As filed with the Securities and Exchange Commission on April 9, 1997
File No__________
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
-----------------------
QUADRAX CORPORATION
(Exact name of registrant as specified in charter)
Delaware 05-0420158
(State of incorporation) (IRS Employer Identification Number)
300 High Point Avenue
Portsmouth, Rhode Island 02871
(401) 683-6600
(Address and telephone number of registrant's
principal executive offices)
James J. Palermo
Chairman of the Board and Chief Executive Officer
Quadrax Corporation
300 High Point Avenue
Portsmouth, Rhode Island 02871
(401) 683-6600
(Address and telephone number of
agent for service)
Please send copies of all communications to:
Stephen I. Glover, Esq.
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the Registration Statement
becomes effective.
If the only securities being registered on this form are
being offered pursuant to dividend or interest reinvestment
plans, check the following box: [ ]
If any of the securities being registered on this form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment
plans, check the following box: [X]
If this Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration number of the earlier
effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
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(Cover continued on next page)
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(Cover continued from previous page)
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of each maximum maximum Amount of
class of Amount to be offering aggregate registration
securities to registered price per offering fee
be registered share (1) price (1)(2)
___________________________________________________________________________
Common Stock, 8,596,000 $.58 $4,969,563 $1,505.92
$.000009 par
value
___________________________________________________________________________
(1) Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(c) based upon a price
of $.58 per share, which was the average of the high and low
prices of the Common Stock, as reported on The NASDAQ Small
Cap Market on April 8, 1997.
(2) Pursuant to Rule 416, there also are being registered an
indeterminate number of shares of the registrant's common
stock, par value $.000009 per share, which may become
issuable pursuant to the antidilution provisions of the
underlying convertible securities.
<PAGE>
8,596,000 Shares
QUADRAX CORPORATION
Common Stock
This Prospectus relates to 8,596,000 shares of common stock,
par value $.000009 per share (the "Common Stock" or "Shares") of
Quadrax Corporation, a Delaware corporation ("Quadrax" or the
"Company"), to be offered and sold from time to time for the
accounts of the Selling Securityholders set forth herein (the
"Selling Securityholders"). All of the 8,596,000 shares of
Common Stock being offered hereby are being registered at the
Company's expense pursuant to contractual obligations of the
Company incurred in connection with private placements of its
convertible debentures, common stock purchase warrants, and
Common Stock under the Securities Act of 1933, as amended.
Up to 8,025,000 shares are being offered by the holders of
$3,210,000 aggregate principal amount of the Company's 8%
Convertible Debentures due 1999 (the "Debentures"). The number
of shares issuable upon conversion of the Debentures is
determined by dividing the aggregate principal amount of
Debentures by the lesser of (i) 80% of the average closing bid
price for the Company's Common Stock for the five trading days
prior to conversion, or (ii) the market bid price of the Common
Stock on the closing date for each holder, the earliest of which
was February 10, 1997. (Each holder's respective closing date
shall be referred to herein as the "Closing Date.") The maximum
number of shares that the Debentures can be converted into is
8,025,000 (based on a floor of $0.40 for the minimum conversion
price). The holders may, at their option, convert the Debentures
into shares of Common Stock in staggered amounts beginning on the
60th day following the Closing Date, the earliest of which will
be April 11, 1997. The Debentures will mature on the second
anniversary of the Closing Date.
This Prospectus also covers the offering by the Selling
Securityholders of up to 321,000 shares of Common Stock that are
issuable upon the exercise of warrants which the holders of the
Debentures received together with their Debentures. Each
Debentureholder received warrants to purchase 10,000 shares of
Common Stock for every $100,000 in principal amount of Debentures
purchased. The exercise price of the warrants is equal to the
closing bid price of the Common Stock on the Closing Date (which
was $0.9375 on February 10, 1997). The warrants expire on the
third anniversary date of the Closing Date.
The Company is also registering for resale 150,000 shares of
Common Stock issuable upon the exercise of warrants which were
issued to a financial consultant of the Company, exercisable for
$0.9375 per share of Common Stock. The Company is also
registering 100,000 shares which were issued to a former
consultant of Time Sports, Inc. in settlement of litigation.
The Company will receive no part of the proceeds of sales
from the offering of Shares by the Selling Securityholders. The
Company could receive up to $140,625 from the exercise of
warrants held by the Selling Securityholders. The Company has no
knowledge of any Selling Securityholder actually intending to
sell any Shares.
The shares of Common Stock may be sold by the Selling
Securityholders in underwritten transactions, in ordinary brokerage
transactions, in transactions in which brokers solicit purchases,
in negotiated transactions, or in a combination of such methods of
sale, at market prices prevailing at the time of sale, at prices
relating to such prevailing market prices or at negotiated
prices. See "Plan of Distribution." All expenses of
registration incurred in connection with this offering are being
borne by the Company, but all selling and other expenses incurred
by the Selling Securityholders will be borne by such Selling
Securityholders. None of the Common Stock offered pursuant to
this Prospectus have been registered prior to the filing of the
Registration Statement of which this Prospectus is a part.
On April 8, 1997, the closing price for the Common Stock as
quoted on the NASDAQ Small-Cap Market, under the symbol "QDRX,"
was $0.53 per share.
<PAGE>
AN INVESTMENT IN THE COMMON STOCK OFFERED PURSUANT
TO THIS PROSPECTUS IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE
CONSIDERED BY INVESTORS BEFORE PURCHASING
THE COMMON STOCK OFFERED HEREBY.
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
______________________________
The date of this Prospectus is April 9, 1997.
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<PAGE>
TABLE OF CONTENTS
Page
Available Information 4
Incorporation of Certain Documents by Reference 4
The Company 5
Risk Factors 6
Use of Proceeds 10
Selling Securityholders 11
Plan of Distribution 12
Description of Securities 14
Indemnification for Securities Act Liabilities 14
Legal Matters 14
Experts 14
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements
and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549; 75 Park Place, New York, New York 10007; and Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60604.
Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street N.W., Washington,
D.C. 20549 at prescribed rates. In addition, the Commission
maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding
companies that file electronically with the Commission through
the Electronic Data Gathering, Analysis and Retrieval System.
The Company has filed with the Commission in Washington,
D.C. a Registration Statement on Form S-3 (Registration No.
__________) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Shares of which this
Prospectus is a part. As permitted by the rules and regulations
of the Commission, this Prospectus does not contain all the
information set forth in the Registration Statement, including
the exhibits filed as part thereof and otherwise incorporated
therein to which reference is hereby made. Copies of the
Registration Statement and the exhibits may be inspected at the
offices of the Commission, and may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549 upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (file no.
16052) with the Commission are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996, filed on
March 31, 1997.
(2) The description of the Company's Common Stock
which is contained in the registration statement
on Form 8-A filed by the Company to register such
securities under Section 12(g) of the Securities
Exchange Act of 1934, as amended, including any
amendment or report filed for the purpose of
updating such description.
(3) The Company's Proxy Statement in connection with
the Annual Meeting of Stockholders to be held May
19, 1997.
(4) All documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act after the date of this Prospectus and prior to
the termination of the Offering made hereby shall
be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date
of filing such documents.
The Company will provide without charge to each person,
including any beneficial owners, to whom this Prospectus is
delivered, upon the written or oral request of any such person, a
copy of any and all of the information that has been incorporated
herein by reference, other than exhibits to such information
(unless such exhibits are specifically incorporated by reference
into the information that the Prospectus incorporates). Requests
for such information should be directed to the Secretary of the
Company at 300 High Point Avenue, Portsmouth, Rhode Island 02871
(401) 683-6600.
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<PAGE>
THE COMPANY
The Company, 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. Management
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.
Structural substrates are composite materials made from
continuous fibers (such as carbon, Kevlar, or fiberglass), as
opposed to composite materials made from chopped fibers which
tend to produce a weaker material. The Company believes that
Quadrax Composites' functional advantages over other structural
substrates 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. In addition, the Company believes that Quadrax
Composites are tougher and less brittle than traditional
thermalset plastics such as epoxies and polyesters.
The Company commenced limited commercial production in mid-
1993. 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 believes that opportunities
for thermoplastics do not currently exist in the defense and
aerospace markets, but if attractive opportunities arise in the
future, the Company will pursue them.
The Company 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.
The Company's independent accountants, Livingston & Haynes,
P.C., included a "going concern" qualification in their report on
the Company's financial statements for fiscal 1996, as they did
for fiscal 1995, reflecting the Company's history of losses and
its continued dependence on outside financing to provide the
funds needed to meet its expenses.
The Company was incorporated under the laws of Delaware in
March 1986. Its principal executive offices are located at 300
High Point Avenue, Portsmouth, Rhode Island 02871, and its
telephone number is (401) 683-6600.
Recent Developments
In late 1995, the Company acquired Lion Golf, a "low-end"
importer and manufacturer of sporting goods utilizing non-
proprietary materials, in order to gain greater industry
knowledge and to enhance the Company's name recognition in the
industry. Lion Golf has not performed up to the Company's
expectations, however, and as a result, the Company is currently
in the process of negotiating the sale of Lion Golf back to its
former principal stockholder. The Company expects the terms of
the sale to include a release from Lion Golf's $500,000 bank line
of credit. The line of credit was to have terminated in December
1996 but was extended by the bank to March 31, 1997. The Company
and the former stockholders of Lion Golf are in the process of
negotiating with the bank to restructure the debt. The Company
has advanced approximately $800,000 to fund the operations of
Lion Golf, which sum the Company does not expect to recover.
The Company remains committed to the golf products market.
In August 1996, the Company entered into a $180,000 six-month
development contract with Taylor Made Golf Company pursuant to
which Quadrax will conduct research and development with respect
to golf products that can be manufactured from thermoplastic
materials.
The Company's attempts to penetrate the bicycle components
market has borne fruit recently. In February 1997, the Company
received an initial purchase order from Spinergy, Inc., a
manufacturer of high performance composite bicycle wheels and
components, to supply laminated thermoplastic composite materials
for
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Spinergy's new products line. Successful completion of this
purchase order could lead to future orders in excess of 1 million
units.
The Company has issued 1,706,197 shares of Common Stock
since January 1, 1997. The proceeds from the issuance of these
shares were used for working capital, to finance operating
losses, to make capital expenditures, and to settle litigation.
The following chart sets forth the circumstances of each issuance
and the number of shares issued:
Transaction Number of
Shares
----------- ---------
Shares issued for
compensation and services 75,000
rendered
Exercise of stock options
by Company employees 108,950
Conversion of 8%
subordinated debentures 1,447,247
into common stock by Cygni
Development S.A.
Common Stock issued upon
exercise of warrants by 75,000
Joss Company _________
1,706,197
RISK FACTORS
In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in
evaluating the Company and its business before purchasing any of
the shares of Common Stock offered hereby. 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 Prospectus 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.
Operating Losses; Limited Revenues; Going Concern Qualification
The Company has not achieved profitability in any fiscal
quarter since its incorporation in March 1986. From
incorporation through December 31, 1996, the Company incurred a
cumulative net loss from continuing operations of approximately
$63,758,000. During the fiscal years 1996, 1995, 1994 and 1993,
the Company incurred net losses from continuing operations of
approximately $9,560,000, $10,108,000, $11,517,000, and
$5,713,000, respectively.
The Company has generated only limited revenue to date. In
particular, Quadrax has recently redirected its development and
marketing efforts from aerospace and defense markets to consumer
markets and commenced limited production for these markets in mid-
1993. During fiscal years 1996, 1995, 1994, and 1993, the
Company's total revenues were approximately $3,600,000,
$4,635,000, $860,000, and $1,555,000, respectively. Of these
revenues for 1996, 1995, 1994, and 1993, approximately 92%, 33%,
46%, and 28%, respectively, were generated from consumer markets.
The Company estimates that approximately 95% of its total revenue
for fiscal year 1997 will be generated from consumer markets.
There can be no assurance that sales of the Company's products
will generate significant revenue in the future. Consequently,
there can be no assurance that the Company will achieve or
sustain profitability in the future. The future operating
results of the Company will depend on its ability to develop and
market new products in the commercial markets. The Company's
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<PAGE>
independent accountants have included a "going concern"
qualification in their reports on the Company's financial
statements for fiscal 1996 and 1995, reflecting the Company's
history of losses as a development stage company and its
continuing dependence on financing activities to provide the cash
needed to meet its expenses.
Dependence on New Products
The Company historically has marketed its products to the
U.S. Government. The Company began to apply its technology in
consumer markets in 1993, and since that time has taken a number
of actions aimed at entering the sporting goods and athletic
equipment market. The Company has only commenced limited
commercial production of consumer products and therefore has not
yet had an opportunity to fully determine the extent to which
Quadrax Composites can be successfully applied to the development
and production of consumer products. While management believes
that Quadrax Composites are functionally superior to other
structural substrates for many commercial applications, any
failure of Quadrax Composites to perform to standards anticipated
by the Company would have a material adverse affect on the
Company's operations and financial condition.
Although the Company has entered into several joint
development and exclusive manufacturing contracts with companies
such as Taylor Made Golf Company and Spinergy, Inc., to sell
goods in the consumer sporting goods market, the contracts are
contingent on the Company being able to meet contractual
specifications such as performance, weight, and appearance
standards, in a timely manner, and there can be no assurance that
the Company will be able to do so in the future. A delay in the
successful development, completion or production of any of the
Company's sporting good products may result in the cancellation
of existing contracts and prevent the Company from entering into
additional contracts. This would have a material adverse effect
on the Company's operations and financial condition.
In addition, selling Quadrax Composites and products
manufactured from Quadrax Composites to consumer and commercial
markets, the Company faces significant institutional resistance
to working with new materials and products and to investing in
the re-tooling needed to integrate these materials and products
into existing production and product lines. Successful entrance
into new markets will require substantial investments by the
Company in fabrication and marketing of Quadrax Composites and in
the design, development, fabrication and marketing of products
manufactured from Quadrax Composites. There can be no assurance
that the Company will be able to overcome such institutional
resistance or that it will have sufficient resources to make the
necessary investments in its new products.
The Company's consumer products compete in a large market
with numerous competitors, some of which are large, well-
capitalized companies with wide brand recognition, and some of
which are small. The golf equipment industry is characterized by
products which are differentiated primarily by marketing
strategies.
Capital Requirements
The Company has not achieved profitability in any fiscal
quarter and has been required to raise substantial amounts of
capital in order to support its on-going development activities.
As the Company continues to focus on consumer markets and
progresses from the development of prototypes of products
manufactured from Quadrax Composites to the production of
finished goods, it will continue to be dependent on outside
financing sources.
From its incorporation in March 1986 to date, the Company
has raised a total of approximately $53.8 million in equity
capital. So far, in fiscal 1997, the Company has raised $3.2
million from the private placement of convertible debentures. In
fiscal years 1996, 1995, and 1994, the Company raised
approximately $6.2 million, $9.2 million, and $5.9 million,
respectively, through the private placement of the Company's
stock and convertible debt. Management believes that the $3.2
million raised in February 1997 from the sale of its convertible
debentures, together with cash provided by revenues, will be
sufficient to meet the Company's cash requirements for fiscal
1997. The Company may, however, continue to seek sources of
outside financing. Management expects the Company's capital
needs to be less in 1997 than in 1996 and 1995 because the
Company has resolved and paid for the financial settlements with
its former chairman, Mr. Hayton, and its founder and former chief
executive officer, Mr. Fisher.
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<PAGE>
Management believes that the Company will be able to
continue to raise money from outside third parties in sufficient
amounts to support its operations until the time in which the
Company's consumer product programs generate sufficient revenues.
There can be no assurance, however, that the Company will be able
to raise additional funds from third parties, or even that if
raised, such funds will be sufficient to fund the Company's
product programs until such programs are able to generate enough
revenue to support themselves. If the Company is unable to meet
its cash requirements, it may be required to defer for a period
of time, or indefinitely, the design, development, fabrication
and marketing of new products and the marketing of existing
products and materials in new markets.
In addition, the Company's capital requirements may increase
materially from those now planned depending on numerous factors,
including the level of its research and development expenses, the
rate of market acceptance of the Company's products, and the
success of the Company's sales, marketing and distribution
strategy. There can be no assurance that the Company will be
successful in raising such additional capital.
Limited Production and Sales Experience
Quadrax has limited experience producing Quadrax Composites
and fabricating finished products and components made from
Quadrax Composites. The Company has delivered significant
quantities of Quadrax Composites for evaluation and testing and
has completed three major production contracts to date, all of
which were defense related. Those contracts were with the
Lockheed Aeronautical Systems Company for thermoplastic biaxial
tape, EAR Special Composite Company for submarine sound dampening
tiles, and United Defense, L.P., for thermoplastic materials.
While management believes that significant technological barriers
to full scale production have been overcome, there can be no
assurance that significant unforeseen difficulties will not be
encountered at commercial production levels.
Prior to 1994, Quadrax concentrated almost all its product
marketing and customer calling efforts on the sale of materials
within the defense contracting community. Efforts to move into
consumer applications were limited to attendance of trade shows
sponsored by members of the plastics and advanced materials
industries. The Company currently has only a small sales and
marketing force. While initial efforts to break into the
consumer markets have been successful, insofar as the Company has
already produced and delivered to the marketplace lacrosse
sticks, hockey sticks, tennis racquets, and bicycle handlebars,
there can be no assurance that these successes can be duplicated
and expanded upon to the extent necessary for Quadrax to achieve
a profitable level of operation.
Competition
Quadrax Composites compete with conventional materials
(including wood, stone, steel and aluminum), less common metals
(such as titanium), and thermoset (epoxy-based) composites.
While management believes that Quadrax Composites offer several
advantages over competing materials, they are also more
expensive. In addition, Quadrax Composites suffer from
institutional resistance to working with new materials and
investing in the re-tooling needed to integrate Quadrax
Composites into existing product and production lines.
The Company faces competition from three of the world's
largest multi-national chemical companies-E.I. du Pont de Nemours
& Co., Imperial Chemical Industries PLC and Saint Gobain,
S.A.-each of which develops composite product offerings that may
compete with the Company's product offerings. In addition, the
Company faces potential competition from new companies as well as
from established companies that may migrate from related
industries. Many of the Company's current and prospective
competitors, including E.I. du Pont de Nemours & Co., Imperial
Chemical Industries PLC and Saint 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.
Competition in the sporting goods and athletic equipment
market is intense. The industry consists primarily of major
domestic and international companies that have financial,
technical, marketing, sales, manufacturing, distribution and
other resources substantially greater than those of the Company.
Many of the Company's competitors in this industry have
entrenched market positions and established trade names,
trademarks and other intellectual property rights. There can be
no assurance that the Company's competitors will not devote
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<PAGE>
significantly greater financial, technical, marketing and other
resources to develop and market sporting goods and athletic
equipment more aggressively than the Company.
In general, management believes 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. The Company
believes that the success of its efforts will depend on a variety
of elements both within and outside its control, including the
success and timing of new product development and introduction by
the Company and its competitors, product performance and price,
distribution, and customer support. There can be no assurance
that the Company will be able to compete successfully with
respect to these factors. Although management believes that it
has certain technological advantages over its competitors,
maintaining such advantages will require continued investment by
the Company in design and development, sales and marketing, and
customer service and support. There can be no assurance that the
Company will have sufficient resources to make such investments
or that the Company will be able to make the technological
advances necessary to maintain its competitive advantages. In
addition, as the Company enters new markets, distribution
channels, technical requirements and levels and bases of
competition may be different than those in the Company's current
markets and there can be no assurance that the Company will be
able to compete favorably.
No Assurance of Protection of Patents and Proprietary Technologies
The Company currently holds patents on its Quadrax Biaxial
Tape materials formats and on certain aspects of tennis racquets
manufactured from Quadrax aXial Tape. The Company either owns,
licenses or has applied for patents on certain aspects of the
other technology underlying the Company's products. The
Company's patents, patent rights and patent applications do not
ensure a competitive advantage to the Company, particularly
inasmuch as several of the patents are licensed on a non-
exclusive basis. No assurance can be given that any issued or
licensed patents will not be designed around, infringed or
successfully challenged by others, or that the Company will have
sufficient resources to enforce any proprietary protection
afforded by its patents. Furthermore, there can be no assurance
that patents will issue with respect to any pending patent
application. Moreover, some of the Company's actual and
potential competitors have obtained patents and could seek to
enforce them against the Company. An infringement action, if
brought, would be costly to defend and there can be no assurance
that the Company would prevail. Failure to obtain or to be able
to enforce patent protection in favor of the Company, or failure
to defend successfully a patent infringement claim against the
Company, could have a material adverse effect on the Company's
business. In addition, despite the Company's precautions to the
contrary, there can be no assurance that the trade secrecy
protections which may be asserted by the Company to protect other
aspects of its intellectual property will not be breached or will
be enforceable.
Key Employees
The Company's success depends to a significant extent upon a
number of key management and technical personnel, including James
J. Palermo, the Company's Chief Executive Officer. Mr. Palermo
has signed an employment agreement with the Company that is
effective through December 1999. In addition, the Company has
entered into employment contracts with two other key employees,
Edward A. Stoltenberg, the Company's Senior Vice President and
Chief Financial Officer, and John A. McQuade, the Company's Vice
President of Administration. Both contracts expire on December
31, 1998. The loss of the services of a key employee could have
a material adverse effect on the Company's business and financial
condition. The Company has not obtained, and does not currently
plan to obtain, "key-man" insurance on any of its executives. In
addition, the Company's future success will depend in part on its
ability to attract and retain highly skilled technical,
managerial and marketing personnel. Competition for such
personnel is intense, and there can be no assurance that the
Company will be successful in hiring or retaining the personnel
it requires to continue to grow and operate profitably.
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<PAGE>
Potential Dilution
Quadrax has a complex capital structure that includes a
number of classes of outstanding warrants and options to purchase
Common Stock. If all of the warrants and options having exercise
prices less than the reported last sale price of the Common Stock
on the Nasdaq SmallCap Market on April 7, 1997 were to be
exercised, an aggregate of 175,000 shares of Common Stock would
be issuable for a total of $1,750, resulting in a reduction in
the percentage of voting rights and interest in equity profits
represented by a share of Common Stock. If all of the issued and
outstanding convertible debentures which were issued in October
1996 were converted into shares of the Company's Common Stock
based on the closing price of the Company's Common Stock on the
Nasdaq SmallCap Market on April 7, 1997, 1,982,906 shares of
Common Stock would be issuable, resulting in a reduction in the
percentage of voting rights and interest in equity profits
represented by a share of Common Stock.
In addition, the Company is authorized to issue up to a
total of 90,000,000 shares of Common Stock, of which
approximately 34,400,000 shares are outstanding as of the date
hereof. Issuance of a significant number of additional shares of
Common Stock would result in a substantial reduction in the
percentage of voting rights and interests in profits currently
represented by a share of Common Stock.
Technological Obsolescence
The structural composites market in which Quadrax competes
is characterized by rapid technological development. There can
be no assurance that Quadrax's products will not be rendered
obsolete or that Quadrax will be successful in developing new
products to meet changing market needs.
Product Liability
Sales of Quadrax Composites and parts manufactured therefrom
may expose the Company to liability for substantial damages in
the event of accident or injury shown to have been caused by
defective materials. Management believes that its limited
product liability insurance is currently adequate, but no
assurance can be given that such insurance is sufficient in scope
and amount to cover any and all damages that are incurred in the
future. Further, the Company expects that it will be necessary
for the Company to increase its product liability insurance
coverage as shipments to commercial markets increase, and there
can be no assurance that such coverage will be available or, if
available, that it will be available on terms that are
economically acceptable to the Company.
Volatility of Stock Price; Depressive Effective of Future Sales
of Common Stock
The trading price of the Common Stock has been subject to
wide fluctuations for a number of reasons, including the
financial difficulties and subsequent cessation in 1991 of market-
making activities by its former principal market maker and
changes in control of the Company in 1994 and 1995. In addition,
the stock market has from time to time experienced extreme price
and volume fluctuations that particularly affected the market
price for many technology companies and that often have been
unrelated to operating performance of these companies. These
broad market fluctuations may adversely affect the market price
of the Common Stock. In addition, future sales by the Company of
newly issued Common Stock (or securities convertible into or
exchangeable for Common Stock) in the public market could place
downward pressure on the market price of the Common Stock.
USE OF PROCEEDS
All proceeds from any sale of Shares offered by the Selling
Securityholders will be received by the Selling Securityholders
and not by the Company. The proceeds to the Company from the
exercise of all of the warrants would be $140,625. Such
proceeds, if any, will be used for general corporate purposes.
- 10 -
<PAGE>
SELLING SECURITYHOLDERS
8,596,000 shares are being offered for resale by certain
shareholders of the Company. Up to 8,025,000 of those shares are
issuable upon conversion by the holders of $3,210,000 aggregate
principal amount of Debentures. Up to 471,000 shares are
issuable upon exercise of warrants held by the holders of the
Debentures and a financial consultant of the Company. 100,000
shares are being offered for the account of a Selling
Securityholder who was a former consultant of Time Sports, Inc.
All shares, to the extent they are being offered, are being
offered for the account of the following shareholders and their
donees or pledgees (the "Selling Securityholders").
The following table sets forth certain information with
respect to the Selling Securityholders for whom the Company is
registering the Common Stock for resale to the public, including:
(i) the principal amount of Debentures owned by each Selling
Securityholder, (ii) the maximum number of shares issuable upon
conversion of the Debentures, (iii) the number of shares issuable
upon exercise of warrants, (iv) the percentage of class owned
(assuming the maximum number of shares were issued upon
conversion); and (v) the maximum number of shares offered by each
Selling Securityholder (assuming the maximum number of shares were
issued upon conversion). The Company has no knowledge of the
intentions of any Selling Securityholder to actually sell any of
the shares listed under the columns "Maximum Shares Issuable Upon
Conversion" or "Shares Issuable Upon Exercise of Warrants."
There are no material relationships between any of the Selling
Securityholders and the Company other than as disclosed below.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BEFORE OFFERING (1)
----------------------------------------
Maximum Shares
Principal Shares Issuable
Amount Issuable Upon Maximum
of Upon Exercise Percent- Shares
Selling Debenture Conversion of age of Offered
Securityholder Owned (2) Warrants Class (3)
- -------------- --------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
117667 Ontario $110,000 275,000 11,000 * 286,000
Limited
ARBCO Capital, 300,000 750,000 30,000 1.8% 780,000
Inc.
Banco 150,000 375,000 15,000 * 390,000
Cooperativo
Costarricense
Bash, C. -- -- -- * 100,000
Malcolm (4)
Beck, H. 200,000 500,000 20,000 1.2% 520,000
Thomas
Bregman, 110,000 175,000 11,000 * 186,000
Michael
Christiania 150,000 375,000 15,000 * 390,000
Bank
Excalibur 600,000 1,500,000 60,000 3.6% 1,560,000
Limited
Partnership
Frisch, Ronald 110,000 275,000 11,000 * 286,000
J.W. Charles -- -- 150,000 * 150,000
Securities,
Inc.
Kucey, Charles 150,000 375,000 15,000 * 390,000
Lillian 110,000 275,000 11,000 * 286,000
Reichman Trust
Orez Ltd. 300,000 750,000 30,000 1.8% 780,000
Plazacorp 300,000 750,000 30,000 1.8% 780,000
Investments
RJ Cole 110,000 275,000 11,000 * 286,000
Financial
Consulting
Ltd.
Smith, Jay A. 200,000 500,000 20,000 1.2% 520,000
</TABLE>
- 11 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Sokolowski, 110,000 275,000 11,000 * 286,000
Howard
Weil, Ernst 200,000 500,000 20,000 1.2% 520,000
_________________________________________________
TOTAL $3,210,000 8,025,000 471,000 8,596,000
</TABLE>
* Ownership is less than one percent of class.
1) No information is given with respect to beneficial ownership
after the offering because the principal amount of Debentures
that will be converted into Common Stock, as well as the
number of shares issuable upon conversion, is indeterminate.
2) Assumes conversion of 100 percent of the principal amount of
the Debentures and issuance of the maximum number of shares
issuable upon conversion thereof, based on the lowest conversion
price possible. The conversion price is determined by dividing
the principal amount of the Debentures into the lesser of (i)
80% of the average closing bid price of the Common Stock during
the five trading days immediately preceding the date of
conversion, or (ii) the market bid price of the Common Stock on
the Closing Date. The maximum number of shares of Common Stock
that each $50,000 Debenture can convert into is 125,000 (for
maximum aggregate number of shares of 8,025,000). If conversion
of a $50,000 Debenture would result in the issuance by the
Company of shares in excess of 125,000, which would occur if the
conversion price was less than $0.40, then each Debenture to be
converted would convert into 125,000 shares, and the Company
would repay the remaining principal balance of each Debenture
according to a pre-set formula.
3) Assumes conversion of 100 percent of the principal amount of
the Debentures and issuance of the maximum number of shares
issuable upon conversion thereof, based on the lowest conversion
price possible.
4) C. Malcolm Bash currently owns 200,000 shares, 100,000 of
which are being offered for resale. Mr. Bash was formerly
associated with Time Sports, Inc., the assets of which were
acquired by Quadrax Sports, Inc., in November 1994. After the
acquisition, Mr. Bash performed services for Quadrax Sports
through April 1996. The referenced shares were issued to him in
settlement of a claim for breach of employment contract that he
subsequently filed against Quadrax and Quadrax Sports, a claim
that they denied. Mr. Bash is not affiliated in any way with
Quadrax or Quadrax Sports.
The information concerning the Selling Securityholders may
change from time to time and will be set forth in Supplements to
this Prospectus.
PLAN OF DISTRIBUTION
The purpose of this Prospectus is to permit the Selling
Securityholders, if they desire, to offer and sell up to
8,596,000 Shares (the "Selling Securityholder Shares") at such
times and at such places as the Selling Securityholders choose.
The decision to convert the Debentures into shares, to
exercise the warrants, or to sell any shares, is within the sole
discretion of the holders thereof. There can be no assurance
that any of the Debentures will be converted or any of the
warrants will be exercised, or any shares will be sold by the
Selling Securityholders.
The distribution of the Selling Securityholder Shares may be
effected from time to time in one or more transactions. Any of
the Selling Securityholder Shares may be offered for sale, from
time to time, by the Selling Securityholders, or by permitted
transferees or successors of the Selling Securityholders, on the
NASDAQ SmallCap Market, or otherwise, at prices and on terms then
obtainable, at fixed prices, at prices then prevailing at the
time of sale, at prices related to such prevailing prices, or in
negotiated transactions at negotiated prices or otherwise. The
Selling Securityholder Shares offered hereby may be sold by one
or more of the following: (i) through underwriters, or through
underwriting syndicates; (ii) through one or more dealers or
agents (which
- 12 -
<PAGE>
may include one or more underwriters), including, but not limited
to: (a) block trades in which the broker or dealer act as
principal to facilitate the transactions; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions; and (d) transactions in which the broker
solicits purchasers; (iii) directly to one or more purchasers;
or (iv) a combination of these methods. The names of any
underwriters or agents involved in the sale of the Selling
Securityholder Shares will be set forth in a Prospectus
Supplement. In connection with the distribution of the Selling
Securityholder Shares or otherwise, the Selling Securityholders
may enter into hedging transactions with broker-dealers or other
financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in
short sales of Common Stock in the course of hedging the
positions they assume with the Selling Securityholders. The
Selling Securityholders may also sell Common Stock short and
redeliver the shares to close out such short positions. The
Selling Securityholders may also enter into options or other
transactions with broker-dealers or other financial institutions
which require the delivery to such broker-dealers or other
financial institutions of the Selling Securityholder Shares,
which shares such broker-dealers or financial institutions may
resell pursuant to this Prospectus (as supplemented or amended to
reflect this transaction). The Selling Securityholders may also
pledge the Selling Securityholder Shares registered hereunder to
a broker-dealer or other financial institution and, upon a
default, such broker-dealer or other financial institution may
effect sales of the pledged shares pursuant to this Prospectus
(as supplemented or amended to reflect such transaction). In
addition, any Selling Securityholder Shares covered by this
Prospectus that qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than pursuant to
this Prospectus.
The Selling Securityholders or their underwriters, dealers
or agents may sell the Selling Securityholder Shares to or
through underwriters, dealers or agents, and such underwriters,
dealers or agents may receive compensation in the form of
discounts or concessions allowed or reallowed. Underwriters,
dealers, brokers or other agents engaged by the Selling
Securityholders may arrange for other such persons to
participate. Any fixed public offering price and any discounts
and concessions may be changed from time to time. Underwriters,
dealers and agents who participate in the distribution of the
Selling Securityholder Shares may be deemed to be underwriters
within the meaning of the Securities Act, and any discounts or
commissions received by them or any profit on the resale of
shares by them may be deemed to be underwriting discounts and
commissions thereunder. The proposed amounts of Selling
Securityholder Shares, if any, to be purchased by underwriters
and the compensation, if any, of underwriters, dealers or agents
will be set forth in a Prospectus Supplement.
Unless granted an exemption by the Commission from Rule 10b-
6 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or unless otherwise permitted under Rule 10b-6A,
the Selling Securityholders will not engage in any stabilization
activity in connection with the Company's securities, will
furnish each broker or dealer engaged by the Selling
Securityholders and each other participating broker or dealer the
number of copies of this Prospectus required by such broker or
dealer, and will not bid for or purchase any securities of the
Company or attempt to induce any person to purchase any of the
Company's securities other than as permitted under the Exchange
Act.
The Company will not receive any proceeds from any sales of
the Selling Securityholder Shares, but will receive the proceeds
from the exercise of the warrants held by the Selling
Securityholders, which proceeds, if any, will be used for general
corporate purposes.
In connection with the registration by the Company, the
Company shall use its best efforts to prepare and file with the
Commission such amendments and supplements to the registration
statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect to
the disposition of the Shares covered by the registration
statement for the period required to effect the distribution of
such Shares.
The Company is paying certain expenses (other than
commissions and discounts of underwriters, dealers or agents)
incident to the offering and sale of the Shares to the public,
which are estimated to be approximately $18,500. If the Company
is required to update this Prospectus during such period, it may
incur additional expenses in excess of the amount estimated
above.
In order to comply with certain states' securities laws, if
applicable, the Shares will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In certain
states the Shares may not be sold
- 13 -
<PAGE>
unless they have been registered or qualify for sale in such
state or an exemption from registration or qualification is
available and is complied with.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 90,000,000 shares of
Common Stock, $0.000009 par value per share. As of March 27,
1997, there were 34,387,014 shares of Common Stock issued and
outstanding and held of record by approximately 1,600 holders.
The holders of the Common Stock have one vote for each share
held of record on all matters to be voted on by stockholders,
including the election of directors. Stockholders are not
entitled to cumulate their votes in the election of directors.
Holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds
legally available therefor and upon liquidation of the Company,
to share ratably in the net assets available for distribution
after the payment of creditors and any liquidation preferences to
the holders of preferred stock. Shares of Common Stock are not
redeemable and have no preemptive, conversion or similar rights.
All outstanding shares of Common Stock are, and the Shares
offered hereby upon issuance and receipt of payment in full by
the Company will be, fully paid and non-assessable.
The Company is authorized to issue 10,000,000 shares of
Class A Preferred Stock, par value $.01 per share. There are
currently no shares of Class A Preferred Stock issued and
outstanding.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's certificate of incorporation and bylaws
provide broadly for the indemnification of the directors and
officers of the Company for certain liabilities and costs
incurred by them in connection with the performance of their
duties. This indemnification may include indemnification for
liabilities arising under the Securities Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities
and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed
upon for the Company by Epstein Becker & Green, P.C., 250 Park
Avenue, New York, New York 10177.
EXPERTS
The consolidated financial statements of the Company
appearing in the Company's Annual Report on Form 10-KSB for the
years ended December 31, 1995 and December 31, 1996, have been
audited by Livingston & Haynes, P.C., independent auditors, as
set forth in its report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting
and auditing.
No dealer, salesman or other person has been authorized to
give any information or to make any representation in connection
with this offering other than those contained in this Prospectus,
and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of these securities in any
- 14 -
<PAGE>
state to any person to whom it is unlawful to make such offer or
solicitation in such state. The delivery of this Prospectus at
any time does not imply that information herein is correct as of
any time subsequent its date.
- 15 -
<PAGE>
8,596,000
Common Stock
QUADRAX CORPORATION
April 9, 1997
- 16 -
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Registration Fee $ 1,500
Printing Expenses $ --
Blue Sky Fees and Expenses $ 1,500
Legal Fees and Expenses $ 15,00
0
Accounting Fees and Expenses $ 500
Transfer Agent Fees $ --
Miscellaneous --
________
Total $ 18,500
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of Delaware (the
"GCL") authorizes and empowers the Company to indemnify the
directors, officers, employees and agents of the Company against
liabilities incurred in connection with, and related expenses
resulting from, any claim or suit brought against any such person
as a result of his relationship with the Company, provided that
such persons acted in accordance with a stated standard of
conduct in connection with the acts or events on which such
claim, action or suit is based. The finding of either civil or
criminal liability on the part of such persons in connection with
such acts or events is not necessarily determinative of the
questions of whether such persons have met the required standard
of conduct and are accordingly, entitled to be indemnified.
In addition, Section 10 of the Company's by-laws requires
the Company to indemnify its officers and directors to the
fullest extent permitted by the GCL, and permits the Company to
indemnify other persons as it chooses, to the same extent. Such
indemnity shall not extend to such persons, however, (i) for any
breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) for actions contravening Section 174 of the GCL
(relating to unlawful dividend stock purchases or stock
redemptions), or (iv) for any transaction from which the director
derived an improper personal benefit.
Item 16. Exhibits
The following documents are filed as exhibits to this
Registration Statement:
4.1 Specimen Common Share Certificate*
4.2 Form of Convertible Debenture Due February 10, 1999
5.1 Opinion of Epstein Becker & Green, P.C.
23.1 Consent of Livingston & Haynes, P.C.
24.2 Consent of Epstein Becker & Green, P.C. (see Exhibit 5.1)
Item 17. Undertakings.
The undersigned registrant hereby undertakes that it will:
_____________________
* Filed as an Exhibit to the Company's Registration Statement
on Form S-1, File No. 33-14275 and incorporated herein by reference.
- 17 -
<PAGE>
(1) File, during any period in which it offers to
sells securities, a post-effective amendment to this registration
statement to include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities
Act, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona-fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering.
- 18 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing this to
Form S-3 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Portsmouth, Rhode Island.
QUADRAX CORPORATION
By: /s/ James J. Palermo
James J. Palermo
Chairman of the Board of Directors,
and Chief Executive Officer
Date: April 9, 1997
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ James J. Palermo Chairman of the April 9, 1997
James J. Palermo Board of Directors,
and Chief
Executive Officer
(Principal Executive
Officer)
/s/ Edward A. Stoltenberg Senior Vice President April 9, 1997
Edward A. Stoltenberg and Chief Financial
Officer (Principal
Accounting and Financial
Officer)
/s/ William G. Conway Director April 9, 1997
William G. Conway
/s/ John W. Jepson Director April 9, 1997
John W. Jepson
/s/ Sven Kraumanis Director April 9, 1997
Sven Kraumanis
/s/ Alan Milton Director April 9, 1997
Alan Milton
/s/ Eugene L. Scott Director April 9, 1997
Eugene L. Scott
- 19 -
Exhibit 4.2
No. 70 $50,000 USD
QUADRAX CORPORATION
$3,600,000 8% Convertible Debenture
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE " ACT") AND ARE
BEING OFFERED AND SOLD ONLY TO ACCREDITED INVESTORS IN
RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS
OF THE ACT. SUCH SECURITIES MAY NOT BE REOFFERED FOR SALE
OR RESOLD OR OTHERWISE TRANSERRED UNLESS THEY ARE REGISTERED
UNDER THE APPLICABLE PROVISION OF THE ACT OR ARE EXEMPT FROM
SUCH REGISTRATION.
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 Eight (8%) Percent
Convertible Debenture due February 10, 1999, in an aggregate
face amount not exceeding Three Million Six Hundred Thousand
(USD$3,600,000) Dollars, issuable in Fifty Thousand
($50,000) Dollars principal amounts.
For Value Received, the Issuer promises to pay to
BANCO COOPERATIVO COSTARRICENSE
the registered holder hereof and its successors and assigns
(the "Holder"), the principal sum of:
Fifty Thousand United States Dollars,
on February 10, 1999 (the "Maturity Date"), and to pay
interest, as outlined below, at the rate of 8% per annum, on
the principal sum outstanding from time to time for the term
of the Debenture or until the Debenture is completely
converted. 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 Subscription
Agreement dated as of January 31, 1997 between the Issuer
and Holder (the "Subscription Agreement"). Holder shall be
entitled to receive interest, which shall accrue and be
payable quarterly, in cash or the Issuer's common stock,
$.000009 par value per share ("Common Stock"), at the option
of the Board of Directors of the Issuer. The interest shall be
<PAGE>
accrue on last day of each fiscal quarter of the Issuer
(March 31, June 30, September 30 and December 31). If the
Issuer exercises its option to pay a quarterly dividend in
shares of Common Stock, the number of shares which Holder
will receive shall be computed by dividing the interest due
in such quarter by the closing bid price of a share of the
Common Stock on the last day of the quarter in which the
interest accrued. The Holder shall waive its right to
receive such interest in the event this Debenture is
converted to Common Stock during the six calendar months
following the date of this Debenture. Accordingly, interest
shall be held by the Issuer until six months following the
date of this Debenture.
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 the Debenture to the extent of the sum
represented by such check plus any amounts so deducted.
The Debenture is subject to the following additional
provisions:
1. The Debenture is exchangeable for like
Debentures in equal aggregate principal amount of 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 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 Register 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 Subscription Agreement.
4. Terms of Conversion.
2
<PAGE>
(A) Conversion Date. The Holder is entitled, at its
option, to convert the Debentures into shares of the Common
Stock on the dates and in the amounts as follows:
commencing on the 60th calendar day following the Original
Issuance Date and continuing up to and including the 89th
calendar day following the Original Issuance Date, the
subscriber may convert up to one-third (1/3) of the
Debentures held by the Holder on such date; commencing on
the 90th calendar day following the Original Issuance Date
and continuing up to and including the 119th calendar day
following the Original Issuance Date, the Holder may convert
up to an additional one-third (1/3) of the Debentures held
by the Holder on such date (cumulatively with all shares
previously converted); and commencing on the 120th calendar
day following the Original Issuance Date and continuing
thereafter, the Holder may convert up to 100% of the
Debentures held by the Holder on such date.
(B) Conversion Price. The Holder has the right to
convert any Debentures he owns (except that upon any
liquidation of the Issuer, the right of conversion shall
terminate at the close of business on the business day fixed
for payment of the amount distributable on the Debentures)
into a number of shares of Common Stock equal to the
Debenture Face Value multiplied by the number of Debentures
to be converted divided by the "Conversion Price", which is
defined as the lesser of
1. Floating Conversion Price. 80% of the
average closing bid price of the Common Stock
(the "Average Closing Price"), as reported by
the Nasdaq SmallCap Market or NASDAQ
Electronic Bulletin Board during the period
of five trading days immediately preceding
the date of conversion (the "Conversion
Date"), or
2. Fixed Conversion Price. The market bid price
of the Common Stock on the Original Issuance
Date.
To illustrate, if the average closing bid price on the
Conversion Date is $2.00 and one-half (1/2) of the
Debentures are being converted, or 36 individual Debentures,
the total face value for which would be $1,800,000, then the
Conversion Price would be $1.60 per share of Common Stock
($2.00 x .80), assuming the market bid price on the Original
Issuance Date was greater than $1.60, whereupon the face
value of $1,800,000 of the Debentures would entitle the
Holder thereof to convert such Debentures into 1,125,000
shares of Common Stock ($1,800,000 divided by $1.60 equals
1,125,000).
(C) Maximum Conversion. The maximum number of
shares of Common Stock that each Debenture can convert into
is 125,000. Therefore, in the event the Holder delivers its
Notice of Conversion to the Issuer, and such conversion
would result in the issuance by the Issuer of a number of
shares of Common Stock which would exceed 125,000 per
Debenture (which would occur when the Conversion Price is
less than $.40), then each Debenture to be converted will
3
<PAGE>
convert into 125,000 shares of Common Stock. The Issuer
will then redeem the portion of each Debenture which is not
convertible. The redeemable portion of each Debenture will
be a percentage computed as follows:
1. Divide the total Face Value (Debenture Face Value
multiplied by number of Debentures to be
converted) by the Conversion Price, which will
yield the "Product".
2. Multiply 125,000 by the number of Debentures to be
converted, which will yield the "Maximum Factor".
3. Divide Maximum Factor by the Product, which will
yield the "Percentage Satisfied".
4. 1 minus the Percentage Satisifed will yield the
"Redeemable Percentage".
The Holder shall receive the Redeemable Percentage
multiplied by the total face value of the Debentures to be
converted, plus all accrued but unpaid interest, within 60
days.
In addition, Holder shall be paid interest at a rate
yielding seven (7) percent per annum on the amount of cash
due, which shall accrue from the date of Holder's Notice of
Conversion.
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.
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, 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 amount 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.
If one or more of the following described "Events
of Default" shall occur,
4
<PAGE>
a. The Issuer shall default in the payment of
principal or interest on this Debenture and
continuance for thirty (30) days; or
b. Any of 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 fall to perform or observe any
other material 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 or 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
g. The Issuer's Common Stock is delisted from trading
on NASDAQ Small Cap Market unless it is thereupon
admitted to trading on the NASDAQ National Market
or a national stock exchange.
Then, or at any time thereafter, and in each and every
such case, unless such Event of Default shall have been
waived in writing by the Holder (which waiver shall not
be deemed
5
<PAGE>
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 or other instruments to
the contrary notwithstanding, and 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.
8. In case any provision of this Debenture is
held in arbitration, as set forth in the Subscription
Agreement, to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than
voided, if possible, so that it is enforceable to the
maximum extent possible, and the validity and enforceability
of the remaining provisions of this Debenture will not in
any way be affected or impaired thereby.
9. This Debenture and the agreements referred to
in this Debenture constitute the full and entire
understanding and agreement between the Issuer and 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.
10. This Debenture shall be governed by and
construed in accordance with the laws of the State of Rhode
Island.
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<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this
instrument to be duly executed by an officer thereunto duly
authorized.
QUADRAX CORPORATION
By:
Name: James Palermo
Title: President
Date: February 10, 1997
("Original Issuance Date")
7
Exhibit 5.1
April 8, 1997
Quadrax Corporation
300 High Point Avenue
Portsmouth, Rhode Island 02871
Re: Registration Statement on Form S-3
Quadrax Corporation
Ladies and Gentlemen:
We refer to the registration for resale by stockholders of
up to 8,596,000 shares (the "Shares") of Common Stock (the
"Common Stock") of Quadrax Corporation, a Delaware corporation
(the "Company"), pursuant to the Registration Statement on Form S-
3 to be filed with the Securities and Exchange Commission on or
about April 9, 1997 (the "Registration Statement") as
subsequently amended from time to time. Of the Shares,
8,025,000, subject to adjustment as discussed below, are issuable
upon the conversion of outstanding $3,210,000 principal amount of
8% Convertible Debentures due February 10, 1999 ("8% Convertible
Debentures"), 471,000 Shares are issuable upon the exercise of
warrants at $.9375 per share, as described in the Registration
Statement and 100,000 Shares are presently issued and
outstanding.
The actual number of shares which will be issuable upon the
conversion of 8% Convertible Debentures will vary from time to
time, since the conversion formula is based on the market price
for the Company's Common Stock on the date of such conversion.
The "floor" conversion price of $0.40 per share of the Company's
Common Stock provided for by the 8% Convertible Debentures was
used to compute the number of shares set forth in this opinion.
We have examined copies of said Registration Statement on
Form S-3 under the Securities Act of 1933, as amended. We have
conferred with officers of the Company and have examined the
originals, or photostatic, certified or conformed copies, of such
records of the Company, certificates of officers of the Company,
certificates of public officials, and such other documents as we
have deemed relevant and necessary, as a basis for the opinions
set forth herein. In connection with such examinations, we have
assumed the authenticity of all documents submitted to us as
originals or duplicate originals, the conformity to original
documents of all document copies, the authenticity of the
respective originals of such latter documents, and the
correctness and completeness of such certificates. Finally, we
have obtained from officers of the Company such assurances as we
have considered necessary for the purposes of this opinion.
<PAGE>
On the basis of the foregoing, and such other matters of
fact and questions of law as we have deemed relevant in the
circumstances, and in reliance thereon, it is our opinion that
the 100,000 Shares presently issued and outstanding are, and the
8,025,000 Shares issuable upon conversion of the 8% Convertible
Debentures and the 471,000 Shares issuable upon the exercise of
and payment for the warrants in accordance with their respective
terms, when issued, will be duly authorized, fully paid and non-
assessable.
We did not prepare or participate in the preparation of the
Registration Statement, which was prepared by the Company with
the assistance of other counsel. Accordingly, our opinion is
strictly limited to the validity of the Shares.
The undersigned hereby consent to the use of their name in
the Registration Statement and in the Prospectus forming a part
of the Registration Statement, and to references to this opinion
contained therein under the caption of the Prospectus entitled
"Legal Matters."
This opinion is limited to the matters herein, and may not
be relied upon by any other person or for any other purpose other
than in connection with the corporate authority for the issuance
of Common Stock.
Very truly yours,
EPSTEIN BECKER & GREEN, P.C.
By:/s/Joseph A. Smith
Joseph A. Smith
Exhibit 23.1
[LETTERHEAD OF LIVINGSTON & HAYNES, P.C.]
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in this Registration
Statement on Form S-3 (relating to 8,596,000 shares of Quadrax
Corporation common stock, par value $.000009) of our report,
dated March 14, 1997, which expresses an unqualified opinion and
includes an explanatory paragraph relating to the ability of
Quadrax Corporation to continue as a going concern, accompanying
the Annual Report on Form 10-KSB of Quadrax Corporation for the
year ended December 31, 1996 and to the reference to us in the
Prospectus, which is part of this Registration Statement, under
the caption entitled "Experts".
/s/ Livingston & Haynes, P.C.
Wellesley, Massachusetts
April 8, 1997
