<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1997
File No. 333-
=====================================
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:
JOSEPH A. SMITH, ESQ.
EPSTEIN BECKER & GREEN, P.C.
250 PARK AVENUE, 12TH FLOOR
NEW YORK, NY 10177
(212) 351-4924 (VOICE)
(212) 351-4928 (FAX)
---------------------
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. [ ]
=======================================
(Cover continued on next page)
=======================================
<PAGE>
(Cover continued from previous page)
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Title of each class of maximum maximum
securities to be Amount to be offering price aggregate Amount of
registered registered(2) per share (1) offering price(1) registration fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 8,734,346 $0.50 $4,367,173 $1,323.39
$.000009 par value
- ---------------------------------------------------------------------------------------------------------
Common Stock, 10,000 $0.75 $ 7,500 $ 2.27
$.000009 par value
- ---------------------------------------------------------------------------------------------------------
Common Stock, 1,000,000 $0.50 $ 500,000 $ 151.52
$.000009 par value
- ---------------------------------------------------------------------------------------------------------
TOTAL 9,744,346 $4,874,673 $1,477.18
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based upon a price of $.50 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 September 2, 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.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
2
<PAGE>
PRELIMINARY PROSPECTUS FOR SEC STAFF REVIEW ONLY
9,744,346 SHARES
QUADRAX CORPORATION
COMMON STOCK
This Prospectus relates to 9,744,346 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 9,744,346 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 8,634,346 shares are being offered by one of the Selling
Securityholders who has agreed, pursuant to a contractual obligation, to
purchase $3,500,000 aggregate principal amount of the Company's Convertible
Debentures due 1999 (the "Debentures"). Such Selling Securityholder has
purchased and the Company has issued $1,500,000 principal amount of such
Debentures (the "Initial Debentures") through August 27, 1997. The number of
shares issuable upon conversion of the Initial Debentures is determined by
dividing the principal amount of the Initial Debenture being converted by 80% of
the average closing bid price for the Company's Common Stock for the ten (10)
trading days immediately preceding the date of conversion of the Debenture (the
"Market Price"), subject to the overall limitation noted below. The Selling
Securityholder may, at its option, convert the Initial Debentures into shares of
Common Stock beginning on the earlier of October 3, 1997 and the date of this
Prospectus. The Initial Debentures are due on August 4, 1999.
The Selling Securityholder is obligated to purchase the remaining
Debentures (the "Additional Debentures") in a series of tranches (as directed by
the Company by ten (10) days prior written notice) commencing thirty (30) days
after the date of this prospectus. The Additional Debentures will bear interest
at a rate of 4% rather than 8%, and shall each be due two years from their
respective dates of issuance. The Additional Debentures issued in each tranche
will be not less than $50,000 nor in excess of $200,000 principal amount, and
must be purchased by the Selling Securityholder subject only to certain external
market conditions. Management of the Company believes all of the Additional
Debentures will be purchased by the Selling Securityholder within twelve (12)
months from the date of the initial closing. The Company is obligated to
require the Selling Securityholder to purchase at least an additional $1,250,000
principal amount of Additional Debentures by August 4, 1998, or else the Company
must issue the Selling Securityholder a warrant to purchase 300,000 shares of
the Company's Common Stock on terms identical to the 700,000 share warrant
described below which was issued at the initial closing. The number of shares
issuable upon conversion of the Additional Debentures will be determined by
dividing the principal amount of the Additional Debentures being converted by
the lesser of (i) 84% of the Market Price on the date(s) of issuance of such
Additional Debentures, or (ii) 100% of the Market Price on the date of issuance
of the first Initial Debenture, or $0.472 per share. The Additional Debentures
will be convertible immediately upon issuance.
In no event may the Initial Debentures and the Additional Debentures, taken
together, convert into a number of shares of Common Stock which exceeds 20% of
the number of shares of Common Stock outstanding on the date of the first
closing (43,171,731 shares). The Selling Securityholder was granted demand
registration rights for the shares of Common Stock issuable upon conversion of
the
<PAGE>
Debentures and the exercise of warrants described below.
This Prospectus also covers the offering by the Selling Securityholder who
purchased the Initial Debentures of up to 1,000,000 shares of Common Stock that
are issuable upon the exercise of warrants, 700,000 of which the holder of the
Debentures received together with the first Initial Debenture, and 300,000 of
which may be issuable to the Selling Securityholder under circumstances
described above. The exercise price of both of the warrants is $0.50 per share.
The warrants expire on the third anniversary date of their issuance.
The Company is also registering for resale 100,000 shares of Common Stock
issued to a financial consultant of the Company and 10,000 shares issuable upon
the exercise of Warrants issued in a private transaction, exercisable at a price
of $0.75 per share.
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
$507,500 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 has been registered prior to the filing of the Registration Statement
of which this Prospectus is a part.
On September 2, 1997, the closing price for the Common Stock as quoted on
the NASDAQ SmallCap Market, under the symbol "QDRX," was $0.50 per share.
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 September ___, 1997.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION.................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 4
THE COMPANY.............................................................. 5
RISK FACTORS............................................................. 7
USE OF PROCEEDS.......................................................... 14
SELLING SECURITYHOLDERS.................................................. 14
PLAN OF DISTRIBUTION..................................................... 15
DESCRIPTION OF SECURITIES................................................ 17
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES........................... 18
LEGAL MATTERS............................................................ 18
EXPERTS.................................................................. 18
</TABLE>
3
<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 with the Commission 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. 333- ) 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. 0-16052) 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.
(2) The Company's Quarterly Reports on Form 10-QSB for the quarters ended
March 31, 1997 and June 30, 1997.
(3) The Company's Current Reports on Form 8-K dated May 7, 1997, as
amended, and May 31, 1997.
(4) 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.
(5) The Company's Proxy Statement in connection with the Annual Meeting of
Stockholders held May 19, 1997.
(6) 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
4
<PAGE>
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, telephone (401) 683-6600.
THE COMPANY
The Company, which prior to fiscal year 1995 was a development stage
company, produces two distinct lines of products. The Company designs,
develops, fabricates and sells fiber-reinforced thermoplastic polymer composite
materials ("Quadrax Composites") and products manufactured from Quadrax
Composites. The Company also, through its Victor Electric Wire & Cable Corp.
("Victor") subsidiary, manufacturers and sells electric power cordsets and
interconnect cables, primarily for original equipment manufacturers of small
appliances.
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 molding techniques),
virtually unlimited shelf life without special storage or handling requirement,
ease and safety of manufacture using modified conventional heat and compression
molding techniques and recyclability. In addition, the Company believes that
Quadrax Composites are tougher and less brittle than traditional thermoset
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 acquired the Victor subsidiary in May 1997. Victor is a
vertically-integrated manufacturer of electric power cordsets and interconnect
cables, primarily for original equipment manufacturers of small appliances.
Victor manufactures its cordsets by drawing raw copper rods into fine wire, and
then stranding such fine wire into heavier cables of varying thicknesses
depending on customer specifications. The stranded cables are insulated with a
PVC plastic and rubber compound, and then molded to plugs to create the finished
product. Every component except blades (prongs) and insulating compound,
consisting of PVC plastic and rubber, is manufactured by Victor at its plant.
5
<PAGE>
Victor produces a wide variety of cordsets which are all produced in
response to a specific customer order. Victor sells its cordsets to
approximately 150 customers. Approximately 60% of Victor's sales are to
nationally recognized manufacturers of small consumer appliances.
The Company is organized in a holding company structure, operating through
two wholly owned subsidiaries: Quadrax Advanced Materials Systems, Inc. and
Victor. 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.
6
<PAGE>
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 loss from continuing operations of approximately
$9,560,000, $10,108,000, $11,517,000, and $5,713,000 respectively.
Other than through its Victor subsidiary, which was acquired in May, 1997,
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, other than revenues of its Victor subsidiary, 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 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, prior to the
acquisition of the Victor subsidiary, 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.
7
<PAGE>
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 equity 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 production of finished goods, it will
continue to be dependent on outside financing sources. The Company is precluded
from receiving any dividends or distributions of cash from its Victor subsidiary
under the terms of Victor's senior secured credit facility. Accordingly, any
future profits from Victor will not be a source of operating capital for
Quadrax's Quadrax Composites business.
From its incorporation in March 1986 to date, the Company has raised a
total of approximately $54.8 million in equity capital. So far, in fiscal 1997,
the Company has raised $4.2 million from the private placement of convertible
debentures and will raise up to an additional $2.5 million from the sale of the
Additional Debentures during the next six (6) months if needed for operations.
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 $4.2 million raised in February 1997 and August 1997 from the sale of its
convertible debentures, together with the $2.5 million which will be raised by
the sale of the Additional Debentures and cash provided by revenues, will be
sufficient to meet the Company's cash requirements for the next six (6) months.
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.
8
<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 tennis rackets, shoe lasts, golf shafts, lacrosse sticks, hockey
sticks and bicycle seat posts, wheels and 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.
RAW MATERIALS AVAILABILITY AND COMMODITY PRICING
The copper, plastic and rubber used to create the insulating compound used
by the Victor subsidiary as raw materials and the fibers and plastic resins used
in the production of Quadrax Composites are subject to substantial price
fluctuations. These industries are cyclical in nature and prices for such raw
materials are influenced by a number of factors beyond the control of the
Company, including general economic conditions and competition. While
management expects that there will continue to be an abundance of copper and
insulating compound for use in the production of Victor's electric power
cordsets, there can be no assurance that adequate quantities will always be
available or that prices Victor may be required to pay for raw materials will
allow the Victor subsidiary to operate at a profit. Carbon fiber, a key raw
material for Quadrax Composites, is in short supply, although the Company
expects additional production capacity to come on line in 1998.
9
<PAGE>
NO LONG-TERM AGREEMENTS WITH SUPPLIERS OR CUSTOMERS AND DEPENDENCE ON
SIGNIFICANT SUPPLIERS AND CUSTOMERS
The Company is dependent on third party relationships with several
suppliers of the raw materials necessary to its business. While the Victor
subsidiary has long-term supply arrangements for a portion of its copper
requirements, Victor does not presently have any long-term supply agreements
with its suppliers of plastic and does not anticipate the execution of any long-
term agreements with these suppliers in the future. Management believes that it
has alternative sources of supply available to it in the event that its
requirements change or its current suppliers are unable or unwilling to fulfill
its needs. Nevertheless, there can be no assurance that alternative suppliers
will be available upon terms comparable to its existing arrangements.
Victor also does not presently have any long-term agreements with its
customers and does not anticipate the execution of any long-term agreements in
the future. During the year ended December 31, 1996, Victor's two largest
customers each accounted for more than 10% of total sales, with sales to both
customers totalling 35% of total sales. The Victor subsidiary's existing
operations and plans for the future growth anticipate the continued existence of
relationships with its current customers.
SEASONALITY; FLUCTUATIONS IN QUARTERLY RESULTS
The Victor subsidiary's business is seasonal as its customers place the
majority of their orders with Victor in May through September so that the
customers receive the electric power cordsets in time to utilize them in the
manufacture of goods to be sold by such customers during the year-end holiday
buying season. Accordingly, net revenues for Victor are typically strongest in
the second and third quarters. As Victor's profitability significantly depends
on sales made in the second and third quarters, Victor's operations could be
materially adversely affected by an economic downturn in any second or third
quarter. Net revenues in other quarters are generally lower and vary
significantly as a result of customers' requirements for new types of electric
power cordsets and other factors. There can be no assurance that the Victor
subsidiary will achieve consistent profitability on a quarterly or an annual
basis.
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.
10
<PAGE>
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
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.
The industry in which the Victor subsidiary competes is also highly
competitive. Victor is ISO 9002 certified, and competes with other companies
that are also ISO 9002 certified, many of which are larger and better financed
than Victor, and have significantly greater manufacturing and marketing
resources than does Victor. Victor's domestic competitors include Belden,
Leviton and Komar. There are also numerous overseas competitors. While
management believes that Victor's long-established reputation for quality and
reliable delivery are attractive features to potential customers, there can be
no assurance that Victor can capture an adequate customer base to sustain
profitability, or that other companies will not provide superior products in
both price and quality.
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 to the Company 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
11
<PAGE>
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 an employment contract with John A. McQuade, the Company's Vice
President of Administration which expires 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.
NEW CHIEF FINANCIAL OFFICER
The Company appointed a new Chief Financial Officer, Brooks R. Herrick, in
August 1997. Mr. Herrick is a Certified Public Accountant with a Master of
Business Administration from Boston College and a Master of Science in Taxation
from Bentley College. From 1993 - 1996, Mr. Herrick was the Vice President of
Finance/Corporate Controller of Amtrol, Inc., West Warwick, Rhode Island, a
manufacturer of water systems that was listed on The Nasdaq National Market
before its acquisition by another company. From 1989 - 1993, Mr. Herrick was a
Key Financial Executive at Damon Corp., a clinical laboratory company listed on
the New York Stock Exchange. Prior to 1989, Mr. Herrick worked as Vice
President, Administration and Treasurer of Carlson Metalcraft Company, Inc.,
which he co-owned, and practiced public accounting in a firm bearing his name,
after early experience with Touche Ross & Company (now Deloitte & Touche,
L.L.P.)
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
Debentures which were issued in August 1997 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 August 22, 1997, approximately 3,750,000 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 43,200,000 shares are outstanding
as of the date of this Prospectus. 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.
12
<PAGE>
ENVIRONMENTAL REGULATION
Federal, state and local environmental laws apply to the activities of the
Company and to the products it produces. Violations of statutes, regulations or
environmental permit requirements, even if unintentional, can result in
significant fines, costs, revocation of required licenses or permits or
requirements for remedial work. The Company's present and planned activities
are, or may become, subject to regulation under various federal, state and local
environmental laws and regulations, including laws and regulations that may be
adopted in the future. Such regulations may materially adversely affect the
Company's existing or planned operations. Any failure of the Company to comply
with the requirements of these environmental laws and regulations, even if
unintentional, could give rise to liabilities, penalties or fines which could
have a material adverse effect on the business or financial condition of the
Company.
PRODUCT LIABILITY AND OTHER CLAIMS
Sales of Quadrax Composites and parts manufactured therefrom, and sales of
electric power cordsets manufactured by the Victor subsidiary may expose the
Company to liability for substantial damages in the event of accident or injury
shown to have been caused by defective materials. The Victor subsidiary is
subject to product liability litigation on a recurring basis from persons
suffering shocks from electrical appliances. Management believes that its
limited product liability insurance is currently adequate for sales of Quadrax
Composites and parts manufactured therefrom, and the broader product liability
insurance maintained by the Victor subsidiary is currently adequate for sales of
Victor's electric power cordsets, 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
for sales of Quadrax Composites and parts manufactured therefrom as shipments to
commercial markets increase. There can be no assurance that any of the
aforementioned coverage can be maintained over time or increased if necessary,
or if maintained or increased, will be effective to insulate the Company's
assets from such claims or, if such coverage is available, that it will be
available on terms that are economically acceptable to the Company.
UNIONIZED EMPLOYEES
At June 30, 1997, the Victor subsidiary employed 225 full time employees
who are represented by the International Brotherhood of Electrical Workers.
Victor and the union executed a new three-year collective bargaining agreement
in late April 1997. There can be no assurance that Victor will be able to renew
such collective bargaining agreement after its expiration, or that such renewal
will be on terms as favorable as those currently in existence. In addition,
Victor's operations could be materially adversely affected in the event a strike
is called by the union for an extended period of time.
VOLATILITY OF STOCK PRICE; DEPRESSIVE EFFECT 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
13
<PAGE>
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
$507,500. Such proceeds, if any, will be used for general corporate purposes.
SELLING SECURITYHOLDERS
9,744,346 shares are being offered for resale by certain shareholders of
the Company. Up to 8,634,346 of those shares are issuable upon conversion by
the holder of $3,500,000 aggregate principal amount of Debentures. Up to
1,000,000 shares are issuable upon exercise of warrants that are held by or are
issuable to the holder of the Debentures. 100,000 shares are being offered for
the account of a Selling Securityholder which is a financial consultant of the
Company, and 10,000 shares of Common Stock issuable upon the exercise of
warrants issued to a finder exercisable at $0.75 per share. 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 of Debentures or exercise of Warrants); 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 Owned." There are no material relationships
between any of the Selling Securityholders and the Company other than as
disclosed below.
14
<PAGE>
SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF MAXIMUM SHARES OTHER MAXIMUM
DEBENTURE ISSUABLES UPON SHARES PERCENTAGE SHARES
SELLING SECURITYHOLDER Owned Conversion(2) Owned of Class Offered(3)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sovereign Partners, $3,500,000 8,634,346 1,000,000(4) 4.99%(5) 9,634,346
L.P.
Jesup & Lamont -- -- 100,000 * 100,000
Securities
Corporation
Jeffrey Taylor -- -- 10,000(4) * 10,000
-----------------------------------------------------------------------------------
TOTAL $3,500,000 8,634,346 1,110,000 9,744,346
</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 presumed conversion price at August
22, 1997. The actual number of shares is determined by dividing the
principal amount of the Debentures into 80% of the average closing bid
price of the Common Stock during the ten (10) trading days immediately
preceding the date of conversion as to the Initial Debenture and the
lesser of 84% of such ten-day average closing bid price or $0.472 as
to the Additional Debentures, subject to a maximum issuance of
8,634,346 shares of Common Stock.
(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 presumed conversion price at August
22, 1997.
(4) Issuable upon exercise of warrants to purchase Common Stock.
(5) Sovereign Partners, L.P. has undertaken not to acquire beneficial
ownership of 5% or more of the Company's Common Stock.
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 9,744,346 Shares (the "Selling
Securityholder Shares") at such times and at such places as the Selling
Securityholders choose.
15
<PAGE>
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 may include one or more underwriters), including, but not limited to: (a)
block trades in which the broker or dealer acts 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 Regulation M under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or unless
otherwise permitted under Regulation M, the Selling Securityholders will not
engage in any stabilization activity in connection
16
<PAGE>
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, if any,
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 of the Selling
Securityholder Shares, 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 $20,000.
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 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,
$.000009 par value per share. As of August 1, 1997, there were 43,171,731
shares of Common Stock issued and outstanding and held of record by
approximately 1,100 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.
17
<PAGE>
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.
The financial statements of Victor appearing in the Company's Current
Report on Form 8-K dated May 7, 1997 as amended, for the years ended June 30,
1995 and June 30, 1996, have been audited by Joseph Decosimo and Company,
independent auditors, as set forth in its report thereon included therein and
incorporated herein by reference. Such 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.
18
<PAGE>
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 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.
9,744,346 SHARES OF
COMMON STOCK
QUADRAX CORPORATION
September ___, 1997
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
Item 14. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
Registration Fee $ 1,477
Printing Expenses $ 1,000
Blue Sky Fees and Expenses $ 1,500
Legal Fees and Expenses $12,000
Accounting Fees and Expenses $ 2,000
Transfer Agent Fees $ --
Miscellaneous 1,000
-------
TOTAL $18,977
</TABLE>
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:
2.1 Securities Purchase Agreement dated August 4, 1997 between the Company and
Sovereign Partners, L.P., as amended August 22, 1997
20
<PAGE>
4.1 Specimen Common Share Certificate/1/
4.2 Form of Convertible Debenture Due August 4, 1999
4.3 Form of Additional Debenture
4.4 Form of Warrant issued August 4, 1997
5.1 Opinion of Epstein Becker & Green, P.C.
23.1 Consent of Livingston & Haynes, P.C.
23.2 Consent of Joseph Decosimo and Company
23.3 Consent of Epstein Becker & Green, P.C. (see Exhibit 5. 1)
24 Power of Attorney
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that it will:
(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.
- ---------------
/1/ Filed as an Exhibit to the Company's Registration Statement on Form
S-1, File No. 33-14275 and incorporated herein by reference.
21
<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: September 2, 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.
<TABLE>
<S> <C> <C>
/s/ James J. Palermo Chairman of the Board of September 2, 1997
- ---------------------------------- Directors, and Chief
James J. Palermo Executive Officer (Principal
Executive Officer)
/s/ Brooks R. Herrick Executive Vice President September 2, 1997
- ---------------------------------- and Chief Financial Officer
Brooks R. Herrick (Principal Accounting and
Financial Officer)
/s/ William G. Conway Director August 29, 1997
- ----------------------------------
William G. Conway
/s/ John W. Jepson Director August 29, 1997
- ----------------------------------
John W. Jepson
/s/ Sven Kraumanis Director September 2, 1997
- ----------------------------------
Sven Kraumanis
/s/ Alan Milton Director September 2, 1997
- ----------------------------------
Alan Milton
/s/ Eugene L. Scott Director September 2, 1997
- ----------------------------------
Eugene L. Scott
</TABLE>
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
2.1 Securities Purchase Agreement dated August 4, 1997 between the Company
and Sovereign Partners, L.P., as amended August 22, 1997
4.1 Specimen Common Share Certificate/1/
4.2 Form of Convertible Debenture Due August 4, 1999
4.3 Form of Additional Debenture
4.4 Form of Warrant issued August 4, 1997
5.1 Opinion of Epstein Becker & Green, P.C.
23.1 Consent of Livingston & Haynes, P.C.
23.2 Consent of Joseph Decosimo and Company
23.3 Consent of Epstein Becker & Green, P.C. (see Exhibit 5. 1)
24 Power of Attorney
</TABLE>
- ---------------
/1/ Filed as an Exhibit to the Company's Registration Statement on Form
S-1, File No. 33-14275 and incorporated herein by reference.
<PAGE>
Exhibit 2.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance
set forth below, is entered into by and between QUADRAX CORPORATION, a Delaware
corporation, with headquarters located at 300 High Point Avenue, Portsmouth,
Rhode Island 02871 ("Company") and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded,
inter alia, by Rule 506 under Regulation D ("Regulation D") as promulgated by
- ----------
the United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the
1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, 8% Convertible Debentures (the "Debentures"),
of the Company which will be convertible into shares of Common Stock, $.000009
par value per share (the "Common Stock"), of the Company upon the terms and
subject to the conditions of such Debentures (the Common Stock and the
Debentures sometimes referred to herein as the "Securities"), and subject to
acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
A. PURCHASE. The undersigned hereby agrees to purchase from the
Company, the Debentures of the Company, in the principal amount of $3,500,000 in
Debentures, $1,000,000 principal amount at the First Closing, and the balance as
more specifically set forth in (Paragraph)4(j), and having the terms and
conditions and being in the forms attached hereto as ANNEX IA, as the initial
Debenture and ANNEX IB as to the Additional Debentures. The purchase price for
each Debenture shall be 100% of the principal amount of such Debenture (the
"Purchase Price") and shall be payable in United States Dollars.
B. FORM OF PAYMENT. The Buyer shall pay the Purchase Price for each
Debenture by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions") as
set forth below. Promptly following payment by the Buyer
1
<PAGE>
to the Escrow Agent of the Purchase Price of the Debenture, the Company shall
deliver the Debenture duly executed on behalf of the Company to the Escrow
Agent. By signing this Agreement, the Buyer and the Company, and subject to
acceptance by the Escrow Agent, each agrees to all of the terms and conditions
of, and becomes a party to, the Joint Escrow Instructions, all of the provisions
of which are incorporated herein by this reference as if set forth in full.
C. METHOD OF PAYMENT. Payment into escrow of the Purchase Price for
each Debenture shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No. 105-0036843
Not later than 1:00 p.m., New York time, on the date which is one (1) New York
Stock Exchange trading day after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit with the Escrow Agent the Purchase Price for
the initial $1,000,000 Debenture, in currently available funds. Time is of the
essence with respect to such payment on the Closing Date and each Additional
Closing Date (as defined in (Paragraph)4j), and failure by the Buyer to make
such payment, shall allow the Company to cancel this Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
A. Without limiting Buyer's right to sell the Common Stock pursuant
to the Registration Statement as defined in the Registration Rights Agreement,
the Buyer is purchasing the Debentures and will be acquiring the shares of
Common Stock issuable upon conversion of the Debentures for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof;
B. The Buyer is (i) an "accredited investor" as that term is defined
in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), and (ii) experienced in making investments of the kind described
in this Agreement and the related documents, (iii) able, by reason of the
business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company
2
<PAGE>
or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the Securities;
C. All subsequent offers and sales of the Debentures and the shares
of Common Stock issuable upon conversion of, or issued as interest on, the
Debentures (the "Shares" or "Common Stock" and, together with the Debentures,
the "Securities") by the Buyer shall be made pursuant to registration of the
Shares under the 1933 Act or pursuant to an exemption from registration;
D. The Buyer understands that the Debentures are being offered and
sold, and the Shares are being offered, to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgements and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Debentures and to receive an offer of the Shares, and Buyer shall
indemnify and hold harmless the Company from and against any liability incurred
by the Company approximately caused by any breach thereof by Buyer;
E. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Debentures and the offer of the
Shares which have been requested by the Buyer, including ANNEX V hereto. The
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory answers to
any such inquiries. Without limiting the generality of the foregoing, the Buyer
has also had the opportunity to obtain and to review the Company's (1) Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1996, (2) Quarterly
Report on Form 10-QSB for the fiscal quarter ended March 31, 1997, (3) Proxy
Statement for Annual Meeting of Stockholders held May 19, 1997, and (4) Form 8-K
dated May 31, 1997 and May 7, 1997, as amended (the "Company's SEC Documents").
F. The Buyer understands that its investment in the Securities
involves a high degree of risk;
G. The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities;
H. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors'
3
<PAGE>
rights generally.
I. Neither Buyer, nor any affiliate of Buyer, has any present
intention of entering into, any put option, short position, or other similar
position with respect to the Debentures or the Shares.
J. Notwithstanding the provisions hereof or of the Debentures, in no
event shall the holder be entitled to convert any Debenture to the extent after
such conversion, the sum of (1) the number of shares of Common Stock
beneficially owned by the Buyer and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debenture), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debenture with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Buyer and its affiliates of more than 4.9% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13 D-G thereunder, except as otherwise provided in clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
A. CONCERNING THE SHARES. There are no preemptive rights of any
stockholder of the Company, as such, to acquire the Common Shares.
B. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has registered its Common Stock pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Common Stock is listed and traded on the NASDAQ/Small Cap. The Company has
received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such listing.
C. AUTHORIZED SHARES. The Company has sufficient authorized and
unissued Shares as may be reasonably necessary to effect the conversion of the
Debentures. The Shares have been duly authorized and, when issued upon
conversion of, or as interest on, the Debentures, will be duly and validly
issued, fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder.
D. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT AND
STOCK. This Agreement and the Registration Rights Agreement, the form of which
is attached hereto as ANNEX IV (the "Registration Rights Agreement"), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the Registration Rights
4
<PAGE>
Agreement, when executed and delivered by the Company, will be, valid and
binding agreements of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally; and the Debenture will be duly and
validly authorized and, when executed and delivered on behalf of the Company in
accordance with this Agreement, will be a valid and binding obligation of the
Company in accordance with its terms, subject to general principles of equity
and to bankruptcy, insolvency, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally.
E. NON-CONTRAVENTION. The execution and delivery of this Agreement
and the Registration Rights Agreement by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Debentures do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, (ii) any indenture,
mortgage, deed of trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
including any listing agreement for the Common Stock except as herein set forth,
(iii) any existing applicable law, rule, or regulation or any applicable decree,
judgment, or (iv) order of any court, United States federal or state regulatory
body, administrative agency, or other governmental body having jurisdiction over
the Company or any of its properties or assets, except such conflict, breach or
default which would not have a material adverse effect on the transactions
contemplated herein.
F. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the Stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
G. SEC FILINGS. None of the SEC Filings with the Securities and
Exchange Commission since January 1, 1996 contained, at the time they were
filed, any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements made
therein in light of the circumstances under which they were made, not
misleading. Except as set forth on ANNEX V hereto, the Company has since
January 1, 1996 timely filed all requisite forms, reports and exhibits thereto
with the Securities and Exchange Commission.
H. ABSENCE OF CERTAIN CHANGES. Since January 1, 1997, there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, or results of operations
of the Company, except as disclosed in ANNEX V or in the documents referred to
in Section 2(e) hereof.
I. FULL DISCLOSURE. There is no fact known to the Company (other
than general
5
<PAGE>
economic conditions known to the public generally) or as disclosed in the
documents referred to in Section 2(e), that has not been disclosed in writing to
the Buyer that (i) could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) or in the earnings, business
affairs, properties or assets of the Company or (ii) could reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement.
J. ABSENCE OF LITIGATION. Except as set forth in ANNEX V hereto,
and in the documents referred to in Section 2(e), which the Buyer has reviewed,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board or body pending or, to the knowledge of the Company or any
of its subsidiaries, threatened against or affecting the Company or any of its
subsidiaries, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the properties, business, condition (financial or
other), results of operations or prospects of the Company and its subsidiaries
taken as a whole or the transactions contemplated by this Agreement or any of
the documents contemplated hereby or which would adversely affect the validity
or enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents.
K. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in ANNEX V
hereto and Section 3(e), no Event of Default, as defined in the respective
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (as
so defined), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations.
L. NO DEFAULT. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material instrument
or agreement to which it is a party or by which it or its property is bound, and
neither the execution, nor the delivery by the Company, nor the performance by
the Company of its obligations under this Agreement or the Debentures, other
than the conversion provision thereof, will conflict with or result in the
breach or violation of any of the terms or provisions of, or constitute a
default or result in the creation or imposition of any lien or charge on any
assets or properties of the Company under, any material indenture, mortgage,
deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound or any
statute or the Certificate of Incorporation or By-Laws of the Company, or any
decree, judgment, order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or its properties, or the Company's
listing agreement for its Common Stock.
M. PRIOR ISSUES. During the twelve (12) months preceding the date
hereof, the Company has not issued any securities except as set forth in the
documents listed in (S)2e. The presently outstanding unconverted principal
amount of each such issuance of July 25, 1997 is $941,200. No person holds any
unfulfilled registration rights.
6
<PAGE>
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Debentures have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company and its transfer agent,
to the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (2) any sale of the
Securities made in reliance on Rule 144 promulgated under the 1933 Act may be
made only in accordance with the terms of said Rule and further, if said Rule is
not applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
B. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
Debentures, and, until such time as the Common Stock has been registered under
the 1933 Act as contemplated by the Registration Rights Agreement and sold in
accordance with such Registration Statement, the shares of Common Stock issued
to the Holder upon conversion of the Debentures shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of the Debenture and such shares of Common Stock):
7
<PAGE>
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO
THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
C. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement, in substantially the form attached
hereto as ANNEX IV, on or before the Initial Closing Date.
D. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Debentures to the Buyer under any
United States laws and regulations, or by any domestic securities exchange or
trading market, and to provide a copy thereof to the Buyer promptly after such
filing.
E. REPORTING STATUS. So long as the Buyer beneficially owns any of
the Debentures, the Company shall file all reports required to be filed with the
SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would permit such termination.
F. USE OF PROCEEDS. The Company will use the proceeds from the sale
of the Debentures (excluding amounts paid by the Company for legal fees and
finder's fees in connection with the sale of the Debentures) for internal
working capital purposes , and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership
enterprise or other person, except for wholly owned subsidiaries or for the
purpose of making acquisitions of businesses.
G. CERTAIN AGREEMENTS. The Company covenants and agrees that it will
not, without the prior written consent of the Buyer, (i) enter into any
subsequent or further offer or sale of common stock or securities convertible
into common stock with any third party until the expiration of one hundred
twenty (120) days from the Additional Closing Date of the final tranche of
Additional Debentures. However, clauses 4(g)(i) will not apply to (x) the
issuance of securities (other than for cash) in connection with a merger,
consolidation, sale of assets, disposition of a business, product or license by
the Company, strategic alliance, bank loan or agreement, or the exercise of
outstanding options, or (y) the exchange of the capital stock for assets, stock
or other joint venture interests.
H. AVAILABLE SHARES. The Company shall have at all times authorized
and reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield
8
<PAGE>
the number of Common Stock issuable at conversion as may be required to satisfy
the conversion rights of the Buyer pursuant to the terms and conditions of the
Debentures.
I. WARRANTS. The Company agrees to issue to Buyer at the Closing,
transferable divisible warrants (the "Warrants") for 700,000 shares of Common
Stock. Such Warrants shall bear an exercise price per share of Common Stock as
follows: 125% of the Market Price, as defined in the Debenture, on the Closing
Date, and shall be exercisable immediately upon issuance, and for a period of
three (3) years thereafter, in the form annexed hereto as Exhibit VI, together
with piggy-back registration rights, and demand registration rights.
J. The Buyer irrevocably agrees to purchase up to an additional
$2,500,000 of Debentures (the "Additional Debentures") in a series of tranches,
commencing thirty (30) days after the effective date of the registration
statement contemplated by the Registration Rights Agreement attached hereto as
ANNEX IV (the "Effective Date"), upon the same terms and conditions and
substantially in the form as those applicable to the initial Debentures issued
pursuant to the Agreement except as set forth in 4(j)(d) and the maturity date
of such Additional Debenture shall be two years from the Additional Closing Date
on which such Additional Debenture was issued (each an "Additional Closing
Date"). Buyer's obligation to purchase the Additional Debentures, on each
Additional Closing Date (which shall occur not less than ten (10) business days
apart), shall be contingent upon the satisfaction of the following conditions:
(a) The Company shall give the Buyer ten (10) days prior written
notice;
(b) The Debentures issued in each tranche shall be not less than
$50,000 nor in excess of $200,000 principal amount;
(c) On each Additional Closing Date:
(i) the Registration Statement required to be filed under
the Registration Rights Agreement, is effective;
(ii) The representations and warranties contained in Section
3 shall be true and correct in all material respects;
(iii) The average daily trading volume for the previous
three months must exceed 150,000 shares;
(iv) The average daily share price of the common stock for
the ten trading days prior thereto, must exceed $.25 per share;
(v) The number of shares issuable upon conversion of the
Debentures, together with the Shares of Common Stock issued prior thereto
pursuant to this Agreement, will not exceed 20% of the outstanding Common Shares
of the Company.
9
<PAGE>
(d) The conversion price for shares to be issued upon conversion of
the Additional Debentures shall be the lesser of (a) 84% of the Market Price on
the Additional Closing Date, or (b) 100% of the Market Price on the date of the
issuance of the original Debenture and the coupon rate of interest on all such
additional Debentures shall be 4% rather than 8%.
(e) In the event that the Company does not exercise its option to
require the Buyer to purchase at least $1,250,000 of Debentures, the Company
will, not later than fifteen (15) months after the date hereof, issue to the
Buyer an additional 300,000 Warrants upon the terms and conditions of
(Paragraph)4i hereof. In any event, the Company's obligations under the
Registration Rights Agreement, shall be to register the necessary common stock
underlying $3,500,000 in Debentures, and the shares underlying 1,000,000
Warrants to purchase common stock.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the Purchase Price
for each Debenture in accordance with Section 1(c) hereof, the Company will
irrevocably instruct its transfer agent to issue Common Stock from time to time
upon conversion of the Debenture in such amounts as specified from time to time
by the Company to the transfer agent, bearing the restrictive legend specified
in Section 4(b) of this Agreement prior to registration of the Shares under the
1933 Act, registered in the name of the Buyer or its nominee and in such
denominations to be specified by the Buyer in connection with each conversion of
the Debenture. The Company warrants that no instruction other than such
instructions referred to in this Section 5 and stop transfer instructions to
give effect to Section 4(a) hereof prior to registration and sale of the Shares
under the 1933 Act will be given by the Company to the transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the Registration
Rights Agreement, and applicable law. Nothing in this Section shall affect in
any way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If the Buyer provides the
Company with an opinion of counsel reasonably satisfactory to the Company and
its transfer agent that registration of a resale by the Buyer of any of the
Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is
not required under the 1933 Act, the Company shall (except as provided in clause
(2) of Section 4(a) of this Agreement) permit the transfer of the Securities
and, in the case of the Shares, promptly instruct the Company's transfer agent
to issue one or more certificates for Common Stock without legend in such name
and in such denominations as specified by the Buyer.
b. The Company will permit the Buyer to exercise its right to convert
the Debenture by telecopying an executed and completed Notice of Conversion, in
the form attached to the Form of Debenture attached hereto as ANNEX I, to the
Company and delivering within three business days thereafter, the original
Notice of Conversion and the Debenture representing the Shares to the Company by
express courier to the Transfer Agent. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions
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hereof shall be deemed a Conversion Date. The Company will transmit the
certificates representing the Shares of Common Stock issuable upon conversion of
any Debenture (together with a replacement Debenture representing the any
principal amount not so converted) to the Buyer via express courier, by
electronic transfer or otherwise, within three business days after receipt by
the transfer agent of the original Notice of Conversion and the Debenture
representing the Shares to be converted (the "Delivery Date").
d. The Company understands that a delay in the issuance of the Shares
of Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond five (5) business days from
Delivery Date:
<TABLE>
<CAPTION>
Late Payment For Each
$10,000 of Debenture
No. Business Days Late Principal Amount Being Converted
---------------------- --------------------------------
<S> <C>
1 $ 100
2 $ 200
3 $ 300
4 $ 400
5 $ 500
6 $ 600
7 $ 700
8 $ 800
9 $ 900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit Buyer's right to pursue
actual damages for the Company's failure to issue and deliver Common Stock to
the Buyer. Furthermore, in addition to any other remedies which may be
available to the Buyer, in the event that the Company fails for any reason to
effect delivery of such shares of Common Stock within five business days after
the Delivery Date, the Buyer will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company whereupon the
Company and the Buyer shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion.
6. DELIVERY INSTRUCTIONS.
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Each Debenture shall be delivered by the Company to the Escrow Agent
pursuant to Section 1(b) hereof, or a delivery against payment basis at each
closing.
7. CLOSING DATE.
The date and time of the issuance and sale of the initial $1,000,000
Debenture (the "Closing Date" ) shall occur no later than 12:00 Noon, New York
time on the second NYSE trading day after the fulfillment or waiver of all
Closing conditions pursuant to Sections 8 and 9, or such other mutually agreed
to time. The Closing shall occur on such date at the offices of the Escrow
Agent. Notwithstanding anything to the contrary contained herein, the Escrow
Agent will be authorized to release the funds representing the Purchase Price
for the Debenture, and the Debenture only upon satisfaction of the conditions
set forth in Section 8 hereof. The Additional Debentures shall be issued and
sold on the Additional Closing Dates in accordance with this section and the
Joint Escrow Instructions.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Debentures on the Closing Date and Additional Closing Dates to the Buyer
pursuant to this Agreement is conditioned upon:
A. The receipt and acceptance by the Buyer of this Agreement as
evidenced by execution of this Agreement by the buyer for at least One Million
($1,000,000.00) Dollars in Debenture (or such lesser amount as the Company, in
its sole discretion, shall determine);
B. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of an amount equal to the Purchase Price for the Debenture in accordance
with Section 1(c) hereof;
C. The accuracy on the Closing Date and each Additional Closing Date
of the representations and warranties of the Buyer contained in this Agreement
as if made on the Closing Date and the performance by the Buyer on or before the
Closing Date and each Additional Closing Date of all covenants and agreements of
the Buyer required to be performed on or before the Closing Date and each
Additional Closing Date;
D. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Debentures on the Closing Date and each Additional Closing Date is conditioned
upon:
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A. Acceptance by the Company of this Agreement for the sale of
Debentures, as indicated by execution of this Agreement;
B. Delivery by the Company to the Escrow Agent of the appropriate
Debenture in accordance with this Agreement;
C. The accuracy in all material respects on the Closing Date and each
Additional Closing Date of the representations and warranties of the Company
contained in this Agreement as if made on the Closing Date and such Additional
Closing Date and the performance by the Company on or before the Closing Date
and each Additional Closing Date of all covenants and agreements of the Company
required to be performed on or before the Closing Date and such Additional
Closing Date, and as to Additional Debentures, the conditions set forth in
(S)4j; and
D. On the Closing Date and each Additional Closing Date, the Buyer
having received an opinion of counsel for the Company, dated the Closing Date
and each Additional Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in ANNEX III attached hereto,
and on the first Closing Date only, the Registration Rights Agreement annexed
hereto as ANNEX IV and the 700,000 share Warrants.
10. GOVERNING LAW; COST OF COLLECTION; MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. Any costs (including attorneys fees and disbursements) incurred by
Buyer with respect to any default by the Company under this Agreement, the
Registration Rights Agreement, or the Debenture, shall be the obligation of the
Company.
11. NOTICES. Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given upon, (a) by personal delivery or fax, or (ii) one business
day after deposit with a nationally recognized
13
<PAGE>
overnight delivery service such as Federal Express, with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days advance written notice to each of the other parties hereto.
COMPANY: QUADRAX CORPORATION
300 High Point Avenue
Portsmouth, Rhode Island 02871
Telecopier No. (401) 683-5630
with a copy to:
Joseph Smith, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Telecopier No. (212) 661-0989
PURCHASER: At the address set forth on the signature page of this Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Company's
representations and warranties shall survive the execution and delivery hereof
of this Agreement and the delivery of the Debenture.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
or one of its officers thereunto duly authorized as of the date set forth below.
AGGREGATE INITIAL PURCHASE PRICE OF SUCH DEBENTURE: $ 1,000,000
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing statements
are true and correct and that it has caused this Securities Purchase Agreement
to be duly executed on its behalf this 4th day of September, 1997.
SOVERIGN PARTNERS, L.P.
- ------------------------------ ----------------------------------------------
By: Southridge Capital Management LLC, General
Partner
- ------------------------------
By: /s/ Stephen Hicks
-----------------
Telecopier No. _______________ (Signature of Authorized Person)
President
---------
Delaware Print Name and Title
- --------
Jurisdiction of Incorporation
or Organization
This Agreement has been accepted as of the date set forth below.
QUADRAX CORPORATION
By: /s/ James J. Palermo
---------------------------------------------
Title: President
Date:
15
<PAGE>
ANNEX I FORM OF DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
<PAGE>
ANNEX V
COMPANY DISCLOSURE
------------------
1. The Company's Chief Financial Officer resigned at the request of the
Chairman on July 11, 1997. The Chief Financial Officer of the Company's
Victor Electric subsidiary is acting as interim Chief Financial Officer
pending completion of a search for a new permanent Chief Financial Officer.
The form Chief Financial Officer has agreed to remain as a consultant for at
least three months to assist with transitional matters and SEC matters.
2. The Power Stick v. Quadrax litigation noted in the 1996 Form 10-KSB was
decided adversely in July 1997. The plaintiff has re-taken possession of
the pultrusion machine, and the jury awarded the plaintiff $150,000 in
damages. The Company has a motion pending to vacate the damage award. The
Company has ordered a new pultrusion machine from a new source. Delivery is
expected by October 1997. The Company is unable to manufacture pultruded
hockey sticks in the interim, although it is seeking to subcontract
production. As a result, the Company will take write-down of approximately
[$500,000] on purchase price of assets subject to lawsuit.
<PAGE>
AMENDMENT NO. 1 TO
SECURITIES PURCHASE AGREEMENT
BETWEEN
QUADRAX CORPORATION AND SOVEREIGN PARTNERS, L.P.
This Amendment No. 1 dated August 22, 1997 to Securities Purchase Agreement
dated as of August 4, 1997 is entered into between Quadrax Corporation (the
"Company") and Sovereign Partners, L.P. ("Buyer") with respect to the following
facts. All terms used herein which are not defined herein shall have the
meanings set forth in the Securities Purchase Agreement.
1. The Company and the Buyer are the parties to the Securities Purchase
Agreement.
2. The Buyer has agreed to purchase and the Company has agreed to sell a further
$500,000 principal amount Initial Debenture as of the date hereof,
notwithstanding that the Company has not yet filed its registration statement on
Form S-3.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Company will issue and sell to Buyer, and Buyer will purchase from the
Company, a $500,000 principal amount Initial Debenture, in the form attached to
the Securities Purchase Agreement as Annex I, for a price of $500,000.
2. The Buyer's commitment to purchase Additional Debentures pursuant to Section
4(j) of the Securities Purchase Agreement shall be reduced from $2,500,000 to
$2,000,000.
3. The Warrant issued to Buyer on August 4, 1997 shall be initially exercisable
at a price of $0.50 per share, rather than at $0.59 per share.
<PAGE>
4. All other terms and conditions of the Securities Purchase Agreement are
hereby ratified and confirmed, except as expressly modified herein.
In witness whereof, the parties have executed this Amendment No. 1 as of the
date set forth above, being duly authorized to do so.
QUADRAX CORPORATION SOVEREIGN PARTNERS, L.P.
By:__________________ By: Southridge Capital Management
James J. Palermo, LLC, its general partner
C.E.O.
By: _____________________________
Stephen Hicks, President
19
<PAGE>
Exhibit 4.2
FORM OF DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY
NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER
THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE HARBOR THEREFROM.
No. A-1 US $ $1,000,000
--- ----------
QUADRAX CORPORATION
8% CONVERTIBLE DEBENTURE DUE AUGUST 1, 1999
THIS DEBENTURE is one of a duly authorized issue of $3,500,000 in Debentures
of QUADRAX CORPORATION, a corporation organized and existing under the laws of
the State of Delaware (the "Company") designated as its 8% Convertible Debenture
Due August 1, 1999.
FOR VALUE RECEIVED, the Company promises to pay to SOVEREIGN PARTNERS LP,
the registered holder hereof (the "Holder"), the principal sum of One Million
and 00/100 (US $1,000,000) Dollars on August 1, 1999 (the "Maturity Date") and
to pay interest on the principal sum outstanding from time to time in arrears
upon conversion as provided herein on August 1, 1999 at the rate of 8% per annum
accruing from the date of initial issuance. Accrual of interest shall commence
on the first such business day to occur after the date hereof until payment in
full of the principal sum has been made or duly provided for. Subject to the
provisions of (Paragraph)4 below, the principal of, and interest on, this
Debenture are payable at the option of the Holder, in shares of Common Stock of
the Company, $.000009 par value ("Common Stock"), or 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 Company as designated in writing by the Holder from
time to time. The Company will pay the principal of and interest upon this
Debenture on the Maturity Date, less any amounts required by law to be deducted,
to the registered holder of this Debenture as of the tenth day prior to the
Maturity Date and addressed to such holder at the last address appearing 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.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
<PAGE>
2. The Company 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 laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. The Holder of this Debenture is entitled, at its option, to convert at
any time commencing the earlier of (a) sixty (60) days after the date hereof, or
(b) the Effective Date of the Registration Statement filed pursuant to the
Registration Rights Agreement between the Company and the Holder, or the
Holder's predecessor in interest, the principal amount of this Debenture,
provided that the principal amount is at least US $10,000 (unless if at the time
of such election to convert the aggregate principal amount of all Debentures
registered to the Holder is less that Ten Thousand Dollars (US $10,000), then
the whole amount thereof) into shares of Common Stock of the Company at a
conversion price for each share of Common Stock ("Conversion Rate") equal to 80%
of the Market Price on the Conversion Date. For purposes of this Section 4, the
Market Price shall be the average closing bid price of the Common Stock on the
ten (10) trading days immediately preceding the Conversion Date, as reported by
the National Association of Securities Dealers, or the closing bid price on the
over-the-counter market on such date or, in the event the Common Stock is listed
on a stock exchange, the Market Price shall be the closing price on the
exchange on such date, as reported in the Wall Street Journal. Conversion shall
be effectuated by surrendering the Debentures to be converted to the Company's
transfer agent, American Stock Transfer & Trust Company, with the form of
conversion notice attached hereto as Exhibit A, executed by the Holder of the
Debenture evidencing such Holder's intention to convert this Debenture or a
specified portion (as above provided) hereof, and accompanied, if required by
the Company, by proper assignment hereof in blank. Interest accrued or accruing
from the date of issuance to the date of conversion shall, at the option of the
Holder, be paid in cash or Common Stock upon conversion at the Conversion Rate.
No fraction of Shares or scrip representing fractions of shares will be issued
on conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The date on which notice of conversion is given (the "Conversion
Date") shall be deemed to be the date on which the Holder faxes the conversion
notice duly executed, to the Company. Facsimile delivery of the conversion
notice shall be accepted by the Company at facsimile number (401) 683-5630; ATT:
James J. Palermo). Certificates representing Common Stock upon conversion will
be delivered within three (3) business days from the date the notice of
conversion with the original Debenture is delivered to the Company's transfer
agent.
5. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place,
<PAGE>
and rate, and in the coin or currency, herein prescribed. This Debenture and all
other Debentures now or hereafter issued of similar terms are direct obligations
of the Company.
6. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
7. If the Company merges or consolidates with another corporation or sells
or transfers all or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company. In the event the
Holder hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture plus a Redemption Premium of
25%, less all amounts required by law to be deducted, upon which tender of
payment following such notice, the right of conversion shall terminate.
8. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
9. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
10. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions.
11. The following shall constitute an "Event of Default":
<PAGE>
a. The Company shall default in the payment of principal or interest
on this Debenture and same shall continue for a period of three
(3) days; or
b. Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, or in any
certificate or financial or other written statements heretofore
or hereafter furnished by the Company in connection with the
execution and delivery of this Debenture or the Securities
Purchase Agreement shall be false or misleading in any material
respect at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder
or to cause its Transfer Agent to issue shares of Common Stock
upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Debenture, fails to
transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder
upon conversion of this Debenture and when required by this
Debenture or the Registration Rights Agreement, and such
transfer is otherwise lawful, or fails to remove any
restrictive legend or to cause its Transfer Agent to transfer
on any certificate or any shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when required
by this Debenture, the Agreement or the Registration Rights
Agreement and such legend removal is otherwise lawful, and any
such failure shall continue uncured for five (5) business days.
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under this Debenture and
such failure shall continue uncured for a period of thirty (30)
days after written notice from the Holder of such failure; or
e. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the
benefit of creditors or commence proceedings for its dissolution;
or (3) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its
property or business; or
f. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment; or
g. 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 Company and shall not be dismissed within sixty
(60) days thereafter; or
h. Any money judgment, writ or warrant of attachment, or similar
process in excess of Two Hundred Thousand ($200,000) Dollars in
the aggregate shall be entered or filed against the Company or
any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of sixty(60) days or
in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
i. Bankruptcy, reorganization, insolvency or liquidation proceedings
<PAGE>
or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against
the Company and, if instituted against the Company, shall not be
dismissed within sixty (60) days after such institution or the
Company 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
j. The Company shall have its Common Stock suspended or delisted
from an exchange or over-the-counter market from trading for in
excess of two trading days.
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 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 kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
12. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: __________________, 1997
QUADRAX CORPORATION
By: /s/ James J. Palermo
President
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount of the above Debenture No. ___ into Shares of Common Stock
of QUADRAX CORPORATION (the "Company") according to the conditions hereof, as of
the date written below.
Date of Conversion* __________________________________________________________
Applicable Conversion Price __________________________________________________
Signature ____________________________________________________________________
[Name]
Address: _____________________________________________________________________
_____________________________________________________________________
* This original Debenture and Notice of Conversion must be received by the
Company's transfer agent by the third business date following the Date of
Conversion.
<PAGE>
Exhibit 4.3
FORM OF ADDITIONAL DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED AND MAY
NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED UNDER
THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE HARBOR THEREFROM.
No. _______ US $ _______________
QUADRAX CORPORATION
4% CONVERTIBLE ADDITIONAL DEBENTURE DUE ___________, ______
THIS ADDITIONAL DEBENTURE is one of a duly authorized issue of $3,500,000
in Debentures of QUADRAX CORPORATION, a corporation organized and existing under
the laws of the State of Delaware (the "Company") designated as its 4%
Convertible Additional Debenture Due ___________, _______.
FOR VALUE RECEIVED, the Company promises to pay to SOVEREIGN PARTNERS LP,
the registered holder hereof (the "Holder"), the principal sum of ------- and
00/100 (US $ ) Dollars on ____________, _____ (the "Maturity Date")
and to pay interest on the principal sum outstanding from time to time in
arrears upon conversion as provided herein on ___________, ______ at the rate of
4% per annum accruing from the date of initial issuance. Accrual of interest
shall commence on the first such business day to occur after the date hereof
until payment in full of the principal sum has been made or duly provided for.
Subject to the provisions of (Paragraph)4 below, the principal of, and
interest on, this Additional Debenture are payable at the option of the Holder,
in shares of Common Stock of the Company, $.000009 par value ("Common Stock"),
or 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 Company as designated in writing
by the Holder from time to time. The Company will pay the principal of and
interest upon this Additional Debenture on the Maturity Date, less any amounts
required by law to be deducted, to the registered holder of this Additional
Debenture as of the tenth day prior to the Maturity Date and addressed to such
holder at the last address appearing 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
Additional Debenture to the extent of the sum represented by such check plus any
amounts so deducted.
This Additional Debenture is subject to the following additional
provisions:
1. The Additional Debentures are issuable in denominations of Ten Thousand
Dollars (US$10,000) and integral multiples thereof. The Additional Debentures
are exchangeable for an equal
<PAGE>
aggregate principal amount of Additional Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Additional Debenture any amounts required to
be withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments, and Holder shall execute
and deliver all required documentation in connection therewith.
3. This Additional Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws. In the event of
any proposed transfer of this Additional Debenture, the Company may require,
prior to issuance of a new Additional Debenture in the name of such other
person, that it receive reasonable transfer documentation including legal
opinions that the issuance of the Additional Debenture in such other name does
not and will not cause a violation of the Act or any applicable state or foreign
securities laws. Prior to due presentment for transfer of this Additional
Debenture, the Company and any agent of the Company may treat the person in
whose name this Additional Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Additional
Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. The Holder of this Additional Debenture is entitled, at its option, to
convert at any time commencing on the date hereof, the principal amount of this
Additional Debenture, provided that the principal amount is at least US $10,000
(unless if at the time of such election to convert the aggregate principal
amount of all Additional Debentures registered to the Holder is less than Ten
Thousand Dollars (US $10,000), then the whole amount thereof) into shares of
Common Stock of the Company at a conversion price for each share of Common Stock
("Conversion Rate") equal to the lesser of (i) 84% of the Market Price on the
Conversion Date (as defined herein), or (ii) 100% of the Market Price on the
date of issuance of the first Initial Debenture, or $0.472 per share. For
purposes of this Section 4, the Market Price shall be the average closing bid
price of the Common Stock on the ten (10) trading days immediately preceding the
Conversion Date (as defined herein), as reported by the National Association of
Securities Dealers, or the closing bid price on the over-the-counter market on
such date or, in the event the Common Stock is listed on a stock exchange, the
Market Price shall be the closing price on the exchange on such date, as
reported in the Wall Street Journal. Conversion shall be effectuated by
surrendering the Additional Debentures to be converted to the Company's transfer
agent, American Stock Transfer & Trust Company, with the form of conversion
notice attached hereto as Exhibit A, executed by the Holder of the Additional
Debenture evidencing such Holder's intention to convert this Additional
Debenture or a specified portion (as above provided) hereof, and accompanied, if
required by the Company, by proper assignment hereof in blank. Interest accrued
or accruing from the date of issuance to the date of conversion shall, at the
option of the Holder, be paid in cash or Common Stock upon conversion at the
Conversion Rate. No fraction of Shares or scrip representing fractions of shares
will be issued on conversion, but the number of shares issuable shall be rounded
to the nearest whole share. The date on which notice of conversion is given (the
"Conversion Date") shall be deemed to be the date on which the Holder faxes the
conversion notice duly executed, to the Company. Facsimile delivery of the
conversion notice shall be accepted by the Company at facsimile number (401)
683- 5630; ATT: James J. Palermo). Certificates representing Common Stock upon
conversion will be delivered within three (3) business days from the date the
notice
<PAGE>
of conversion with the original Additional Debenture is delivered to the
Company's transfer agent.
5. No provision of this Additional Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Additional Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed. This Additional Debenture
and all other Additional Debentures now or hereafter issued of similar terms are
direct obligations of the Company.
6. No recourse shall be had for the payment of the principal of, or the
interest on, this Additional Debenture, or for any claim based hereon, or
otherwise in respect hereof, against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
7. If the Company merges or consolidates with another corporation or sells
or transfers all or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Additional Debenture may
thereafter be converted on the terms and subject to the conditions set forth
above into the kind and amount of stock, securities or property receivable upon
such merger, consolidation, sale or transfer by a holder of the number of shares
of Common Stock into which this Additional Debenture might have been converted
immediately before such merger, consolidation, sale or transfer, subject to
adjustments which shall be as nearly equivalent as may be practicable. In the
event of any proposed merger, consolidation or sale or transfer of all or
substantially all of the assets of the Company (a "Sale"), the Holder hereof
shall have the right to convert by delivering a Notice of Conversion to the
Company within fifteen (15) days of receipt of notice of such Sale from the
Company. In the event the Holder hereof shall elect not to convert, the Company
may prepay all outstanding principal and accrued interest on this Additional
Debenture plus a Redemption Premium of 25%, less all amounts required by law to
be deducted, upon which tender of payment following such notice, the right of
conversion shall terminate.
8. The Holder of the Additional Debenture, by acceptance hereof, agrees
that this Additional Debenture is being acquired for investment and that such
Holder will not offer, sell or otherwise dispose of this Additional Debenture or
the Shares of Common Stock issuable upon conversion thereof except under
circumstances which will not result in a violation of the Act or any applicable
state Blue Sky or foreign laws or similar laws relating to the sale of
securities.
9. This Additional Debenture shall be governed by and construed in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions.
10. The following shall constitute an "Event of Default":
<PAGE>
a. The Company shall default in the payment of principal or interest
on this Additional Debenture and same shall continue for a period
of three (3) days; or
b. Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, or in any
certificate or financial or other written statements heretofore
or hereafter furnished by the Company in connection with the
execution and delivery of this Additional Debenture or the
Securities Purchase Agreement shall be false or misleading in any
material respect at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder
or to cause its Transfer Agent to issue shares of Common Stock
upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Additional Debenture,
fails to transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon
conversion of this Additional Debenture and when required by this
Additional Debenture or the Registration Rights Agreement, and
such transfer is otherwise lawful, or fails to remove any
restrictive legend or to cause its Transfer Agent to transfer on
any certificate or any shares of Common Stock issued to the
Holder upon conversion of this Additional Debenture as and when
required by this Additional Debenture, the Agreement or the
Registration Rights Agreement and such legend removal is
otherwise lawful, and any such failure shall continue uncured for
five (5) business days.
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under this Additional
Debenture and such failure shall continue uncured for a period of
thirty (30) days after written notice from the Holder of such
failure; or
e. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the
benefit of creditors or commence proceedings for its dissolution;
or (3) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its
property or business; or
f. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment; or
g. 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 Company and shall not be dismissed within sixty
(60) days thereafter; or
h. Any money judgment, writ or warrant of attachment, or similar
process in excess of Two Hundred Thousand ($200,000) Dollars in
the aggregate shall be entered or filed against the Company or
any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of sixty(60) days or
in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
<PAGE>
i. 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 Company and, if instituted against the Company, shall not be
dismissed within sixty (60) days after such institution or the
Company 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
j. The Company shall have its Common Stock suspended or delisted
from an exchange or over-the-counter market from trading for in
excess of two trading days.
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 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
Additional Debenture immediately due and payable, without presentment, demand,
protest or notice of any kinds, all of which are hereby expressly waived,
anything herein or in any note or other instruments contained to the contrary
notwithstanding, and the Holder may immediately enforce any and all of the
Holder's rights and remedies provided herein or any other rights or remedies
afforded by law.
11. Nothing contained in this Additional Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: __________________, 1997
QUADRAX CORPORATION
By:____________________________________
_______________________________________
(Print Name)
_______________________________________
(Title)
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Additional Debenture)
The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount of the above Additional Debenture No. into
Shares of Common Stock of QUADRAX CORPORATION (the "Company") according to the
conditions hereof, as of the date written below.
Date of Conversion* ___________________________________________________________
Applicable Conversion Price____________________________________________________
Signature______________________________________________________________________
[Name]
Address:_______________________________________________________________________
_______________________________________________________________________
* This original Additional Debenture and Notice of Conversion must be
received by the Company's transfer agent by the third business date
following the Date of Conversion.
<PAGE>
Exhibit 4.4
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
QUADRAX CORPORATION
COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable consideration,
--------
the receipt of which is hereby acknowledged by Quadrax Corporation, a Delaware
corporation (the "Company"), Sovereign Partners, L.P. or registered assigns (the
"Holder") is hereby granted the right to purchase at any time until 5:00 P.M.,
New York City time, on July 31, 2000 (the "Expiration Date"), Seven Hundred
Thousand (700,000) fully paid and nonassessable shares of the Company's Common
Stock, par value $.000009 per share (the "Common Stock") at an initial exercise
price of $0.50 per share (the "Exercise Price"), subject to further adjustment
as set forth in Section 6 hereof.
2. Exercise of Warrants. This Warrant is exercisable in whole or in
--------------------
part at the Exercise Price per share of Common Stock payable hereunder, payable
in cash or by certified or official bank check, or by "cashless exercise", by
means of tendering this Warrant Certificate to the Company to receive a number
of shares of Common Stock equal in Market Value to the difference between the
Market Value of the shares of Common Stock issuable upon exercise of this
Warrant and the total cash exercise price thereof. Upon surrender of this
Warrant Certificate with the annexed Notice of Exercise Form duly executed,
together with payment of the Exercise Price for the shares of Common Stock
purchased, the Holder shall be entitled to receive a certificate or certificates
for the shares of Common Stock so purchased. For the purposes of this Section
2, "Market Value" shall be an amount equal to the average closing bid price of a
share of Common Stock for the ten (10) days preceding the Company's receipt of
the Notice of Exercise Form duly executed multiplied by the number of shares of
Common Stock to be issued upon surrender of this Warrant Certificate.
3. Reservation of Shares. The Company hereby agrees that at all
---------------------
times during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
-----------------------------
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new
<PAGE>
Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
--------------------
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution.
---------------------------
6.1 Adjustment Mechanism. If an adjustment of the Exercise
--------------------
Price is required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is entitled to purchase pursuant
to this Warrant, multiplied by (ii) the adjusted purchase price per share, to
equal (iii) the dollar amount of the total number of shares of Common Stock
Holder is entitled to purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split or
-------------------
split, stock dividend, reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the Common Stock
of the Company, the provisions of this Section 6 shall be applied as if such
capital adjustment event had occurred immediately prior to the date of this
Warrant and the original purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other respects the provisions of
this Section shall be applied in a fair, equitable and reasonable manner so as
to give effect, as nearly as may be, to the purposes hereof. A rights offering
to stockholders shall be deemed a stock dividend to the extent of the bargain
purchase element of the rights.
7. Transfer to Comply with the Securities Act; Registration Rights.
---------------------------------------------------------------
(a) This Warrant has not been registered under the Securities Act of
1933, as amended, (the "Act") and has been issued to the Holder for investment
and not with a view to the distribution of either the Warrant or the Warrant
Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement under the Act relating to such security or an opinion of counsel
satisfactory to the Company that registration is not required under the Act.
Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
(b) The Company agrees to file a registration statement, which shall
include the Warrant Shares, on Form S-3 or another available form (the
"Registration Statement"), pursuant to
2
<PAGE>
the Act, by the 30th calendar day after the date this Warrant was issued (the
"Original Issuance Date") and to have the registration of the Warrant Shares
completed and effective by the 90th calendar day after the Original Issuance
Date (the "Effective Date").
8. Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if the to Company, to:
Quadrax Corporation
300 High Point Avenue
Portsmouth, RI 02871
Attn: Chief Financial Officer
(ii) if to the Holder, to:
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be
-------------------------------------------
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant of even date herewith contain the full understanding of
the parties hereto with respect to the subject matter hereof and thereof and
there are no representations, warranties, agreements or understandings other
than expressly contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract
-------------
made under the laws of the State of Rhode Island and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts to be made and performed entirely within such State.
11. Counterparts. This Warrant may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
12. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
__th day of _____________ 1997.
QUADRAX CORPORATION
By: /s/ James J. Palermo
James J. Palermo,
President
Attest:
/s/ John McQuade
John McQuade,
Chief Administrative Officer
4
<PAGE>
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of August 4, 1997, to purchase
shares of the Common Stock, par value $.000009 per share, of Quadrax Corporation
and tenders herewith payment in accordance with Section 1 of said Common Stock
Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
By:__________________________________
5
<PAGE>
Exhibit 5.1
EPSTEIN BECKER & GREEN, P.C.
250 Park Avenue
New York, New York 10177
(212) 351-4500
September 3, 1997
Quadrax Corporation
300 High Point Avenue
Portsmouth, Rhode Island 02871
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Quadrax Corporation, a Delaware corporation
(the "Company") in connection with the filing of a registration statement on
Form S-3 (which registration statement, as amended at the time of its
effectiveness is hereinafter called the "Registration Statement") relating to
the registration of (i) 3,700,434 shares of the Company's common stock, $.000009
par value (the "Common Stock") issuable upon conversion of $1,500,000 principal
amount of outstanding 8% Convertible Debentures (the "8% Convertible
Debentures"); (ii) 4,933,912 shares of Common Stock issuable upon conversion of
$2,000,000 principal amount of 4% Convertible Debentures (the "4% Convertible
Debentures"), assuming the purchase and payment for such 4% Convertible
Debentures; (iii) 1,000,000 shares of Common Stock issuable upon the exercise of
warrants at $0.50 per share (the "$0.50 Warrants"); (iv) 10,000 shares of Common
Stock issuable upon the exercise of warrants at $0.75 per share (the "$0.75
Warrants"); and (v) 100,000 issued and outstanding shares of Common Stock (the
"Issued Shares"). All of the foregoing shares of Common Stock, together with any
additional shares of Common Stock issuable as a result of anti-dilution
provisions contained in the aforesaid instruments and registered in the
Registration Statement pursuant to Rule 416(a) under the Securities Act of 1933,
as amended, are herein referred to as the "Shares".
As such counsel, we have examined originals, or copies certified to our
satisfaction, of the corporate records of the Company, agreements and other
instruments, certificates of public officials and such other documents as we
deemed necessary as a basis for the opinion hereinafter set forth.
<PAGE>
Quadrax Corporation
September 3, 1997
Page 2
On the basis of the foregoing, we are of the opinion that:
(i) the Shares issuable upon conversion of the 8% Convertible
Debentures have been validly authorized, and upon issuance will be legally
issued, fully paid and non-assessable;
(ii) the Shares issuable upon conversion of the 4% Convertible
Debentures have been validly authorized, and upon conversion following purchase
and payment for such 4% Convertible Debentures, will be legally issued, fully
paid and non-assessable;
(iii) the Shares issuable upon exercise of the $0.50 Warrants have
been validly authorized, and upon issuance and payment in accordance with the
terms of said Warrants, will be legally issued, fully paid and non-assessable;
(iv) the Shares issuable upon exercise of the $0.75 Warrants have been
validly authorized, and upon issuance and payment in accordance with the terms
of said Warrants, will be legally issued, fully paid and non-assessable; and
(v) the Issued Shares have been validly authorized, and are legally
issued, fully-paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of such Registration Statement.
Very truly yours,
EPSTEIN BECKER & GREEN, P.C.
By:/s/ Joseph A. Smith
-------------------
Joseph A. Smith
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion by reference in this Registration Statement of
Quadrax Corporation on Form S-3 for the registration of 9,744,346 shares of its
common stock of our report dated March 14, 1997, (which contained an explanatory
paragraph with respect to the ability to continue as a going concern) appearing
in the Prospectus, which is part of such Registration Statement, and to the
reference to us under the caption "Experts" in such Prospectus.
/s/ Livingston & Haynes, P.C.
Livingston & Haynes, P.C.
Wellesley, Massachusetts
August 29, 1997
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement on Form S-3 and to the incorporation by reference therein
of our report, dated August 23, 1996, except for the notes payable and
subsequent events footnotes , as to which the date is May 7, 1997, with respect
to the financial statements of Victor Electric Wire & Cable Corp. included in
Quadrax Corporation's current report on Form 8-K dated May 7, 1997, filed with
the Securities and Exchange Commission.
/s/ Joseph Decosimo and Company, LLP
JOSEPH DECOSIMO AND COMPANY, LLP
Cincinnati, Ohio
August 29, 1997
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of Brooks R. Herrick, William G.
Conway, John W. Jepson, Sven Kraumanis, Alan Milton and Eugene L. Scott
constitutes and appoints James J. Palermo his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, to act, without
the other, for him and in his name, place and stead, in any and all capacities,
to sign any or all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as full to all intents and purposes as he
might or could be in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or any of them, their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<S> <C> <C>
/s/ James J. Palermo Chairman of the Board of September 2, 1997
- ---------------------------------- Directors, and Chief
James J. Palermo Executive Officer (Principal
Executive Officer)
/s/ Brooks R. Herrick Executive Vice President September 2, 1997
- ---------------------------------- and Chief Financial Officer
Brooks R. Herrick (Principal Accounting and
Financial Officer)
/s/ William G. Conway Director August 29, 1997
- ----------------------------------
William G. Conway
/s/ John W. Jepson Director August 29, 1997
- ----------------------------------
John W. Jepson
/s/ Sven Kraumanis Director September 2, 1997
- ----------------------------------
Sven Kraumanis
/s/ Alan Milton Director September 2, 1997
- ----------------------------------
Alan Milton
/s/ Eugene L. Scott Director September 2, 1997
- ----------------------------------
Eugene L. Scott
</TABLE>
