
12. Waivers. If either party should waive any breach of
any provision of this Agreement, such party shall not thereby be
deemed to have waived any preceding or succeeding breach of the
same or any other provision of this Agreement.
13. Complete Agreement; Amendments. This Agreement,
including Exhibit A hereto and the Proprietary Information and
Inventions Agreement, constitutes the entire agreement of the
parties with respect to the subject matter hereof, superseding
any previous oral or written communications, representations,
understandings, or agreements with the Company or any officer or
representative thereof other than a Special Termination
Agreement executed by the Company and you prior to the date
hereof, which special Termination Agreement is not superseded
hereby. Any amendment to this Agreement or waiver by the Company
of any right hereunder shall be effective only if evidenced by a
written instrument executed by the parties hereto, upon
authorization of the Company's Board of Directors.
14. Headings. The headings of the Sections hereof are
inserted for convenience only and shall not be deemed to
constitute a part hereof nor to affect the meaning of this
Agreement.
15. Counterparts. This Agreement may be signed in two
counterparts, each of which shall be deemed an original and both
of which shall together constitute one agreement.
16. Governing Law. This Agreement shall be governed by and
construed under Rhode Island law.
If you are in agreement with the foregoing, please sign
your name below and also at the bottom of the Proprietary
Information and Inventions Agreement, whereupon this Agreement
shall become binding in accordance with its terms. Please then
return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of the Agreement enclosed
herewith.)
Very truly yours,
Quadrax Corporation
By:
/s/James J. Palermo
James J. Palermo
Chairman and Chief Executive Officer
Accepted and Agreed to:
By:
/s/John A. McQuade
John A. McQuade
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
This Employment Agreement (this Agreement) is entered into
as of January 1, 1996, by and between:
Quadrax Corporation, a Delaware corporation (Quadrax), as the
employer; and
Edward A. Stoltenberg, an individual (Mr. Stoltenberg), as the
employee.
Recital
A. Quadrax is a publicly owned corporation whose shares of
common stock are traded in The NASDAQ SmallCap Stock Market, Inc.
B. Quadrax manufactures, distributes and sells thermoplastic
composite materials and goods manufactured out of its materials
throughout the United States and abroad.
B. Mr. Stoltenberg currently serves as Senior Vice President
and Chief Financial Officer of Quadrax.
C. Quadrax desires to obtain the benefit of Mr. Stoltenberg's
expertise and Mr. Stoltenberg desires to put his expertise to use
for the benefit of Quadrax for the term and otherwise in
accordance with the provisions of this Agreement.
Provisions
1. Authorities and Responsibilities. Quadrax hereby employs Mr.
Stoltenberg and Mr. Stoltenberg hereby accepts employment with
Quadrax and agrees to provide his full-time exclusive services to
Quadrax as Senior Vice President and Chief Financial Officer.
In that capacity, Mr. Stoltenberg agrees to perform the functions
and duties incident to the positions of Senior Vice President and
Chief Financial Officer. Furthermore, Mr. Stoltenberg shall have
all the authority and responsibility commonly associated with
those titles, and in particular, shall:
1.1 report directly to the Chairman and Chief Executive Officer,
or as he may direct, and shall be required to achieve all
reasonable objectives related to the administration of Quadrax's
business as the said Chairman and Chief Executive Officer, or has
designee, shall determine.
2. Term. The term of this Agreement commenced on January 1, 1996,
and shall continue until December 31, 1998.
3. Restrictive Covenants.
3.1 Covenant Not To Compete. Mr. Stoltenberg agrees that for
the term of this Employment Agreement (the Restrictive Period),
he will not engage, participate, or have any interest or be
involved in any capacity, whether as an owner, agent, stockholder
(excluding ownership of not more than 5% of the outstanding
shares of a publicly held corporation if such ownership does not
involve, and neither Mr. Stoltenberg nor any of his respective
affiliates otherwise has, any managerial or operational
responsibility in respect thereof), officer, director, manager,
partner, joint venturer, employee, consultant, advisor, agent or
otherwise, in any business enterprise which is, or shall at any
time during the Restrictive Period be, directly or indirectly
engaged in activities which are competitive with the business of
Quadrax as conducted on the date of this Employment Agreement, or
during Mr. Stoltenberg's tenure with Quadrax, in the United
States and in any other countries or territories where Quadrax
sells its services and products.
3.2 Non-Disclosure of Confidential Information.
a. Mr. Stoltenberg acknowledges that it is the policy of
Quadrax to maintain as secret and confidential all valuable and
unique information heretofore or hereafter acquired, developed or
used by Quadrax relating to the business, operations, employees
and customers of Quadrax, which information gives Quadrax a
competitive advantage in its industry, and which information
includes technical knowledge, know-how or trade secrets and
information concerning the operations, sales, personnel,
suppliers, customers, costs, profits, markets, pricing policies,
Confidential Materials (as hereinafter defined), and the results
of any investigations or experiments of Quadrax (such information
is hereinafter referred to as Confidential Information,
provided, that Confidential Information shall not include any of
the foregoing items which are in the public domain or which are
available from third-party sources without any violation of this
Agreement). Mr. Stoltenberg recognizes that the services to be
performed by Mr. Stoltenberg are special and unique, and that by
reason of his duties he will acquire Confidential Information.
Mr. Stoltenberg recognizes that all such Confidential Information
is the sole and exclusive property of Quadrax. In consideration
of Quadrax entering into this Agreement, Mr. Stoltenberg agrees
that:
(i) he shall never for so long as such information is
valuable and unique (but in no case for longer than three years
following the termination of Mr. Stoltenbergs employment by
Quadrax), directly or indirectly, use, publish, disseminate or
otherwise disclose any Confidential Information obtained during
his employment by Quadrax without the prior written consent of
the Quadrax' Board of Directors, it being understood that this
subparagraph shall survive the term of this Agreement;
(ii) the parties hereto agree that Mr. Stoltenberg,
during the course of his employment, may be directed to perform
services for the benefit of a customer of Quadrax, in which case
such customer shall be deemed a third party beneficiary of the
provisions of this Agreement and, in addition to the
proscriptions contained in subparagraph (i) above, shall not
disclose any Confidential Information which relates to the
customer (defined with respect to such customer in the same
manner as for Quadrax) to any person, firm or enterprise without
the prior written consent of Quadrax and such customer;
(iii) during the term of his employment by Quadrax, he
shall exercise all due and diligent precautions to protect the
integrity of Quadrax customer lists, mailing lists and sources
thereof, statistical data and compilations, agreements,
contracts, manuals or other documents and any and all other
materials embodying any Confidential Information (the
Confidential Materials) and, upon termination of his employment
hereunder, or such earlier time as Quadrax may so request, he
shall immediately return to Quadrax all such Confidential
Materials (and copies thereof) then in his possession or control;
(iv) Mr. Stoltenberg agrees that he will at all times
comply with all security regulations (a) in effect from time to
time at Quadrax' or its customers' premises and (b) in effect for
materials belonging to Quadrax or its customers; and
(v) Mr. Stoltenberg agrees that the provisions of this
subsection (a) are reasonably necessary to protect the
proprietary rights of Quadrax in the Confidential Information and
its trade secrets, good will and reputation.
b. Mr. Stoltenberg acknowledges that any breach of the
provisions of this Section 3 can cause irreparable harm to
Quadrax for which Quadrax would have no adequate remedy at law.
In the event of a breach or threatened breach by Mr. Stoltenberg
of any of such provisions, in addition to any and all other
rights and remedies it may have under this Agreement or
otherwise, Quadrax may immediately seek any judicial action
deemed necessary, including, without limitation, temporary and
preliminary injunctive relief.
4. Salary. In consideration of, and in exchange for, the services
to be provided by Mr. Stoltenberg to Quadrax, Quadrax shall pay
to Mr. Stoltenberg the following compensation:
4.1 Base Salary. During the continuance of this Agreement,
Quadrax shall pay to Mr. Stoltenberg a minimum base
salary of $120,000 per year. Quadrax shall pay such
salary in bi-weekly installments on Quadrax's regular pay
days. Regular installments of base salary shall be paid
less all applicable taxes, social security payments and
other items that Quadrax is required by law to withhold
or deduct therefrom.
a. Automatic Annual Raises. During the continuance of this
Agreement, Mr. Stoltenberg's base salary shall be increased,
effective as of each anniversary of the date of this Agreement,
by a percentage amount equal to the Providence area COLA as
reported by the U.S. Department of Labor.
b. Merit Raise and Discretionary Bonuses. The Board of
Directors of Quadrax may, in its absolute and sole discretion,
increase the salary payable to Mr. Stoltenberg for merit, and may
award bonuses of cash, stock or options in addition to those
provided for in Section 4.2.
4.2 Performance Bonuses. During the continuance of this
Agreement, Quadrax shall award Mr. Stoltenberg
performance bonuses as described herein. No stock
bonuses shall be reduced for income taxes, social
security payments and other items, except to the extent
that Quadrax is specifically required by law to withhold
or deduct such items. Mr. Stoltenberg will receive a
performance bonus in each year of this Employment
Agreement as follows:
1. If Quadrax achieves net revenue of at least $10
million and net income of at least $zero in fiscal
1996, a bonus of fully vested options to purchase
15,000 shares of the common stock of Quadrax under the
1993 Stock Option Plan exercisable at the fair market
value of the common stock on December 31, 1996,
exercisable for a period of five years from vesting.
2. If the average of the closing bid prices of the common
stock of Quadrax for any ten consecutive trading day period in
December 1996 equals or exceeds $2.00 per share, a further bonus,
independent of the revenue-based bonus, of fully vested options
to purchase 15,000 shares of common stock of Quadrax under the
1993 Stock Option Plan exercisable at the fair market value of
the common stock on December 31, 1996, exercisable for a period
of five years from vesting.
3. If Quadrax achieves net revenue of at least $20 million
and net income of at least $1.5 million in fiscal 1997, a bonus
of fully vested options to purchase 15,000 shares of common stock
of Quadrax under the 1993 Stock Option Plan exercisable at the
fair market value of the common stock on December 31, 1997,
exercisable for a period of five years from vesting.
4. If the average of the closing bid prices of the common
stock of Quadrax for any ten consecutive trading day period in
December 1997 equals or exceeds $4.00 per share, a further bonus,
independent of the revenue-based bonus, of fully vested options
to purchase 15,000 shares of common stock of Quadrax under the
1993 Stock Option Plan exercisable at the fair market value of
the common stock on December 31, 1997, exercisable for a period
of five years from vesting.
5. If Quadrax achieves net revenue of at least $40 million
and net income of at least $3.0 million in fiscal 1998, a bonus
of fully vested options to purchase 15,000 shares of common stock
of Quadrax under the 1993 Stock Option Plan exercisable at the
fair market value of the common stock on December 31, 1998,
exercisable for a period of five years from vesting.
6. If the average of the closing bid prices of the common
stock of Quadrax for any ten consecutive trading day period in
December 1998 equals or exceeds $8.00 per share, a further bonus,
independent of the revenue-based bonus, of fully vested options
to purchase 15,000 shares of common stock of Quadrax under the
1993 Stock Option Plan exercisable at the fair market value of
the common stock on December 31, 1998, exercisable for a period
of five years from vesting.
4.3 Annual Stock Option Bonus. In addition to, and not in lieu of,
the above bonuses, Mr. Stoltenberg shall also be granted options
to purchase 30,000 shares of the common stock of Quadrax under
the 1993 Stock Option Plan at January 1, 1996, 1997 and 1998,
respectively, with an exercise price of their fair market value
on such date each year, fully vested, with an exercise period of
five years from the date of the grant.
5. Benefits. In addition to the compensation described in Section
4, above, Mr. Stoltenberg shall be entitled to participate in or
receive all other benefits normally provided to Quadrax's
executive-level employees. These benefits will include, but not
be limited to:
group health, life and disability insurance;
participation in any Quadrax sponsored retirement savings or
pension plan;
participation in all stock or stock option plans;
use of a company car;
business expense allowance as permitted by the Internal Revenue
Code
paid vacation accruing at the rate of six weeks per year;
paid sick leave accruing at the rate of 10 days per year; and
paid religious and other holidays to the extent provided under
Quadrax's holiday and personal leave policies.
and personal leave policies.
customer (defined with respect to such customer in the same
manner as for Quadrax) to any person, firm or enterprise without
the prior written consent of Quadrax and such customer;
(iii) during the term of his employment by Quadrax, he
shall exercise all due and diligent precautions to protect the
integrity of Quadrax customer lists, mailing lists and sources
thereof, statistical data and compilations, agreements,
contracts, manuals or other documents and any and all other
imbursed or paid by Quadrax,
including time, place, business purposes and individuals included
in the expenditure, when appropriate.
6. Severance. Notwithstanding any other term or provision contained
in this Agreement, this Agreement and the employment of Mr.
Stoltenberg may be terminated under the following circumstances:
6.1 Termination By Quadrax for Cause. Quadrax may terminate
this Agreement at any time, without notice, for just cause shown.
Just cause shall include, and be limited to:
a. violation of Mr. Stoltenberg's conditions of service,
as specified in paragraph 1, above, including, without
limitation, operating another active business outside of Quadrax,
aiding competitors of Quadrax or revealing confidential or
proprietary information without the knowledge and consent of the
Board of Directors;
b. dishonesty, insobriety, abuse of alcohol or use of
illegal drugs; or
c. conviction or entering into a plea of nolo contendere
to:
(1) a crime involving moral turpitude; or
(2) any other crime materially
impairing or materially hindering Mr.
Stoltenberg's ability to perform his duties for
Quadrax.
6.2 Voluntary Termination By Mr. Stoltenberg. Mr. Stoltenberg
may, at any time upon two months prior written notice, terminate
this Agreement and his employment hereunder.
6.3 Termination on Death or Permanent Disability. This
Agreement shall terminate upon Mr. Stoltenberg's death or
permanent disability. For purposes of this Agreement, Mr.
Stoltenberg will be considered to be permanently disabled when he
is unable to perform the principal duties that he has been hired
to perform for an aggregate of eight months in any nine month
period.
7. Severance Benefits. Upon termination of this Agreement, Mr.
Stoltenberg shall be entitled to receive the following
termination benefits, after receipt of which the rights and
obligations of the parties hereunder except under Section 3.2
hereof shall become void and of no further force and effect;
provided, however, that if Mr. Stoltenberg is terminated for
cause by reason of breach of the confidentiality or proprietary
information provisions of Section 3 hereof, Quadrax shall retain
whatever rights it may have under law to seek and obtain remedies
for such breach.
7.1 Termination for Cause or Voluntary Termination by Mr.
Stoltenberg. If this Agreement is terminated for cause by
Quadrax or voluntarily by Mr. Stoltenberg, then the following
severance benefits shall be due.
a. Base Salary. Base salary shall be paid, on a pro-rated
basis, for a period of six months from the date of termination.
b. Bonus. Any bonus that may otherwise have become due
for the fiscal year in which this Agreement is terminated shall
be forfeited.
c. Benefits. Health and disability insurance shall
be continued for as long as Mr. Stoltenberg is entitled to salary
continuation payments, as provided in (a), above. All other
benefits may be terminated or canceled by Quadrax at any time
from and after the last day of employment.
7.2 Termination by Death or Disability. If this Agreement is
terminated by Quadrax upon the death or disability of Mr.
Stoltenberg, then the following severance benefits shall be due.
a. Base Salary. Mr. Stoltenberg (or his estate) shall be
entitled to continue receiving his base salary in regular
installments for 12 months following the date of termination, or,
at the election of Quadrax, an amount equal to 12 months base
salary paid in one lump-sum on the date of termination.
b. Bonus. Mr. Stoltenberg (or his estate) shall be
entitled to receive a bonus for the fiscal year in which this
Agreement is terminated. Any such bonus shall be paid in cash to
Mr. Stoltenberg as and when other bonuses are paid.
c. Benefits. All benefits shall continue for a period of
12 months from the date of termination. In the case of
termination by reason of the death of Mr. Stoltenberg, then
benefits shall continue as aforesaid for the benefit of any
dependents who survive him.
8. Wrongful Discharge. If this Agreement is terminated by Quadrax
other than for just cause shown or by reason of death or
disability, then the following severance benefits shall be due.
8.1 Base Salary. Mr. Stoltenberg shall be entitled to continue
receiving his base salary in regular installments for the balance
of the term of this Agreement, plus an additional 36 months, or,
at the option of Quadrax, a like amount paid in one lump-sum on
the date of termination.
8.2 Bonus. Mr. Stoltenberg shall be entitled to receive, within
30 days of the last date of employment, registered on Form S-8 or
otherwise, the stock options provided for in Paragraphs 4.2 and
4.3, above, (to the extent not previously earned and issued)
without regard to whether or not any of the conditions specified
therein have been achieved. Mr. Stoltenberg shall also be
entitled to receive any cash bonus provided for in paragraph 4.2,
above, for the fiscal year in which this Agreement is terminated.
Any such bonus shall be paid in cash to Mr. Stoltenberg as and
when other bonuses are paid.
8.3 Benefits. All benefits shall continue for the balance of
the term of this Agreement, plus an additional 36 months.
9. Changes in Control. Upon any Change in Control of the Company
resulting in Mr. Stoltenberg's termination or constructive
termination, all of the options in Section 4.2 and 4.3 of this
Employment Agreement shall be granted and vest immediately. For
the purposes of this Agreement, a Change in Control is defined
as the sale, exchange or transfer of (i) 20% or more of the
outstanding common stock of the Company or (ii) substantially all
of the assets of the Company to any party who does not currently
hold at least 5% of the outstanding common stock of the Company.
10. Relationship Created. The relationship created by this Agreement
is that of employer and employee and nothing contained in this
Agreement shall be construed in any way as creating any
partnership, joint venture or other relationship between the
parties. Nothing contained in this Agreement shall be construed
as granting Mr. Stoltenberg any right to bind or obligate Quadrax
in any manner not herein granted, without the express written
consent of Quadrax.
11. Payment of Undisputed Amounts. If there is a dispute between the
parties with respect to any amount claimed to be due hereunder,
any portion that is not disputed shall be paid by the obligor to
the payee. Any such partial payment shall not, however,
constitute a waiver by the payee of any other rights.
12. Notices. All notices, requests, payments, demands or other
communication under this Agreement shall be in writing and shall
be deemed to have been given on the date of actual receipt.
13. Severability of Provisions. If any provision in this Agreement
is held to be invalid, void or unenforceable, the remaining
provisions shall continue in full force and effect.
14. Time. Time is of the essence of this Agreement.
15. Counterparts. This Agreement may be executed in two or more
counterparts, all of which, taken together, shall constitute one
and the same agreement.
16. Business Day. If any date on which action is to be taken under
this Agreement occurs, or if any period during which action is to
be taken under this Agreement ends, on a Saturday, Sunday or
holiday, the date or period shall be extended to the next
succeeding day which is not a Saturday, Sunday or holiday.
17. Jurisdiction. Each party hereby consents and submits itself to
the jurisdiction of the State of Rhode Island and agrees that the
parties to this Agreement shall be entitled to a judgment and
decree and enforcement by the Courts of the State of Rhode Island
for any amount which may be adjudged to be due, including, but
not limited to, attorney's fees, costs and damages.
18. Entire Agreement. This Agreement contains the entire
understanding between the parties concerning Mr. Stoltenberg's
employment with Quadrax and supersedes any prior understanding or
agreement between them. Thereof are no other representations,
agreements or understandings, oral or written, between the
parties relating to the subject of this Agreement. This
Agreement may be amended only by a writing signed by the party to
be charged.
<PAGE>
IN WITNESS WHEREOF, Quadrax Corporation has caused this
Agreement to be signed and delivered by its duly authorized
representative and Edward A. Stoltenberg has signed and delivered
this Agreement, both as of the date first above written.
Quadrax Corporation /s/Edward A. Stoltenberg
______________________________
Edward A. Stoltenberg
By: /s/James J. Palermo
James J. Palermo
Chief Executive Officer
EXHIBIT 10.33
Employment Severance Agreement
This Employment Severance Agreement (this Agreement) is
entered into as of October 13, 1995, by and between:
Quadrax Corporation, a Delaware corporation (Quadrax), as
the employer; and
James T. Connell, an individual (Mr. Connell), as the
employee.
Recitals
A. On or about February 13, 1995 Quadrax and Mr.
Connell entered into an Employment Agreement
pursuant to which Mr. Connell agreed to serve
Quadrax in the capacity of Director, Investor
Relations.
B. Subsequent to the date of the Employment
Agreement, Quadrax determined that it was in
the best interest of the corporation to create
a position of Chief Financial Officer, and to
include investor relations among the duties of
such Chief Financial Officer .
C. On or about September 1, 1995, Quadrax
retained Mr. Edward A. Stoltenberg as its Chief
Financial Officer, and Mr. Stoltenberg has
assumed as a principal responsibility
representation of the corporation before its
stockholders and the financial community.
D. Quadrax has no further need to maintain a
position of Director, Investor Relations.
E. After careful consideration of all the other
ways in which Mr. Connell could continue to
serve the interests of Quadrax to the mutual
benefit of Quadrax and Mr. Connell, Quadrax and
Mr. Connell have mutually agreed that it is in
the best interest of each party to terminate
the Employment Agreement on the following
terms.
Provisions
1.Termination of the Employment Agreement. Quadrax and Mr.
Connell hereby agree to terminate the Employment Agreement,
effective immediately.
2.Release of Mr. Connell by Quadrax. Quadrax hereby releases Mr.
Connell from any and all obligation to provide services to the
corporation, and agrees that Mr. Connell may pursue other
employment or business opportunities, including opportunities
that may be in competition with Quadrax, provided, only, that Mr.
Connell shall not use any confidential or proprietary information
acquired by him during his employment by Quadrax in competition
with, or in any way that is adverse to the interests of Quadrax.
3.Release of Quadrax by Mr. Connell. Mr. Connell hereby releases
Quadrax from any and all obligation to retain his services, or to
compensate him for or in lieu of those services, whether pursuant
to the Employment Agreement, or otherwise, except as hereinafter
expressly provided.
4.Consideration for Releases. In consideration of the foregoing
releases, Quadrax agrees to pay or deliver to Mr. Connell, and
Mr. Connell agrees to accept, as full and final satisfaction of
any and all claims that Mr. Connell may now have or hereafter
assert relating to or arising out of his employment by Quadrax,
each and every of the following:
4.1Salary Continuation: $47,307.65 in salary continuation
payments, payable in installments, net of applicable federal,
state and local income, social security, Medicare,
unemployment insurance and other payroll taxes or deductions
required to be withheld by Quadrax under applicable law
(collectively, Deductions), as follows:
(a)7 payments of $4,615.39 each, less all applicable
Deductions, beginning October 13, 1995 and continuing
bi-weekly thereafter, through and including January 5,
1996 , followed by;
(b)6 additional payments of $2,307.69 each, less all
applicable Deductions, beginning January 19, 1996 and
continuing bi-weekly thereafter through and including
March 29, 1996 and
(b)1 final payments of $1,153.85 on April 12 , 1996 and
4.2Use of Company Car: continued possession and of that
certain 1994 Acura Legend automobile currently made available
for his use, without charge to Mr. Connell (except for normal
operating and maintenance costs, which shall be paid by Mr.
Connell) until March 31, 1996, at which time Mr. Connell will
have the option to either
4.2.1assume the obligations of Quadrax as lessee
under the relevant Lease Agreement (and cause
Quadrax to be relieved of any further obligations
thereunder); or
4.2.2return the automobile to Quadrax in good
working order and appearance, reasonable wear and
tear excepted; and
4.3Benefits: continuation of group health, life and
disability insurance, as currently in force as of the
date hereof (and as the same may be amended for the
entire corporation at any time or from time to time)
through March 31, 1996; and
4.4Cancellation of Indebtedness. a release and receipt
for payment in full of all principal, interest and
penalties due for loans made by Quadrax to or for the
benefit of Mr. Connell, which Quadrax and Mr. Connell
agree totals $54,727.58; and
4.5Options: a cancellation and re-grant of options under
the Quadrax Corporation 1994 Non-Qualified Stock Option
Plan, so-called, to purchase an aggregate of 100,000
shares of Common Stock of Quadrax, to be re-granted with
an exercise price of $1.50 per share, exerciseable as
follows:
(a) options to purchase an aggregate of 25,000 shares,
which may be exercised, in multiples 1,000 shares, at any
time during the period beginning on January 1, 1996 and
ending on December 31, 2006, after which any such options
that are not exercised will expire; and
(b)options to purchase an aggregate of 25,000 shares,
which may be exercised, in multiples 1,000 shares, at any
time during the period beginning on April 1, 1996 and
ending on March 31, 2006, after which any such options
that are not exercised will expire; and
(c)options to purchase an aggregate of 25,000 shares,
which may be exercised, in multiples 1,000 shares, at any
time during the period beginning on July 1, 1996 and
ending on June, 2006, after which any such options that
are not exercised will expire; and
(b)options to purchase an aggregate of 25,000 shares,
which may be exercised, in multiples 1,000 shares, at any
time during the period beginning on October 1, 1996 and
ending on September 30, 2006, after which any such
options that are not exercised will expire;
provided, however, that if the average closing bid
price for shares of common stock of Quadrax over any
period of 15 consecutive trading days shall exceed
$4 per share, all outstanding options shall become
immidiately exerciseable at the option of Mr.
Connelll.
6.Certain Other Shares. Mr. Connell acknowledges and agrees
Quadrax has issued to him as compensation for services rendered
an aggregate of 139,000 shares of its Common Stock, of which
50,000 have been registered for sale to the public under a Form
S-8 and 89,000 shares are restricted securities that cannot be
sold unless a registration statement is filed or an exemption
from registration becomes available. Mr. Connell further
acknowledges and agrees that any and all claims he may now have
or hereafter assert are surrendered pursuant to, and superseded
by, this agreement.
6.Additional Undertakings by Quadrax. In furtherance of the
purpose and intent of this Agreement to reach and final
settlement of all matters between Quadrax and Mr. Connell arising
out of his employment at Quadrax, Quadrax further undertakes and
agrees as follows:
6.1Value of Shares. Quadrax will report on both the financial
and tax accounts of the corporation additional compensation
to Mr. Connell during the fiscal and tax year ending December
31, 1995 the amount of $278,000, representing the value of
139,000 shares of Quadrax Common Stock issued at a value of
$2 per share, and will issue to Mr. Connell in the ordinary
course a Internal Revenue Service Form 1099 for the 1995 tax
year in like amount;
6.2Registration of Restricted Shares. Quadrax will include
the 89,000 shares of its Common Stock held by Mr. Connell in
restricted form in its Registration Statement currently
before the Securities Exchange Commission, and further agrees
that if for any reason such Registration Statement does not
go effective, to include such shares in any subsequent
Registration Statement which Quadrax may file regarding the
sale of shares of its common stock or other instruments
convertible into shares of its common stock; and
6.3Registration of Option Shares. Quadrax agrees to register
for sale to the public any and all shares of its common stock
that may be purchased by Mr. Connell by exercise of one or
more of the options granted pursuant to this Agreement:
6.3.1at or prior to the time of issuance , if, but
only to the extent that, such registration can be
effected through the filing of a Form S-8, or
other similar abbreviated form of registration
that does impose an undue burden or expense upon
Quadrax; and
6.3.2with respect to any issued and outstanding
shares held by Mr. Connell and not registered at
the time after issuance or thereafter, if
requested by Mr. Connell, by inclusion on any
other registration statement that Quadrax may file
with respect to the issuance of sale of shares of
its common stock, if, but only to the extent that,
such shares may properly be included on such
registration statement under applicable law.
7.Notices. All notices, requests, payments, demands or other
communication under this Agreement shall be in writing and shall
be deemed to have been given on the date of actual receipt.
8.Severability of Provisions. If any provision in this Agreement
is held to be invalid, void or unenforceable, the remaining
provisions shall continue in full force and effect.
9.Time. Time is of the essence of this Agreement.
10.Counterparts. This Agreement may be executed in two or more
counterparts, all of which, taken together, shall constitute one
and the same agreement.
11.Business Day. If any date on which action is to be taken
under this Agreement occurs, or if any period during which action
is to be taken under this Agreement ends, on a Saturday, Sunday
or holiday, the date or period shall be extended to the next
succeeding day which is not a Saturday, Sunday or holiday.
12.Jurisdiction. Each party hereby consents and submits itself
to the jurisdiction of the State of Rhode Island and agrees that
the parties to this Agreement shall be entitled to a judgment and
decree and enforcement by the Courts of the State of Rhode Island
for any amount which may be adjudged to be due, including, but
not limited to, attorney's fees, costs and damages.
13.Entire Agreement. This Agreement contains the entire
understanding between the parties concerning Mr. Palermo's
employment with Quadrax and supersedes any prior understanding or
agreement between them. Thereof are no other representations,
agreements or understandings, oral or written, between the
parties relating to the subject of this Agreement. This
Agreement may be amended only by a writing signed by the party to
be charged.
In Witness Whereof, Quadrax Corporation has caused this
Agreement to be signed and delivered by its duly authorized
representative and James T. Connell has signed and delivered
this Agreement, both as of the date first above written.
Quadrax Corporation
By: /s/James J. Palermo
James J. Palermo
Chairman and Chief Executive Officer
/s/Jmaes T. Connell
James T. Connell
EXHIBIT 10.34
Key Employee Agreement
To: Gerard McDonald Date of this Agreement:
23 Jillson Circle April 7, 1995
Milford, MA 01757
The undersigned, Quadrax Corporation, a Delaware corporation (the
Company), hereby agrees with you as follows:
1. Position and Responsibilities.
You shall serve in the position specified in paragraph
2 of Exhibit A hereto as your Primary Position and shall
perform the duties customarily associated with such position from
time to time and at such place or places as the Company shall
designate as appropriate and necessary in connection with such
employment; provided, however, that the Company shall not require
you to relocate without your consent.
1.1 You will, to the best of your ability, devote
substantially full time and your best efforts to the performance
of your duties hereunder and the business and affairs of the
Company. You agree to perform such additional executive duties
as may be assigned to you from time to time by or on authority of
the Company's President.
2. Term of Employment.
2.1. The initial term of this Agreement shall begin on
the date hereof and end on the Expiration Date specified in
paragraph 1 of Exhibit A hereto. Thereafter, this Agreement
shall be automatically renewed for successive periods of one
year, unless the Company shall give you not less then three (3)
months written notice of non-renewal. In the event of
non-renewal, the Company shall pay you the sum specified (and in
the manner specified) in paragraph 3 of Exhibit A as Severance
Pay, such payment to be in consideration of services performed
by you before the date of termination, to have been earned
thereby, and to be payable irrespective of whether you seek or
obtain employment elsewhere after your termination by the
Company. In addition, in the event of such non-renewal, the
Company shall continue to provide you with such health coverage
as it provided under paragraph 6 of Exhibit A hereto, or the
equivalent, for a period of three (3) months after such
expiration.
2.2. The Company shall have the right, on written
notice to you, to terminate your employment immediately, for
cause, in which event you shall not be entitled to severance pay
upon, nor to benefits after, such termination.
2.3. For the purposes of Section 2.2, the term cause
shall include only the following:
Your intentional failure or refusal to perform the
duties of your Primary Position as specified in
paragraph 2 of Exhibit A hereto, or to carry out
any reasonable and lawful directives of the
Company with respect to such duties to be rendered
or the manner of rendering such duties by you;
provided, however, that (i) such failure or
refusal is material and repetitive, and (ii) with
respect to the first two such failures or refusals
you have been given reasonable written notice and
explanation thereof and reasonable opportunity to
cure and no cure has been effected within a
reasonable time after such notice; or
Fraud or embezzlement involving a material amount of
the assets of the Company, its customers,
suppliers, or affiliates.
Any dispute, controversy, or claim arising out of, in connection
with or in relation to this definition of cause shall be
settled by arbitration in Providence, Rhode Island, pursuant to
the rules then in effect of the American Arbitration Association.
Any award or determination shall be final, binding, and
conclusive upon the parties, and a judgment thereon may be
entered in any court having jurisdiction thereof.
2.4 You shall have the right to terminate this
Agreement upon not less than three (3) months prior written
notice to the Company. If you terminate this Agreement, you
shall not be entitled to severance pay upon, nor to benefits
after, such termination.
3. Compensation. You shall receive the compensation and
benefits set forth in paragraphs 4, 5, and 6 of Exhibit A hereto
(Compensation) for all services to be rendered by you hereunder
and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions previously
signed by you and delivered to the Company (the Proprietary
Information and Inventions Agreement).
4. Other Activities During Employment.
4.1 You hereby agree that, except with the approval of
the Board of Directors of the Company, during your employment
hereunder, you will not, directly or indirectly, participate in
any capacity (including as an agent or consultant), in any firm,
corporation, partnership, trust, association, or other
organization that is engaged in the research, development,
production, manufacture, or marketing of equipment, materials,
and/or processes in direct competition with those of the Company
now in existence or any other line of business engaged in or
under demonstrable development by the Company.
5. Former Employers.
5.1. You represent and warrant that your employment by
the Company will not conflict with and will not be constrained by
an prior or current employment, consulting agreement, or
relationship, whether oral or written. You represent and warrant
that you do not possess confidential information arising out of
any such employment, consulting agreement, or relationship which,
in your best judgment, would be utilized in connection with your
employment by the Company in the absence of Section 5.2.
5.2. If, in spite of the second sentence of Section
5.1, you should find that confidential information belonging to
any other person or entity might be usable in connection with the
Company's business, you will not intentionally disclose to the
Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of
your duties all information that is generally known and used by
persons with training and experience comparable to your own and
all information that is common knowledge in the industry or
otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to
be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1. For a period of one (1) year after the
termination or expiration, for any reason, of your employment
with the Company hereunder, absent the Company's prior written
approval, you will not directly or indirectly engage in
activities similar or reasonable related to those in which you
shall have engaged hereunder during the two (2) years immediately
preceding termination or expiration for, nor render services
similar or reasonable related to those that you shall have
rendered here under during such two (2) years to, any person or
entity whether now existing or hereafter established that
directly competes with (or proposes or plans to directly compete
with) the Company (a Direct Competitor) in any line of business
engaged in or under development by the Company. Nor shall you
entice, induce, or encourage any of the Company's other employees
to engage in any activity which, were it done by you, would
violate any provision of the Proprietary Information and
Inventions Agreement or this Section 7. As used in this Section
7.1, the term any line of business engaged in or under
development by the Company shall be determined as at the date of
termination of your employment. It is understood and agreed that
the Company is, and is likely to continue to be, engaged in a
business that is worldwide in scope and that, therefore, the
parties have agreed that no geographical limitation on the scope
of this covenant is appropriate and that a worldwide scope is
reasonable.
7.2. Notwithstanding anything to the contrary
contained herein, the provisions of Section 7.1 hereof shall be
enforceable by the Company only if the Company notifies you
within thirty (30) days following receipt of written notification
from you that you propose to become associated with a Direct
Competitor that the Company wishes to enforce Section 7.1 hereof,
and, at the time of such notice, agrees to pay to you as
compensation for your non-competition with the Company the
Non-Competition Compensation specified in paragraph 7 of
Exhibit A, in addition to any severance pay and benefits due to
you pursuant to Section 2.2(b) hereof. Such compensation shall
be payable as specified in paragraph 7 of Exhibit A.
7.3. No provision of this Agreement shall be construed
to preclude you from performing the same services that the
Company hereby retains you to perform for any person or entity
that is not a Direct Competitor of the Company upon the
expiration or termination of your employment so long as you do
not thereby violate any term of the Proprietary Information and
Inventions Agreement.
8. Remedies. Your obligations under the Proprietary
Information and Inventions Agreement and the provisions of
Sections 4, 5, 6 and 7 of this Agreement (as modified by Section
10, if applicable) shall survive the expiration or termination of
your employment (whether through your resignation or otherwise)
with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the
Proprietary Information and Inventions Agreement or Section 7
would be inadequate and you therefore agree that the Company
shall be entitled to injunction relief in case of any such breach
or threatened breach.
9. Assignment. This Agreement and the rights and
obligations of the parties hereto shall bind and inure to the
benefit of any successor or successors of the Company by
reorganization, merger, or consolidation and any assignee of all
or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this
Agreement nor any rights or benefits hereunder may be assigned by
the Company or by your (except with respect to benefits earned
hereunder or to benefits to which you may be entitled upon death
or disability, to any trust established by your for estate
planning or similar purposes), except by will or by operation of
law.
10. Interpretation. It is the intent of the parties that
in case any one or more of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been
contained herein. Moreover, it is the intent of the parties that
in case any one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as
to duration, geographical scope, activity, or subject, such
provision shall be construed by limiting and reducing it as
determined by a court of competent jurisdiction, so as to be
enforceable to the intent compatible with applicable law.
11. Notices. Any notice that the Company is required to or
may desire to give you shall be given by personal delivery or
registered or certified mail, return receipt requested, addressed
to you at your address of record with the Company, or at such
other place as you may from time to time designate in writing.
Any notice that you are required or may desire to give to the
Company hereunder shall be given by personal delivery or by
registered or certified mail, return receipt requested, addressed
to the Company as its principal office, or at such other office
as the Company may from time to time designate in writing. The
date of personal delivery or the date of mailing any notice under
this Section 11 shall be deemed to be the date of delivery
thereof.
12. Waivers. If either party should waive any breach of
any provision of this Agreement, such party shall not thereby be
deemed to have waived any preceding or succeeding breach of the
same or any other provision of this Agreement.
13. Complete Agreement; Amendments. This Agreement,
including Exhibit A hereto and the Proprietary Information and
Inventions Agreement, constitutes the entire agreement of the
parties with respect to the subject matter hereof, superseding
any previous oral or written communications, representations,
understandings, or agreements with the Company or any officer or
representative thereof other than a Special Termination
Agreement executed by the Company and you prior to the date
hereof, which special Termination Agreement is not superseded
hereby. Any amendment to this Agreement or waiver by the Company
of any right hereunder shall be effective only if evidenced by a
written instrument executed by the parties hereto, upon
authorization of the Company's Board of Directors.
14. Headings. The headings of the Sections hereof are
inserted for convenience only and shall not be deemed to
constitute a part hereof nor to affect the meaning of this
Agreement.
15. Counterparts. This Agreement may be signed in two
counterparts, each of which shall be deemed an original and both
of which shall together constitute one agreement.
16. Governing Law. This Agreement shall be governed by and
construed under Rhode Island law.
If you are in agreement with the foregoing, please sign
your name below and also at the bottom of the Proprietary
Information and Inventions Agreement, whereupon this Agreement
shall become binding in accordance with its terms. Please then
return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of the Agreement enclosed
herewith.)
Very truly yours,
Quadrax Corporation
By:
/s/James J. Palermo
James J. Palermo
Chairman and Chief Executive Officer
Accepted and Agreed to:
By:
/s/Gerard McDonald
Gerard McDonald
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FILED AS PART OF THE FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000814273
<NAME> QUADRAX CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,613,555
<SECURITIES> 0
<RECEIVABLES> 1,289,301
<ALLOWANCES> 24,000
<INVENTORY> 1,466,813
<CURRENT-ASSETS> 5,479,866
<PP&E> 5,242,573
<DEPRECIATION> 3,000,093
<TOTAL-ASSETS> 8,800,252
<CURRENT-LIABILITIES> 3,486,068
<BONDS> 2,606,034
0
6
<COMMON> 160
<OTHER-SE> 4,090,762
<TOTAL-LIABILITY-AND-EQUITY> 8,800,252
<SALES> 4,601,113
<TOTAL-REVENUES> 4,634,839
<CGS> 3,413,130
<TOTAL-COSTS> 3,413,130
<OTHER-EXPENSES> 10,139,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,190,043
<INCOME-PRETAX> (10,107,713)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,107,713)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,107,713)
<EPS-PRIMARY> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
