U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
AMENDMENT No. 1
(Mark one)
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
(No fee required)
For the fiscal year ended December 31, 1996
Transition Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (No fee required)
For the transition period from to
Commission File Number: 0-16052
Quadrax Corporation
(Name of Small Business Issuer in Its Charter)
Delaware 05-0420158
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 High Point Avenue 02871
Portsmouth, Rhode Island (Zip Code)
(Address of Principal Executive Offices)
(401) 683-6600
(Issuer's Telephone Number, Including Area Code)
Securities Registered under Section 12(b) of the Exchange Act:
None
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.000009 per share
Non-Callable Class C Common Stock Purchase Warrants
(Titles of Classes)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the issuer's knowledge, in the issuer's definitive proxy
statement incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. __X_
State issuer's revenues for its most recent fiscal year. $3,567,567
State the aggregate market value of the voting stock held by non-affiliates:
$25,061,261, computed by reference to the closing price of the issuer's
Common Stock on March 27, 1997 as reported on the Nasdaq Small Cap Market.
State the number of shares outstanding of each of the issuer's classes of
common equity. As of March 27, 1997: 34,387,014 shares of Common Stock, par
value $.000009 per share.
Documents Incorporated by Reference
Portions of the issuer's definitive proxy statement to be delivered to
stockholders in connection with its Annual Meeting of Stockholders to be held
on May 19, 1997 are incorporated by reference in Part III.
Transitional Business Disclosure Format (check one): Yes No X
<PAGE>
QUADRAX is a registered trademark of Quadrax Corporation, and
CONQUEROR, QUADRAX AXIAL TAPE, QUADRAX BIAXIAL TAPE and QUADRAX
COMPOSITES are trademarks of Quadrax Corporation. This Annual Report
on Form 10-KSB also includes the trademarks of companies other than
Quadrax Corporation.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Overview
General
Quadrax Corporation ("Quadrax" or the "Company"), a Delaware, corporation
formed in March 1986, which prior to fiscal year 1995 was a development stage
company, designs, develops, fabricates and sells fiber-reinforced
thermoplastic polymer composite materials ("Quadrax Composites") and products
manufactured from Quadrax Composites. Quadrax Composites are synthetic
materials made using patented and other proprietary, as well as non-
proprietary, chemical processes and manufacturing technologies. The Company
believes that Quadrax Composites are functionally superior to other
structural substrates for most applications in which abrasion resistance and
extreme heat tolerance are not critical. 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. Quadrax Composites' functional advantages
over other structural substrates include high strength-to-weight ratios,
chemical stability in a variety of ambient conditions (imperviousness to
rust, rot or reaction with most commonly used chemical solvents), ease and
safety of manufacture using modified conventional heat and compression
molding techniques, virtually unlimited shelf life without special storage or
handling requirements, and recyclability. In addition, the Company believes
that Quadrax Composites are tougher and less brittle than traditional
thermoset plastics such as epoxies and polyesters.
The Company commenced limited commercial production in mid-1993. The
Company has not achieved profitability in any fiscal quarter and has been
required to raise substantial amounts of capital in order to support its on-
going activities. Although the Company historically was dedicated to the
formatting of composite materials for defense and aerospace markets, it began
redirecting its business in 1994 and 1995 to focus on commercial and consumer
markets for value-added, high-performance products. The Company acquired
Lion Golf of Oregon, Inc., ("Lion Golf"), a distributor and assembler of golf
clubs at the end of fiscal 1995 in order to obtain market access for its
newly-developed Quadrax Composite golf club shaft and for the distribution of
its previously acquired McManis Sports conventional technology golf club
lines. The Company's independent accountants, Livingston & Haynes, P.C.,
have included a "going concern" qualification in their report on the
Company's financial statements for fiscal 1996, reflecting the Company's
history of losses and its continuing dependence on financing activities to
provide the cash needed to meet its expenses. See the Consolidated Financial
Statements of the Company set forth following page 24 of this Form 10-KSB.
Quadrax Corporation is organized in a holding company structure, operating
through two wholly owned subsidiaries: Quadrax Advanced Materials Systems,
Inc. and Lion Golf of Oregon, Inc. ("Lion Golf"). It also wholly owns and
operates Quadrax Sports, Inc. as a marketing company. Unless the context
otherwise requires, references herein to "Quadrax" or the "Company" refer
collectively to Quadrax Corporation and its subsidiaries.
Redirection of Business
Historically, the Company was dedicated to the formatting of composite
materials for defense and aerospace markets. As defense funding for advanced
research declined in the late 1980's and 1990's, and the market for composite
materials in the defense industry eroded, the Company began to redirect its
business toward commercial and consumer applications. Quadrax has targeted
sporting goods applications because it believed that Quadrax Composites'
superior performance characteristics could overcome its cost premium and
customers' familiarity with more conventional materials.
The Company's strategy is to focus on the design, development and
prototyping of sporting goods products in order to demonstrate the performance
attributes of Quadrax Composites, thereby building demand for the Company's
materials. In furtherance of this strategy, in 1993 the Company signed a
joint development and manufacturing contract with a Taiwanese tennis racquet
manufacturer, Kunnan Enterprise Limited, through which Quadrax was able to
develop technologies suitable for manufacturing value-added products from
Quadrax Composites for various sporting goods markets.
Beginning in 1994, the Company sought to accelerate the redirection of its
business through acquisitions of assets and license rights, and through
strategic arrangements with manufacturers of sporting goods and athletic
equipment. The Company currently determines, on a product-by-product basis,
whether to undertake manufacturing of a product, or to enter into a strategic
relationship with another company experienced in manufacturing such a product
and with established distribution channels in the relevant market.
In 1995 and 1996, the Company took the following steps, among others, to
redirect its business toward consumer and commercial applications:
In November 1994, the Company acquired from Time Sports,
Inc., a subsidiary of Kunnan, the exclusive rights to make
and market tennis racquets under the "Wimbledon" brand
name. In the third quarter of 1995, the Company began
shipping "Conqueror" racquets made from the Company's
thermoplastic material. In 1996, the Company relinquished
the license to utilize the Wimbledon trademark in North
America for tennis racquets because of the failure of the
Wimbledon name to generate any meaningful interest in
Wimbledon brand name tennis racquets. The Company
continues to offer a thermoplastic tennis racquet made out
of its proprietary material.
In February 1995, the Company entered into a joint
design/exclusive manufacturing contract with a supplier of
lacrosse equipment in the United States. In April 1995, the
Company completed testing of lacrosse sticks made from
Quadrax Composites and commenced shipments. In 1996, the
Company revised its lacrosse equipment arrangement whereby
the lacrosse equipment supplier was no longer the exclusive
customer for the Company's lacrosse equipment products and
began selling its lacrosse equipment to other original
equipment manufacturers and users of lacrosse equipment.
In December 1995, the Company acquired all of the
outstanding stock of Lion Golf of Oregon, Inc. ("Lion
Golf"), a manufacturer and distributor of golf clubs. The
Company acquired Lion Golf to provide golf club
manufacturing expertise and distribution channels for the
Company's sporting goods products.
In May 1996, the Company commenced development of a
facility in Vista, California for manufacturing graphite
thermoplastic golf shafts which are expected to be sold to
OEM's such as Taylor Made Golf Co., ("Taylor Made"), and
third party users of golf components, such as Golfsmith
International, Inc. ("Golfsmith"). The development of this
facility was completed in December 1996 and sales to third
party customers commenced in January 1997.
In June 1996, the Company acquired an 80% interest in all
of the assets of Vega, U.S.A., a Brooklyn, New York, based
manufacturer of sporting goods equipment. The product lines
purchased from Vega were mid-to-lower price sporting goods
that are adaptable to high volume production in the areas
of hockey sticks, snowboards, and in-line skates. The
Company relocated all of the Vega production equipment
associated with the above product lines to its Portsmouth,
Rhode Island facility. The Company is now currently
manufacturing hockey sticks made on the purchased equipment
and is offering these sticks to OEM's and
distributors/retailers of hockey equipment.
The Company believes that the expansion of sales of the foregoing sporting
goods products, as well as of other products using Quadrax thermoplastic
materials, is the key to achieving viability and profitability.
As Quadrax progresses from the development of prototypes to the production
of finished products and components, it will continue to be dependent on
outside financing sources. The Company raised approximately $6.7 million of
equity capital in fiscal 1996 and an additional $3.2 million through sales of
convertible debentures early in fiscal 1997. It does not expect to raise
additional money during the remainder of 1997 and believes that the funds
currently on hand, together with cash provided by operations, will be
sufficient to meet the Company's cash requirements for the remainder of fiscal
1997. Management expects the Company's capital needs to be less in 1997 than
in 1995-96 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. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION--Financial Position, Liquidity and Capital
Resources".
Technologies
Core Technologies
The core technologies underlying Quadrax Composites involve, first, the
fabrication of unidirectional continuous fiber-reinforced, thermoplastic tapes
and, second, the lay-up and consolidation of those tapes into multi-ply
laminates. These technologies are based on insights into the chemical
processes by which a variety of man-made polymer resins (plastics) can be made
to bond with continuous fibers to produce a material that is strong,
lightweight, easy to handle, and easy to shape using modified conventional
heat and compression molding techniques.
The principal fibers used in making Quadrax Composites are carbon, glass
and aramid (for example, du Pont's brand of aramid fiber that it markets under
the name "Kevlar"). The principal resins used are nylon,
polymethymethacrylate (acrylic), polyetherimide, polyphenylene sulfide (PPS)
and poly-ether-ether-ketone (PEEK).
The Company also has the ability to form its multiply laminates into three-
dimensional piece parts in order to generate additional demand for the
Company's tape products. Examples of products made by the Company from
multiply laminates are shoe inserts and helicopter flooring.
Functional Advantages and Limitations of Quadrax Composites
The principal functional advantage offered by Quadrax Composites is the
ability to provide equivalent strength at lower weights than competing
materials. By varying mixes of resin, fiber, fiber areal weight, resin
percentage, number of plies, and axial orientation of the different plies,
Quadrax can deliver materials that meet a wide range of minimum threshold
strength requirements at a fraction of the weight of more conventional
materials such as steel and aluminum.
Quadrax Composites can be engineered to deliver a variety of other
characteristics, including chemical stability (no rust), moisture and heat
resistance (no rotting or, within certain tolerances, melting), vibration
damping, and electrical insulation. Unlike epoxy-based composite materials,
Quadrax Composites are fully recyclable. Scrap material can be ground up,
melted down and reformed using conventional compression and injection molding
techniques, retaining sufficient strength and other structural characteristics
to make it suitable for use in a wide variety of "lower tier" applications.
Quadrax Composites are thermoplastic, so they will lose their shape under
prolonged exposure to high temperatures. Like all composites, they are fiber-
reinforced and therefore subject to disintegration through abrasion that
exposes the fibers. These disadvantages are irrelevant for most structural
applications, but limit the utility of Quadrax Composites in high-temperature
applications.
Applications
Management believes that the high strength-to-weight ratio and other
functional advantages of Quadrax Composites make them superior structural
materials for a wide range of applications. The Company has targeted a number
of applications for which high strength-to-weight ratios are critical,
including:
athletic and recreational equipment such as racquet
frames, lacrosse and hockey sticks, golf shafts,
bicycle component parts, and panel and frame
assemblies for a wide variety of recreational
vehicles;
truck and trailer components and systems; and
military equipment, primarily outer body panels and
reinforcing members for aircraft, armored vehicles
and marine vessels.
Product Line
Quadrax fabricates and formats several standard Quadrax Composites tape
products for which data sheets have been prepared, including tape formats sold
under the brand name "Quadrax aXial Tape" and tapes sold in broad sheet format
under the brand name "Quadrax Biaxial Tape." In addition, Quadrax Composites
tape products can be customized through varying combinations of resins,
fibers, fiber areal weights and resin percentages in order to meet customers'
specific needs.
Although Quadrax's initial proprietary expertise was in the fabrication
and formatting of composite tape products, the Company is expanding its range
of know-how and capabilities to include expertise in finished goods and piece
parts for the consumer sporting goods market:
- - The Company is currently manufacturing and
marketing a composite graphite golf shaft made from
its proprietary thermoplastic material. The golf
shaft has successfully completed a series of standard
industry tests administered by an independent testing
laboratory specializing in golf clubs. The Company
has entered into a research and development contract
with Taylor Made to evaluate the thermoplastic
graphite shaft, but the Company cannot predict at this
time whether Taylor Made will ultimately enter into a
manufacturing contract with the Company to produce
composite thermoplastic graphite golf shafts.
- - The Company is currently manufacturing bicycle
parts made from Quadrax composites such as handlebars,
wheels, and forks for bicycle OEM's such as Spinergy,
Inc., ("Spinergy"), based in Wilton, Connecticut.
- - In June 1996, the Company acquired substantially
all of the assets of Vega, U.S.A., a low-end
manufacturer of composite hockey sticks and other
sporting goods. The hockey sticks are manufactured by
a pultrusion machine, which maintains a constant
tension on the raw material as it is woven and heated
with a resin resulting in a hardened material. This
method of manufacturing is considered in the industry
as being more advanced than using molds. This machine
is located at the Portsmouth, Rhode Island facility
utilizing proprietary technology and then sold to
wholesale/retail distributors.
- - The Company is marketing lacrosse stick handles
utilizing Quadrax Composites. These handles were
developed under a joint design/exclusive manufacturing
contract entered into in February 1995 with an OEM.
The Company commenced shipping lacrosse stick handles
to this OEM, in April 1995 In 1996, the Company
revised its lacrosse equipment arrangement whereby the
OEM was no longer the exclusive customer.
- - The acquisition of Lion Golf, which absorbed
McManis' "Tour Technology" lines, provides Quadrax
with golf product lines that are marketed under the
"Prestige" and "Lion" brand names and other brand
names. The Company has completed a prototype of a
putter produced with Quadrax Composites which also is
being marketed by Lion. Lion also continues to produce
and manufacture golf clubs which are made from
conventional materials. The Company anticipates, that
in the event of a sale of Lion Golf, the Company will
continue to manufacture and market these products
under its own name or the name of Lion Golf.
- - In 1996, the Company manufactured and marketed a
high-performance tennis racquet, the "Conqueror".
This racquet was originally marketed under the
Wimbledon name. The Company commenced shipments of
the Conqueror in the third quarter of fiscal 1995.
The Conqueror features "Dynamic Positioning," a
strategic use of weight distribution that takes
advantage of the strength-to-weight advantages of
Quadrax Composites. The Company introduced several
additional tennis racquet models in the first quarter
of fiscal 1996, which are made out of thermoplastic
material and are marketed under the Quadforce or
private labels.
The Company seeks to identify, on a regular basis, additional sports
equipment that may benefit from the functional advantages of Quadrax
Composites. The Company is, for example, designing and developing soccer
protective gear, volleyball net poles, ski poles and fishing gear that
incorporate Quadrax Composites.
In producing sporting goods equipment, particularly golf equipment, the
Company intends to integrate production vertically, from the manufacture of
the feedstock materials (Quadrax Composites) through distribution to product
retailers. The Company, also, currently anticipates that it will seek to
enter into strategic development and marketing relationships. This strategy
will facilitate the Company's entry into new sporting goods markets in a cost-
effective manner, by enabling the Company to conserve its resources for the
creation of applications for its tape products. The Company believes that
this approach will increase demand for the Company's tape products both
directly, by creating needs for specific components and goods, and indirectly,
by demonstrating the advantages and potential of Quadrax Composites.
Quadrax has supplied advanced composite materials systems to branches of
the United States military through three materials supply contracts with
defense contractors. Under these contracts, Quadrax Composites have been
incorporated in:
- - the F-22 "Air Superiority" tactical fighter being
produced by Lockheed Aeronautical Systems Company
under contract with the United States Air Force;
- - the Seawolf class of submarines being constructed
by the Electric Boat Division of General Dynamics
Corporation under contract with the United States
Navy; and
- - the "Composite Armored Vehicle," an experimental
armored troop carrier (known as CAV) being developed
by United Defense LP under contract with the United
States Army.
All defense related contracts were completed by the Company in 1995 and the
Company is currently devoting only limited resources to pursing additional
defense business.
Markets
Athletic and Recreational Equipment
Quadrax intends to execute a two-pronged marketing strategy in the sporting
goods market. In both cases, it is pursuing the same targeted market: serious
athletes, both professional and amateur, who are willing to pay a premium for
the better "feel" and "performance" that products made from Quadrax Composites
can deliver.
Quadrax is taking a lower profile approach through joint development and
manufacturing contracts with leading suppliers of high-performance equipment
for various games and activities. The Company is currently engaged in a
bicycle component part program with Spinergy, Inc.
Defense
Through a combination of internal initiatives and the acquisitions of
composite technology from Phillips and Amoco, Quadrax has established itself
as a supplier of advanced composite materials systems to branches of the
United States military. Quadrax Composites have been incorporated in products
provided under contracts with the United States Air Force, the United States
Navy and the United States Army.
Aerospace
Quadrax continues to receive orders for unformatted Quadrax aXial Tape from
companies active in the non-defense aerospace industries. Most of these
orders have been, and any future orders are expected to be, for purposes of
testing and evaluation in connection with research and development products,
with a limited number of sales being made for commercial production purposes.
Acquisitions
The Company will entertain opportunities for mergers or acquisitions that
would be synergistic to the Company's existing products and materials or could
be a profitable opportunity to the Company.
Marketing and Sales
Reputation
Quadrax is one of a small number of manufacturers in the relatively new
thermoplastic composite tape market. While Quadrax's reputation historically
has been associated with defense oriented materials, Quadrax's reputation for
manufacturing sporting goods equipment is growing quickly. In particular,
Quadrax is known for its proprietary golf shaft which was approved by the
United States Golf Association in 1996. Golf clubs equipped with Quadrax
thermoplastic golf shafts are especially known for their dampening
characteristics which reduce vibration and thereby improve performance.
These vibration reducing characteristics are also true of Quadrax's
thermoplastic tennis racquets and lacrosse sticks.
Quadrax works to maintain and enhance its reputation within these market
sectors by periodic advertising in trade publications, the regular submission
of technical papers for publication in professional journals and frequent
attendance at industry conferences, conventions and trade shows.
Direct Sales
Quadrax's marketing and sales programs are the responsibility of its Vice
President--General Manager Advanced Materials Division, who, supported by the
Company's engineering staff and other sales personnel, is charged with calling
directly on top decision makers at manufacturing companies that the Company
has identified as attractive candidates for the incorporation of components
made out of Quadrax Composites into finished goods or parts assemblies.
Consumer Marketing
With the acquisition of Lion Golf, Quadrax has added expertise to assist it
in its efforts to begin marketing finished goods directly to consumers. The
Company contemplates that distribution of sporting goods equipment initially
will be made both through specialty retailers (such as pro shops) and regional
mass merchandisers as well as through sales to OEM's. The Company anticipates
that the disposition of Lion Golf will not materially change the Company's
consumer marketing channels.
Competition
Quadrax faces competition from other materials used in the manufacture of
sporting goods and equipment, and from other suppliers of thermoplastic
composites. Sporting goods and equipment are currently manufactured from
conventional materials such as wood, stone, steel and aluminum, less common
metals such as titanium, and epoxy-based (thermoset) composites. Quadrax is
seeking to educate the market on the competitive advantages of its composites,
including several processing efficiencies which, when measured on a total cost
of finished goods basis, enable Quadrax Composites to present an attractive
price/performance profile:
- - their light weight, making Quadrax Composites
easy to move and handle;
- - structural characteristics making them easy to
form using modified conventional cutting, thermoforming
or compression molding techniques;
- - their chemical stability, making Quadrax
Composites easy and quick to process with virtually no
restrictions on shelf life, no lengthy cure periods, no
toxicity, and no refrigerated storage requirements; and
- - for certain resins, the ability to be bonded
through heat and pressure alone, without the need for
glues or other bonding agents.
Like most composites, however, Quadrax Composites are more expensive than
competing conventional materials. Additionally, there is institutional
resistance to working with new materials and to investing in the re-tooling
needed to integrate the materials into existing product and production lines.
The Company believes that these disadvantages will dissipate over time as
Quadrax Composites gain recognition in the marketplace.
Composite materials are an emerging industry, and it is difficult to
identify those competitors that will be the most successful. A significant
part of the early discovery and development work in thermoplastic composites
was performed by major international oil companies, many of which subsequently
exited the business as the size of the defense market decreased. Three of the
largest multinational chemical companies -- E.I. du Pont de Nemours & Co.,
Imperial Chemical Industries PLC and St. Gobain S.A. --continue to develop
composite product offerings that may compete with the Company's product
offerings. The Company faces potential competition from new companies as well
as established companies that may migrate from related industries. Many of
the Company's current and prospective competitors, including E.I. du Pont de
Nemours & Co., Imperial Chemical Industries PLC and St. Gobain S.A., have
significantly greater financial, manufacturing and marketing resources than
the Company. There can be no assurance that the Company's products will
compete effectively with products offered by established and new competitors
of the Company.
There is no assurance that the Company will be able to successfully compete
with existing and newly emerging composite manufacturers. Maintaining a
competitive edge will require continued investment by the Company in design
and development, sales and marketing and customer service and support, and
successfully timing new product development in relation to competitors'
products. There can be no assurance that the Company will have sufficient
resources to make such investments. In addition, as the Company enters new
markets and encounters new distribution channels and technical requirements,
the level and base of competition may be different than those currently
existing. There can be no assurance that the Company will be able to compete
favorably.
In general, the Company believes that it can compete effectively by
offering products with superior performance characteristics to products
offered by other suppliers at prices substantially equivalent to those charged
by other suppliers.
Manufacturing and Distribution Systems
Production
Materials, Machinery and Personnel. All materials, machinery and personnel
needed to build and operate production facilities at Quadrax are readily
available from conventional sources, with specialized expertise limited to the
proprietary processes themselves. Raw materials consist only of fibers and
resins produced by a number of established chemical companies such as
Hercules, Inc., Hoechst Celanese, Inc., and E.I. du Pont de Nemours & Co. and
sold primarily for applications other than composites. Machinery requirements
are limited to tape fabrication lines (which are specially assembled using
conventional machinery), molds and dies (which are custom-made, using
conventional machine tool technologies) and various die cutters,
thermoformers, ovens and presses that are in common use throughout the
plastics industry.
Production personnel include materials and process engineers, skilled and
semi-skilled machine operators, and various shop hands. As of February 28,
1997, the Company has sixty-one employees. The Company believes that any
necessary additional production personnel can be recruited at competitive
rates from within the existing plastics, defense and general manufacturing
industries.
Physical Plant and Processing Systems. Production of Quadrax Composites and
pre-formed parts is a light manufacturing process. The three principal steps
in the process are:
tape fabrication -- typically a water- and heat-
based process in which fibers are imbedded in the
resin matrix;
lay-up -- either a manual or mechanical process,
depending on design specifications, in which
multiple layers of tape are assembled to present
the required strength, flexibility and other
engineering characteristics; and
consolidation -- a heat- and pressure-based process
through which lay-ups are fused to form laminated
material.
These processes typically are completed at Quadrax's manufacturing
facilities in Portsmouth, Rhode Island and for golf shafts, in Vista,
California. See "DESCRIPTION OF PROPERTY" below.
Quadrax has the capacity to thermoform or compression mold customer-
specified component parts or frame assemblies on proof-of-concept, pre-
production prototype, and pilot production bases at its Portsmouth facility.
Distribution
Inventories. Quadrax maintains a small inventory of fabricated tape in
standard configurations at its Portsmouth facility. Sheet goods and pre-
formed parts are manufactured on a contract basis only. Finished goods, such
as hockey sticks, lacrosse sticks and golf equipment, are produced
domestically in Portsmouth Rhode Island, Vista, California or for non-Quadrax
composite brand products Bend, Oregon. The non-Quadrax composite golf
products are then sold to wholesale/retail distributors, while the bicycle
parts, hockey and lacrosse sticks are both sold to OEM's to be assembled into
their products and wholesale/retail distributors. Composite thermoplastic
graphite golf shafts are manufactured by the Company at its Vista, California
facility. The thermoplastic golf shafts are then sold to original equipment
manufacturers to be assembled into their products or to wholesale/retail
distributors. The Company also sells its thermoplastic graphite golf shaft
directly to the ultimate user via a telemarketing program.
Delivery and Installation. Unlike thermoset composite materials systems,
Quadrax Composites do not require refrigeration or other special handling.
They can be boxed and shipped by express delivery or common carrier at
standard ground rates.
Customer Service and Support. Members of Quadrax's engineering staff are
available to visit a customer and consult on proper processing techniques or
special engineering challenges, on an as-needed basis, but generally post-sale
support is not required.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company maintains three manufacturing facilities. One facility
includes the Company's corporate headquarters and is located in Portsmouth,
Rhode Island, in a leased building comprising approximately 49,000 square
feet. The Company has occupied all or a portion of this building since the
building was constructed in 1988. In connection with its initial lease of the
facilities, the Company acquired a one-third interest as a limited partner in
the limited partnership that owns the building and pledged a $250,000
certificate of deposit to secure its obligations to the construction lender.
Under the terms of a revised operating lease executed in October 1993, the
Company agreed to lease the Portsmouth building for approximately $100,000 a
year for a ten-year term expiring in 2003. The Company has responsibility for
all repairs, maintenance and operating expenses for the building during the
lease term. In connection with the execution of the revised lease, the lender
reduced the balance of the mortgage based on the decline in the fair market
value of the building. In exchange for a net reduction in the outstanding
loan balance of approximately $1 million, the Company transferred the $250,000
certificate of deposit to the limited partnership as a capital contribution,
and the limited partnership transferred the certificate of deposit to the
lender. In exchange for the $250,000 payment from the Company, the limited
partnership executed a second deed of trust payable to the Company in the
amount of $250,000. Under the revised lease, Quadrax has the right to
purchase the building at any time during the lease term for a price of
approximately $1,000,000 (approximately 50% of the construction cost of the
building), a portion of which may be paid through cancellation of the second
deed of trust.
The Company's second manufacturing facility is for composite graphite
thermoplastic golf shaft production and is located in Vista, California in a
leased one story concrete tilt-up building of approximately 10,000 square
feet. The rent on this building approximates $65,000 annually under a lease
that extends to April 2001.
Lion Golf has its manufacturing and distribution operations in a 15,000
square feet leased one story concrete tilt-up building in Bend, Oregon. The
rent on this building approximates $66,000 annually and the lease, excluding
options, extends to July 1997.
The Company believes that its existing leased facilities are adequate to
meet its currently anticipated requirements and that suitable additional or
substitute facilities will be available if required.
ITEM 3. LEGAL PROCEEDINGS.
In January, 1997, the Company was named as a defendant in a lawsuit by
Advanced Pultrusion Technologies Ltd. and its subsidiary, Power Stick
Manufacturing, whereby the plaintiff demanded that the Company turn over to
plaintiff a pultrusion machine purchased by the Company from Vega, U.S.A., in
fiscal 1996 and to cease manufacturing hockey stick shafts on such machine as
to which Power Stick Manufacturing claims patent rights as well as unspecified
damages. The United States Federal District Court of Rhode Island granted
preliminary injunctive relief to the plaintiff in February 1997. The court
also held that prior to the physical removal of the pultrusion machine by
plaintiff from the Company's Rhode Island facility, plaintiff must post a
$200,000 bond and keep the machine under its control at all times until the
machine's ownership is determined at trial. At this time, plaintiff has not
posted the $200,000 bond required to remove the machine. The Company does not
know if plaintiff can or will post the bond in the foreseeable future. The
Company is of the opinion that this lawsuit is without merit and intends to
defend itself vigorously.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company
is not currently a party to any legal proceedings other than those mentioned
above, the adverse outcome of which, in management's opinion, individually or
in the aggregate, would have a material adverse effect on the Company's
results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
NONE
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock and the Company's Non-Callable Class C Common Stock
Purchase Warrants ("Class C Warrants") trade on the Nasdaq Small Cap Market
under the symbols "QDRX" and "QDRXZ," respectively. The table below sets
forth the range of high and low bid prices for the Common Stock and the Class
C Warrants on the Nasdaq Small Cap Market for each quarter within the last two
fiscal years:
Common Stock Class C Warrants
High Bid Low Bid High Bid Low Bid
Fiscal 1996:
Quarter Ended March 31, 1996 $1.3438 $0.6563 $1.6250 $1.1875
Quarter Ended June 30, 1996 2.0625 0.9688 3.2500 1.2500
Quarter Ended September 30, 1996 1.8750 0.6875 2.2500 1.0000
Quarter Ended December 31, 1996 1.2500 0.6875 2.3750 1.2500
Fiscal 1995:
Quarter Ended March 31, 1995 3.5625 2.4375 2.6250 1.7500
Quarter Ended June 30, 1995 2.8125 1.8125 2.0000 1.3750
Quarter Ended September 30, 1995 2.3125 1.3750 2.5000 1.0000
Quarter Ended December 31, 1995 1.8750 0.6875 2.5000 1.5625
The preceding price quotations reflect inter-dealer prices without retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
As of March 27, 1997, there were 34,387,014 shares of Common Stock issued
and outstanding and held of record by approximately 1,600 stockholders.
The Company did not declare any dividends on Common Stock during fiscal
1995, fiscal 1996 or the first quarter of fiscal 1997, and does not expect to
declare dividends in the foreseeable future. Any cash generated by the
Company will be retained to fund the Company's on-going cash requirements.
ITEM 6.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain matters discussed in this
section and elsewhere in this Form 10-KSB are forward-looking statements.
These forward-looking statements involve risks and uncertainties including,
but not limited to, economic conditions, product demand and industry
capacity, competition, and other risks.
Competition. As the Company enters the sporting goods and recreational
equipment market, it faces competition from other materials used in the
manufacture of such goods and equipment, and from other suppliers of
thermoplastic composites. Quadrax's success in entering this market will
largely depend upon its ability to displace other materials currently in
use. If the Company is unsuccessful in creating a niche within the
sporting goods and recreational equipment market by convincing the market
of the strategic benefits of thermoplastic composites, the Company would be
adversely affected. Many of the companies whose product offerings compete
with Quadrax's product offerings have significantly greater financial,
manufacturing, and marketing resources than Quadrax. The Company also
faces competition from suppliers of similar products who do not use
thermoplastic material.
Development of Distribution Channels. Success in the sporting goods
and recreational equipment market will also hinge on the Company's ability
to develop distribution channels, including both retailers and
distributors, and there can be no assurance that the Company will be able
to effectively develop such channels.
Continued Investment. Maintaining the Company's technological and
strategic advantages over its competitors will require continued investment
by the Company in design and development, sales and marketing, and customer
service and support. There can be no assurance that the Company will have
sufficient resources to make such investments.
Technological Advances. The Company's ability to maintain a
competitive edge by making technological advances ahead of its competition
will have a significant impact on the success of the Company.
Outside Financing. The Company believes that it will need significant
outside financing over the next five years. There can be no assurance that
it will be able to obtain such financing, although it does not presently
anticipate requiring additional financing during the balance of fiscal
1997.
The following financial table sets forth selected financial data at
December 31, 1996 and at December 31, 1995 and for the fiscal years then
ended.
(Dollars in thousands, except per share data)
Year Ended
Statement of operations data: December 31, 1996 December 31, 1995
Total revenue $ 3,568 $ 4,635
----- -----
Cost of goods sold 3,674 3,413
Research and development expense 503 1,546
Selling, general and administrative expense 4,971 5,050
Depreciation and amortization 774 944
Interest expense 1,881 1,190
Restructuring costs 1,325 2,600
------ ------
Total Expenses 13,128 14,743
------ ------
Net loss from continuing operations ($9,560) ($10,108)
====== ======
Net loss per common share from continuing operations($0.40) ($0.71)
Weighted average common shares outstanding 23,922 14,265
December 31,
Balance sheet data: 1996 1995
Working capital $ 686 $ 1,994
Total assets 7,300 8,800
Long term liabilities 1,761 2,606
Total stockholders' equity 2,691 2,708
Fiscal 1996 Compared to Fiscal 1995
The Company's net loss from continuing operations in fiscal 1996 of
$9,560,000 decreased by $548,000 as compared to the fiscal 1995 loss of
$10,108,000. This decrease primarily resulted from a decline in restructuring
cost of $1,275,000 in 1996, which was offset by an increase in interest
expense of $691,000.
Total revenue recognized during fiscal 1996 was $3,568,000 compared to
$4,635,000 in fiscal 1995. This decrease of $1,067,000 or 23 percent from
fiscal 1995 results primarily from the Company successfully completing its
defense related work in fiscal 1995. Defense related shipments totaled
$3,103,000 in fiscal 1995 and were negligible in fiscal 1996. A second factor
in the sales decline in 1996 was the decrease in Wimbledon brand name product
sales of approximately $600,000. Offsetting the decline in defense and
Wimbledon sales in 1996, were the sales associated with Lion Golf, of
$2,601,000. In the event of a sale of Lion Golf by the Company in fiscal
1997, a material portion of these revenues would not be repeated.
Cost of goods sold for fiscal 1996, $3,674,000, reflect costs associated
with the consumer products that the Company shipped in the 1996 period. This
was an increase of $261,000 compared to fiscal 1995. The increase was caused
by the lower gross profit margin associated with the consumer related products
sold in 1996 compared to the higher gross profit margin of the defense related
products sold in fiscal 1995. A second reason for the increase in cost of
goods sold is that costs previously classified as research and development
costs were classified as costs of goods sold in fiscal 1996.
Research and development costs decreased by $1,043,000, from $1,546,000
in fiscal 1995 to approximately $503,000 in fiscal 1996.
During fiscal 1996,
most of the Company's development costs were associated with product development
costs attributed to developed products that were being introduced into the
market place. Development costs associated with developed products are
categorized as manufacturing development costs and become part of the cost of
sales. However, in 1995, the development costs were associated with developing
products and are categorized as Research and Development costs and stated
separately in the revenue statement. The higher R&D costs experienced in 1995
were associated with more of the Company's efforts being associated with
design and feasibility studies for potential products and uses for the
Company's composite materials.
During fiscal 1996, the Company's selling, general and administrative
costs were $4,971,000, a decrease of approximately $79,000 from $5,050,000 in
fiscal 1995, an insignificant fluctuation.
Depreciation and amortization expense decreased $170,000 from $944,000 in
fiscal 1995 to $774,000 in fiscal 1996. The principal reason for this
fluctuation is the amortization of the CMI braiding machine which was written-
off and disposed of late in fiscal 1995.
Interest expense increased $691,000 in fiscal 1996 to $1,881,000. The
primary reason for this increase was that in 1995, the Company incurred
approximately $1,110,000 of imputed interest relating to the conversion
discount convertible debenture investors received from the Company in private
placement transactions. In 1996, this imputed interest expense was
$1,636,000. A second factor contributing to the 1996 interest increase was
the monies paid on the Lion Golf credit line, $108,000.
Expenses related to restructuring costs decreased $1,275,000, to
$1,325,000 in fiscal 1996. In fiscal 1996, the Company's restructuring costs
consisted of: one, the write-off of the unamortized portion of the Wimbledon
racquet license, $360,000; two, the write-off of the balance of the McManis
Sports molds and equipment, $252,000; and three, legal and professional costs,
$693,000, incurred resolving issues that arose prior to fiscal 1996. In
fiscal 1995, the restructuring costs of $2,600,000 related to the termination
of relationships with former Company employees and consultants, $1,915,000 and
the write-off of goodwill associated with the McManis Sports acquisition,
$685,000.
Financial Position, Liquidity and Capital Resources
At December 31, 1996, the Company had total assets of $7.3 million and
stockholders' equity of $2.7 million. Current assets were approximately $3.5
million and current liabilities were approximately $2.8 million, resulting in
working capital of approximately $0.7 million which is a decrease of
approximately $1.3 million from December 31, 1995, when working capital was
approximately $2.0 million. This decrease in working capital resulted from
the Company's continued losses from operations in fiscal 1996.
Cash and cash equivalents decreased by approximately $1,414,000 from
$2,613,555 at December 31, 1995 to $1,200,063 at December 31, 1996. This
decrease is due to the Company's use of approximately $5,996,000 to fund its
operations and approximately $1,602,000 to prepare and equip its golf shaft
manufacturing facility in Vista, California and to purchase hockey stick
manufacturing equipment from Vega, U.S.A. These $7,598,000 in expenditures
were partially offset by the Company's raising of additional capital of
approximately $6,675,000 in the 1996 period.
Accounts receivable decreased by approximately $382,000 primarily because
the Company collected its trade receivables from its defense customers that
were outstanding at December 31, 1995, and the Company's revenues declined in
1996.
During fiscal 1996, inventory decreased $201,000 from $1,467,000 at
December 31, 1995. This decrease is a result of a reserve taken by Lion Golf
for inventory obsolescence as of December 31, 1996.
Accounts payable and accrued expenses decreased approximately $80,000 from
$2,072,000 at December 31, 1995. This decrease was caused by payments made to
trade vendors and to former employees in 1996. The employee payments were
charged against the reserve for restructuring costs accrued as of December 31,
1995.
Notes payable to related parties decreased $300,000 to zero at December 31,
1996. The reason for this decrease is that the Company paid Richard Fisher,
its former chairman and chief executive officer, in full in February 1996
pursuant to the December 1995 settlement agreement.
Long term debt current portion decreased approximately $257,000 to $856,904
at December 31, 1996. The primary reason for this decrease is the Company paid
down the Lion Golf credit line with the Bank of the Cascades. This line of
credit matures on March 31, 1997.
In fiscal 1996, capital expenditures were approximately $
1,800,000
. The
Company anticipates capital expenditures in 1997 of approximately $1,000,000
for the purchase of an additional thermoplastic tape manufacturing line. This
acquisition will be paid for through equipment leasing programs and from funds
raised through the private placement of the Company's securities.
The Company generated revenues of approximately $3,600,000 in fiscal
1996, and as a result, operations were not a source of funds or liquidity for
the Company. The Company continues to rely on financing activities for the
cash required to fund its operations. Net funds provided by financing
activities in fiscal 1996, after giving effect to the repayment of debt,
totaled $6,188,000, as compared with $9,249,000 in fiscal 1996.
The Company believes that proceeds of approximately $2,900,000 from the
sales of debentures in early 1997, together with funds provided by operations
and cash on hand will be sufficient to meet the Company's cash requirements
for fiscal 1997.
The Company received a going concern qualification from its outside
independent auditors on its fiscal 1996 audited financial statements. While
the Company believes it has made and will continue to make substantial
progress towards achieving profitability, the results to date have not yet
been sufficient to negate the auditors' qualifications. During this
transition, the management of the Company is continuing to reorient the
Company's focus from defense-related products to material and products for
consumer markets. The Company's management believes that the Company will be
able to continue to raise money from outside sources in sufficient amounts to
support its operations until the time when the Company is able to generate
sufficient revenues to be self-sustaining.
The Company believes that it can achieve viability and profitability by
continuing to expand sales of golf and other sporting goods products, as well
as other products that use its thermoplastic materials. The construction of
the Vista, California manufacturing facility in 1996 for thermoplastic
graphite golf shafts, represents a significant element of this strategy.
Sales of composite based lacrosse and hockey sticks, and continuing efforts to
develop and market other consumer products, will also contribute to its
efforts.
There is no assurance that the Company's efforts to achieve viability and
profitability or to raise money will be successful or that the forecasts will
be achieved. It is difficult for the Company to predict with accuracy the
point at which the Company will be viable and profitable or whether it can
achieve viability or profitability at all, due to the difficulty of predicting
accurately the amount of revenues that the Company will generate, the amount
of expenses that will be required to fund its operations, and the Company's
ability to raise additional capital.
ITEM 7.FINANCIAL STATEMENTS.
The Consolidated Financial Statements of the Company as of December 31,
1996 and December 31, 1995 and for the fiscal years ended December 31, 1996 and
December 31, 1995 are set forth following page F-1 hereof.
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
Part III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information with respect to this item may be found in the sections
captioned "Directors and Executive Officers" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" appearing in the definitive
Proxy Statement to be delivered to stockholders in connection with the
Company's Annual Meeting of Stockholders to be held on May 19, 1997. Such
information is incorporated herein by reference.
ITEM 10.EXECUTIVE COMPENSATION.
Information with respect to this item may be found in the section
captioned "Remuneration of Executive Officers and Directors" appearing in the
definitive Proxy Statement to be delivered to stockholders in connection with
the Annual Meeting of Stockholders to be held on May 19, 1997. Such
information is incorporated herein by reference.
ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to this item may be found in the section
captioned "Security Ownership of Certain Beneficial Owners and Management"
appearing in the definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held on May 19, 1997.
Such information is incorporated herein by reference.
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to this item may be found in the section
captioned "Certain Relationships and Related Transactions" appearing in the
definitive Proxy Statement to be delivered to stockholders in connection with
the Annual Meeting of Stockholders to be held on May 19, 1997. Such
information is incorporated herein by reference.
Part IV
ITEM 13.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)Financial Statements. Reference is made to page F-1 for all
financial statements filed as part of this report.
(b)Reports on Form 8-K. The following Current Reports on Form 8-K
were filed with the Securities and Exchange Commission since November 16,
1996, the date of the Company's Form 10-Q for its third quarter:
On November 18, 1996, the Company issued a press release
announcing that it had relinquished the license to utilize
the Wimbledon trademark in the United States for tennis rackets.
(c)Exhibits. The Exhibits that are filed with this report, or that
are incorporated herein by reference, are set forth in the Exhibit Index
beginning on page E-1.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
QUADRAX CORPORATION
By: /s/ James J. Palermo
Date: October 22, 1997
James J. Palermo, Chairman and
Chief Executive Officer
By: /s/ Brooks R. Herrick Date: October 22, 1997
Brooks R. Herrick,
Senior Vice-President and Chief Financial Officer
Pursuant with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and
in the capacities indicated.
/s/ James J. Palermo
Date: October 22, 1997
James J. Palermo
Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
/s/ Brooks R. Herrick Date: October 22, 1997
Brooks R. Herrick
Executive Vice-President and Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBITS
Exhibit No. Description Page
3.1(a) Certificate of Incorporation of the Company, as amended.
3.1(b) Certificate of Designation of Class A Preferred Stock - Series B
3.2 By-laws of the Company, as amended.4
4.1 Excerpt from Certificate of Incorporation of the Company,
as amended, as to rights of holders of Common Stock.15
4.2 Specimen Certificate for Common Stock.15
4.3 Specimen Certificate for Class C Warrants.6
4.4 Form of Warrant Agreement with American Stock Transfer &
Trust Company, as Warrant Agent for Class C Warrants.5
4.5(a) Certificate of $2,150,000 Convertible Debenture bearing interest
at
the rate of 8% per annum due October 8, 1998.
4.5(b) Certificate for $3,600,000 Convertible Debenture bearing interest
at
the rate of 8% per annum due February 10, 1999.
10.1 Form of Proprietary Information and Invention Agreement
executed by certain employees of the Company.1
10.2 1989 Non-Qualified Stock Option Plan.7
10.3 1993 Stock Plan.10
10.4 1994 Stock Option Plan.15
10.5 Business Loan Agreement between Bank of the Cascades and Lion
Golf of Oregon, Inc., dated December 16, 1994.
10.6(a) Agreement and Certificate of Limited Partnership of A.S.C.
Development, Inc./Quadrax Corporation Limited Partnership
as General Partner with the Company as Limited Partner
dated June 28, 1988.3
10.6(b) Building Sub-Lease dated October 5, 1993 between the Company
and A.S.C. Development, Inc./Quadrax Corporation, L.P.
(a Rhode Island limited partnership).11
10.6(c) Second Amendment to Limited Partnership Agreement
and Certificate of A.S.C. Development, Inc./Quadrax Corporation
Limited Partnership as General Partner with Quadrax Corporation
as Limited Partner dated October 7, 1993.11
Exhibit No. Description Page
10.7 Amendment to Partnership Agreement dated September 21, 1988
between the Company and A.S.C. Development, Inc.3
10.8 Equipment Sales Agreement between the Company
and Phillips Petroleum Company dated September 9, 1992.8
10.9 License Agreement between the Company and
Phillips Petroleum Company dated September 8, 1992.8
10.10 Stock Purchase Warrant issued by the Company to
Emanuel and Company dated November 27, 1991
(similar warrant for 250,000 shares, dated March 3, 1992,
also issued to Emanuel and Company).6
10.11 Form of Class D Warrant issued in connection with the
1992 Private Placement of 10% Unsecured Promissory Notes.8
10.12 Form of Class F Warrant issued in connection with the
1993 Private Placement of stock and warrants.8
10.13 Stock Purchase Warrant issued by the Company to George Beyts
and Stock Purchase Warrant issued by the Company to
Mohammed Manzur, each dated December 1, 1994.15
10.14 Unit Purchase Option dated September 1, 1992, between the
Company and D.H. Blair Investment Banking Corporation.9
10.15 Commercial Lease between the Dunes Motel and Gift Shop of Bend,
Ltd., as Landlord, and the Lion Golf of Oregon, Inc., as Tenant,
dated July 7, 1994.
10.16 Commercial Lease between Coral Tree Commerce Center Associates,
as Landlord, and the Company, as Tenant, dated April 10, 1996.
10.17 Stock Purchase Agreement between the Company and
Conagher & Co. Inc., dated July 8, 1994, and as amended
November 15, 1994.13
10.18 Stock Purchase Agreement between the Company
and Conagher & Co. Inc., dated August 26, 1994.13
10.19 Amendment to Stock Purchase Agreement between the
Company and Conagher & Co. Inc., dated September 16, 1994.13
10.20 Key Employee Agreement dated January 1, 1996 between
the Company and James J. Palermo. 18
10.21 Agreement for the Creation of a Voting Trust in Settlement
of Claims and Liabilities dated February 13, 1995 by and among
Allied-Asian Consolidated Limited, the Company,
Conagher & Co., Inc., Pattinson Hayton, III,
Richard A. Fisher and James J. Palermo.15
Exhibit No. Description Page
10.22 Declaration of Trust "The Quadrax Preferred Stock Voting
Trust" dated February 13, 1995 by and among Allied-Asian
Consolidated Limited and James J. Palermo, for the benefit of
the Holders of the Common Stock of the Company.15
10.23 Letter Agreement dated March 17, 1995 among the Company,
Allied-Asian Consolidated Limited, Conagher & Co., Inc.,
Pattinson Hayton, III, Richard A. Fisher and James J. Palermo.15
10.24 Second Amendment to Agreement for the Creation of a Voting
Trust in settlement of claims and liabilities.16
10.25 Stock Purchase Agreement dated November 15, 1995 between the
Selling Stockholders of Lion Golf of Oregon, Inc. named therein and
the Company. 17
10.26 Unsecured Promissory Note dated December 29, 1995 between
the Company and Robert K. Cole. 17
10.27 Debt Repayment Note dated December 29, 1995 between Lion Golf of
Oregon, Inc. and Robert K. Cole. 17
10.28 Employment Agreement dated December 29, 1995 between Lion Golf
of Oregon, Inc. and Robert K. Cole. 17
10.29 Employment Agreement dated December 29, 1995 between Lion Golf
of Oregon, Inc. and James Cole. 17
10.30 Key Employee Agreement dated January 1, 1996 between the Company
and John McQuade. 18
10.31 Key Employee Agreement dated January 1, 1996 between the
Company and Edward A. Stoltenberg. 18
10.32 Key Employee Agreement dated May 1, 1995 between the Company
and Gerald McDonald. 17
27 Financial Data Schedule for EDGAR filing
21.1 List of Subsidiary Corporations.
28.1 Licensing Opportunity Summary - Quadrax Biaxial Thermoplastic
Prepreg for Structural Applications, prepared by Arthur D.
Little, Inc.5
1 Incorporated by reference from the Company's Registration Statement on
Form S-1, File No. 33-14275, filed May 19, 1987.
2 Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-1, File No. 33-14275, filed July 1,
1987.
3 Incorporated by reference from the Company's Form 10-K for the fiscal
year ended January 1, 1989.
4 Incorporated by reference from the Company's Form 10-K for the fiscal
year ended December 31, 1989.
5 Incorporated by reference from the Company's Registration Statement on
Form S-2, File No. 33-40089, filed April 19, 1991.
6 Incorporated by reference from Amendment No. 2 to the Company's
Registration Statement on Form S-3, File No. 33-48998, filed June 24,
1991.
7 Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-3, File No. 33-48998, filed August
31, 1992.
8 Incorporated by reference from Amendment No. 3 to the Company's
Registration Statement on Form S-3, File No. 33-48998, filed September
23, 1992.
9 Incorporated by reference from the Company's Form 10-K for the fiscal
year ended January 3, 1993.
10 Incorporated by reference from the Company's Registration Statement on
Form S-3, File No. 33-66348 filed October 8, 1993.
11 Incorporated by reference from the Company's Form 10-K for the fiscal
year ended January 2, 1994.
12 Incorporated by reference from the Company's Form 10-Q for the fiscal
quarter ended July 3, 1994.
13 Incorporated by reference from the Company's Form 10-Q for the fiscal
quarter ended September 30, 1994.
14 Incorporated by reference from the Company's Form 8-K dated as of
November 14, 1994.
15 Incorporated by reference from the Company's Amendment No. 1 to Form
10-K/A for the fiscal year ended December 31, 1994, filed April 25,
1995.
16 Incorporated by reference from the Company's Amendment No. 2 to Form
10-K/A for the fiscal year ended December 31, 1994, filed June 9, 1995
17 Incorporated by reference from the Company's Form 8-K, dated December
29, 1995, filed January 15, 1996.
18 Incorporated by reference from the Company's Amendment No. 3 to Form
10-K/A for the fiscal year ended December 31, 1995, filed February 18,
1997.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Quadrax Corporation:
We have audited the accompanying consolidated balance sheets
of Quadrax Corporation and subsidiaries at December 31, 1996
and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years
then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Quadrax Corporation and subsidiaries
at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going
concern. As discussed in Note 1, the Company, since inception,
has expended cash in excess of cash generated from operations.
Additionally, the Company has not achieved sufficient revenues
to support future operations without additional financing.
These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management plans in
regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As discussed in Note 13 to the financial statements, the
Company recorded the discount to market value on conversion of
convertible debentures as a cost of capital, resulting in an
understatement of interest expense. Interest expense for the
year ended December 31, 1995 has been restated by $1,109,589.
/s/ Livingston & Haynes, P.C.
LIVINGSTON & HAYNES, P.C.
Wellesley, Massachusetts
March 14, 1997
F-1
<PAGE>
Quadrax Corporation
Consolidated Balance Sheets
ASSETS
December 31, December 31,
1996 1995
Current assets:
Cash and cash equivalents, including $481,146 of
restricted cash in 1995 $1,200,063 $2,613,555
Accounts receivable 883,005 1,265,301
Inventories (Note 3) 1,266,074 1,466,813
Other current assets 184,848 134,197
--------- --------
TOTAL CURRENT ASSETS 3,533,990 5,479,866
Property and equipment, at cost:
Machinery and equipment 4,618,313 3,319,881
Office equipment 910,895 851,160
Leasehold improvements 1,089,119 1,071,532
--------- ---------
6,618,327 5,242,573
Less accumulated depreciation and amortization (3,467,661) (3,000,093)
--------- ---------
NET PROPERTY AND EQUIPMENT 3,150,666 2,242,480
Goodwill, net of amortization of $7,903
in 1996 (Note 11) 110,651 118,553
Other assets 268,179 267,855
License agreement, net of amortization of $120,000
in 1995 -0- 480,000
Deferred assets, less amortization of
$70,600 and $61,912 236,238 211,498
---------- ----------
TOTAL ASSETS $7,299,724 $8,800,252
See accompanying notes to the consolidated financial statements
F-2
<PAGE>
Quadrax Corporation
Consolidated Balance Sheets (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
1996 1995
Current liabilities:
Accounts payable $ 685,212 $ 870,988
Accrued expenses (Note 2) 1,306,053 1,200,779
Note payable to related party (Note 9) -0- 300,000
Current portion of long-term debt (Note 6) 856,904 1,114,301
--------- ---------
TOTAL CURRENT LIABILITIES 2,848,169 3,486,068
Long-term debt, less current portion (Note 6) 360,739 356,034
Convertible debentures payable (Note 6) 1,400,000 2,250,000
--------- ---------
TOTAL LIABILITIES 4,608,908 6,092,102
Stockholders' equity (Note 4):
Original convertible preferred stock -0- 6
Common stock 298 160
Additional paid-in capital 68,701,531 58,288,953
Retained earnings, deficit (63,757,759) (54,198,191)
---------- ----------
4,944,070 4,090,928
Less:
Treasury stock, at cost; 656 shares of
Original convertiblepreferred stock and
137,728 shares of common stock (1,125,969) (1,043,009)
Unearned compensation and deferred expenses (504,193) (339,769)
Notes receivable for options (Note 12) (623,092) -0-
--------- --------
TOTAL STOCKHOLDERS' EQUITY 2,690,816 2,708,150
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,299,724 $ 8,800,252
========= =========
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
Quadrax Corporation
Consolidated Statements of Operations
Year Ended December 31,
1996 1995
Revenue:
Sales $3,207,282 $4,601,113
Interest income 69,637 33,726
Other income 290,648 -0-
--------- ---------
TOTAL REVENUE 3,567,567 4,634,839
Expenses:
Cost of goods sold 3,674,034 3,413,130
Research and development 503,388 1,546,317
Selling, general and administrative 4,970,578 5,049,988
Depreciation and amortization 773,361 943,074
Interest expense (Note 12) 1,880,774 1,190,043
Restructuring costs (Note 10) 1,325,000 2,600,000
--------- ----------
TOTAL EXPENSES 13,127,135 14,742,552
NET LOSS ($ 9,559,568)($10,107,713)
NET LOSS PER COMMON SHARE ($0.40) ($0.71)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 23,922,373 14,265,310
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Quadrax
Corporation
Consolidated Statement of Owners' Equity
Preferred Shares Outstanding
Common Shares Preferred Stock
Class A
Class A Common
Original Series A Convertible Issued
Outstanding Original Series A Convertible Stock
<S> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
Balances, December 31, 1994 516 0 0
9,960,296 9,928,261 $7 $0 $0 $92
Issuance of Common Stock to Conagher
& Co.
1,150,000 1,150,000 10
Issuance of Common Stock for
services to be performed
200,000 200,000 2
Common stock issued for
services performed
331,000 331,000 3
Issuance of common stock for
financing services
234,444 234,444 2
Issuance of stock in private
placements:
Class A Convertible Preferred 150,000
13
Common Stock
2,967,885 2,967,885 27
Exercise of common stock options
293,826 293,826 2
Conversion of convertible instrument
Original preferred (198)
75,265 75,265 (1)
Class A convertible preferred (150,000)
1,489,946 1,489,946
Convertible debentures
1,052,185 1,052,185 9
Amortization of unearned
compensation and deferred expenses
Purchase of Treasury Stock (Note 9)
Termination of relationship with
Company's founder (Note 9)
Issuance of stock for
acquisition of Lion Golf
50,000 50,000
Expenses incurred in raising of
capital
Net loss for the year _____ ______ ________ __________
__________ _______ ______ ______ _____
Balances, December 31, 1995 318 0 0
17,804,847 17,772,812 $6 $0 $0 $160
Issuance of Common Stock for
services to be performed
300,000 300,000 3
Common stock issued for
services performed
287,026 287,026 2
Issuance of stock in private placement
Class A, Series B Convertible Preferred 3,500
30
Exercise of common stock options
1,207,767 1,207,767 11
Conversion of convertible instruments
Original preferred (318)
Class A, Series B convertible preferred (3,500)
4,436,926 4,436,926 (6)
Convertible debentures
7,877,548 7,877,548 84
Amortization of unearned
compensation and deferred expenses
Purchase of Treasury Stock (Note 9)
Issuance of stock to original preferred
shareholders
276,000 276,000 3
Issuance of stock to complete McManis
Sports acquisition
522,738 522,738 5
Expenses incurred in raising of capital
Net loss for the year
_______ _____ ______
__________ __________ _______ ______ _______ _____
Balances, December 31, 1996 0 0 0
32,712,852 32,680,817 0 0 0 $298
================================================================================
=========
<CAPTION>
Note
Retained
Receivable
Additional Paid Earnings
Treasury Deferred Unearned From Related
In Capital (Deficit) Stock
Expense Compensation Parties Total
<S> <C> <C> <C>
<C> <C> <C> <C>
Balances, December 31, 1994 $48,356,319 ($44,090,478)
($243,009) ($123,932) $0 ($338,000) $3,560,999
Issuance of Common Stock to Conagher
& Co. 1,056,563
1,056,573
Issuance of Common Stock for
services to be performed 462,498
(462,500) 0
Common stock issued for
services performed 578,357
578,360
Issuance of common stock for
financing services 246,448
246,450
Issuance of stock in private placements
Class A Convertible Preferred 1,339,187
1,339,200
Common Stock 4,620,059
4,620,086
Exercise of common stock options 420,566
(50,000) (337,000) 33,568
Conversion of convertible instruments
Original preferred 1
0
Class A convertible preferred
0
Convertible debentures 1,859,580
1,859,589
Amortization of unearned
compensation and deferred expenses
123,932 122,731 246,663
Purchase of Treasury Stock (Note 9)
(750,000) (750,000)
Termination of relationship with
Company's founder (Note 9)
675,000 675,000
Issuance of stock for
acquisition of Lion Golf 42,200
42,200
Expenses incurred in raising of capital (692,825)
(692,825)
(10,107,713)
(10,107,713)
Net loss for the year ________ ________ ________
_________ _________ ________ ________
Balances, December 31, 1995 $58,288,953
($54,198,191)($1,043,009) $0 ($339,769) $0 $2,708,150
Issuance of Common Stock for
services to be performed 299,997
(300,000) 0
Common stock issued for
services performed 255,618
255,620
Issuance of stock in private placements
Class A, Series B Convertible Preferred 3,499,970
3,500,000
Exercise of common stock options 828,270
(34,000) (623,092) 171,189
Conversion of convertible instruments
Original preferred 1
1
Class A, Series B convertible preferred
(6)
Convertible debentures 6,302,285
6,302,369
Amortization of unearned
compensation and deferred expenses
30,000 105,576 135,576
Purchase of Treasury Stock (Note 9)
0
Issuance of stock to original preferred
shareholders
3
Issuance of stock to complete McManis
Sports acquisition
(48,960) (48,955)
Expenses incurred in raising of capital (773,563)
(773,563)
Net loss for the year (9,559,568)
(9,559,568)
__________ __________ _________
_______ _______ _______ _________
Balances, December 31, 1996 $68,701,531
($63,757,759)($1,125,969) ($270,000) ($234,193) ($623,092) $2,690,816
================================================================================
====
</TABLE>
See accompanying notes to the financial statements
F-5
<PAGE>
Quadrax Corporation
Consolidated Statements of Cash Flows
Year Ended
December 31, December 31,
1996 1995
Operating Activities
Net loss ($ 9,559,568)($10,107,713)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization of fixed assets 633,068 531,057
Amortization of intangibles 136,591 144,142
Amortization of deferred expense 135,576 40,767
Common stock issued for expenses 180,620 1,137,723
Common stock issued for interest (Note 12) 1,635,714 1,109,589
Write down of restructured assets 611,541 813,783
Termination of former chief executive officer
(Note 9) -0- 213,296
Cash acquired in corporate acquisitions -0- 151,518
Other assets reclassified as cash -0- 100,000
Increase (decrease) in cash resulting
from changes in:
Accounts receivable 382,296 (578,713)
Inventories 200,739 421,479
Other current assets (50,651) (27,131)
Accounts payable (185,776) (398,249)
Accrued expenses 105,274 (373,070)
--------- ---------
Net cash used in operating activities ($5,774,576) ($6,821,522)
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
Quadrax Corporation
Consolidated Statements of Cash Flows (continued)
Year Ended
December 31, December 31,
1996 1995
Investing Activities
Capital expenditures (1,792,793) (160,957)
Other intangible assets (33,752) (35,786)
--------- --------
Net cash used in investing activities (1,826,545) (196,743)
Financing Activities
Net proceeds from sale of stock
and warrants 3,187,432 6,413,034
Issuance of debt instruments 95,579 -0-
Issuance of convertible debentures, net of costs 3,477,889 2,910,000
Payment of note to related party (300,000) -0-
Repayment of debt (273,271) (73,935)
--------- ---------
Net cash provided by financing activities 6,187,629 9,249,099
Net increase (decrease) in cash and cash
equivalents (1,413,492) 2,230,834
Cash and cash equivalents at beginning of
period 2,613,555 382,721
--------- ---------
Cash and cash equivalents at end of period $1,200,063 $2,613,555
========= =========
Supplemental cash flow information:
Cash interest paid $239,550 $14,765
See accompanying notes to the consolidated financial statements.
F-7
<PAGE>
Quadrax Corporation
Consolidated Statements of Cash Flows (continued)
Supplemental Schedule of Significant Noncash Transactions:
1996:
The Company issued 7,877,548 shares of its common stock in
exchange for the conversion of $4,666,666 of its convertible
debentures.
The Company issued 287,026 shares of its common stock for
payment in full for $160,854 of accrued liabilities and
expenses.
The Company acquired 114,084 shares of common stock for the
Treasury via the exercise of stock options.
The Company issued 300,000 shares of its common stock for
consulting services.
The Company issued 4,436,926 shares of its common stock in
exchange for the conversion of $3,500,000 of its Series B
Convertible Preferred Stock.
The Company issued 522,738 shares of its common stock to the
former shareholders of McManis Sports Associates, Inc. in
settlement of a claim relating to the sale to the Company of all
of the issued and outstanding shares of Common Stock of McManis
Sports Associates, Inc. in 1994.
The Company canceled $68,000 of its subordinated debt due the
former principal shareholder of Lion Golf in consideration for
his exercise of stock options.
1995:
The Company acquired Lion Golf of Oregon, Inc. for 50,000 shares
of common stock valued at $42,200, a contingent note based on
future earnings and a guarantee of Lion Golf's existing bank
line of credit of $1,000,000.
The Company acquired 15,384 shares of common stock for the
Treasury via the exercise of stock options by a former employee.
The Company assumed $750,000 of debt due its former chairman
from Conagher & Co., Inc. for Conagher's purchase of the
original preferred stock.
The Company issued 1,489,946 shares of its common stock in
exchange for the conversion n of $1,500,000 of its Series A
Convertible Preferred Stock.
The Company issued 1,052,185 shares of its common stock in
exchange for the conversion of $750,000 of its convertible
debentures.
See accompanying notes to the consolidated financial statements.
F-8
<PAGE>
Quadrax Corporation
Notes to Consolidated Financial Statements
December 31, 1996
1. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
Quadrax Corporation (the Company) and its wholly-owned
subsidiaries. The Consolidated Balance Sheets include Lion Golf
of Oregon, Inc. All intercompany transactions have been
eliminated. The consolidated financial statements have been
prepared on a going-concern basis. The Company from its
inception, through December 31, 1996, has expended cash in excess
of cash generated from operations. Additionally, the Company has
not achieved sufficient revenues to support future operations.
Management believes that to continue as a going concern the
Company will require additional financing and anticipates
adequate additional financing will be available in fiscal 1997.
The 1996 consolidated financial statements do not include any
adjustments related to the uncertainty of future financing. As of
March 1997, the Company has raised approximately $2,900,000 from
the sale of its convertible debentures in exempt transactions
with private parties.
Fiscal Year
The Company converted its fiscal year, effective December 31,
1994, from a 52-53 week period ending on the Sunday closest to
December 31 to a calendar year ending December 31. All references
to years in these notes to consolidated financial statements
represent fiscal years unless otherwise noted.
Revenue Recognition
Revenues are recorded as services are performed. Revenues
derived from services provided under fixed-price contracts are
recognized on a percentage-of-completion basis. If it is
determined that a contract may result in a loss, a provision for
the loss is accrued at such time. For revenues derived from
product sales other than fixed price contracts, sales are
recognized based on shipment of products. Returned goods are
recorded in inventory at cost if they are saleable, or at scrap
value if the goods cannot be sold.
Cash Equivalents
The Company considers all short term investments, consisting
of money market funds and certificates of deposits, with original
maturities of three months or less, to be cash equivalents for
purposes of the statements of cash flows.
F-9
<PAGE>
Accounts Receivable
The Company performs periodic credit evaluations and generally
does not require collateral.
Inventories
Inventories are valued at the lower of first-in, first-out
cost or market and finished goods are valued at standard cost
which approximates the lower of cost or market. Market for parts
and materials is determined based on replacement cost; market for
finished goods is determined based on net realizable value.
The Company
periodically reviews its inventories to determine obsolete items in
light of its marketing and business plans. At the time obsolescence is
ascertained, inventory items are written down to their net realizable
values.
Property and Equipment
Depreciation is provided on the straight-line method over the
estimated useful lives of the assets, ranging from three to five
years. Amortization of leasehold improvements is provided on the
straight-line method over the remaining term of the lease.
Patents
The Company capitalizes certain patent costs related to patent
applications. The costs of these assets are amortized using the
straight-line method over the lesser of the useful life of the
asset or its statutory life.
Costs relating to patent
applications are periodically reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable.
Convertible Securities Conversion Discount
The discount to market value rights on conversion of
convertible debentures to common stock is recorded as interest
expense over the period from the sale of the debentures to the
first conversion date, while for convertible preferred stock the
conversion discount is recorded as a preferred stock dividend.
Goodwill
The Company has classified as goodwill the cost in excess of
the fair value of the net assets of companies acquired in
purchase transactions. Goodwill is amortized on a straight-line
method over 15 years. The carrying value of goodwill is evaluated
in relation to the operating performance of the underlying
business. Adjustments are made if the sum of expected future net
undiscounted cash flows is less than book value.
Stock Options
The Company accounts for stock options granted based on APB
Opinion #25 whereby options granted are valued at market price on
date of grant, less exercise price.
F-10
<PAGE>
Research and Development
Research and development costs are expensed as incurred. These
expenses include costs related to product development,
engineering and other wages, overhead and materials used. All
costs associated with revenues from sale of materials for
evaluation and testing and research income have been classified
as research and development.
Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes" which was adopted prior to fiscal
1994. The implementation of SFAS No. 109 did not have a material
effect on the Company's consolidated financial position or its
results of operations.
Under Statement 109, the liability method is used in
accounting for income taxes. Deferred tax assets and liabilities
are determined based on differences between financial reporting
and tax bases of assets and liabilities as well as net operating
loss carryforwards and are measured using the enacted tax rates
and laws that will be in effect when the differences reverse.
Deferred tax assets may be reduced by a valuation allowance to
reflect the uncertainty associated with their ultimate
realization. Prior to the adoption of Statement 109, income tax
expense was determined using the deferred method. Deferred tax
assets and liabilities are determined based on the estimated
future tax effects of differences between the financial statement
and tax bases of assets and liabilities. For financial statement
purposes, all deferred tax assets and liabilities have been fully
reserved for in that the ultimate realization of such assets and
liabilities is uncertain at December 31, 1996.
Net Loss Per Common Share
Net loss per share is based on the weighted-average number of
shares outstanding during each year. The exercise of stock
options and warrants would not have an effect on the net loss per
share since the effect would be anti-dilutive.
F-11
<PAGE>
2.Accrued Expenses
Accrued expenses consist of the following:
December 31, December 31,
1996 1995
Payroll $158,029 $212,935
Professional fees 288,844 251,439
Insurance 82,370 60,580
Interest 70,731 65,689
Restructuring costs (Note 10) 650,846 590,136
Royalties 35,237 -0-
Other 60,221 20,000
--------- ---------
$1,346,278 $1,200,779
3.Inventories
Inventories consist of the following:
December 31, December 31,
1996 1995
Raw materials $316,918 $875,783
Finished goods 949,156 591,031
--------- ---------
$1,266,074 $1,466,813
As of December 31, 1996, the Company's wholly owned subsidiary established
a reserve for inventory obsolescence of $260,000. The Company believes that
the write down is adequate. However, no assurances can be given as to the
reserves adequacy should business levels be significantly lower than
anticipated.
4. Stockholders' Equity
The Company's capital structure is as follows:
Original Convertible Preferred Stock, $.01 par value, -0- and
1,172 shares authorized at December 31, 1996 and December 31,
1995, -0- and 318 shares issued and outstanding at December 31,
1996 and December 31, 1995, respectively. During the twelve
months ended December 31, 1996 and December 31, 1995, -0- and
198 shares of the Original Convertible Preferred Stock were
converted to -0- and 75,268 shares of Common Stock, respectively.
Subsequent to the end of fiscal 1995, all shares of Original
Convertible Preferred Stock were converted into common stock
which was then redeemed by the Company for a nominal
consideration.
Class A Convertible Preferred Stock, Series A, $10.00 par
value, 300,000 shares authorized at December 31, 1996 and
December 31, 1995, and -0- shares issued and outstanding at
December 31, 1996 and December 31, 1995. Class A Convertible
Preferred Stock, Series B, $0.01 par value, 7,000 shares
authorized at December 31, 1996 and -0- shares issued at December
31, 1996. During the twelve month period ending December 31,
1996, 3,500 shares of Series B Convertible Preferred Stock were
issued and then converted into 4,436,926 shares of common stock.
Common Stock, $.000009 par value, 90,000,000 shares authorized
December 31, 1996 and December 31, 1995, 32,712,852 and
17,804,847 shares issued at December 31, 1996 and December 31,
1995, respectively and 32,680,817 and 17,772,812 shares
outstanding at December 31, 1996 and December 31, 1995,
respectively.
F-12
<PAGE>
A summary of shares issuable upon exercise of warrants at
December 31, 1996, is as follows:
Number of Exercise Expiration
Class Shares Price Date
Class C (traded OTC as QDRXZ*) 1,346,376 $3.33 July 2001
Class D 322,500 5.50 October 1998
D.H. Blair Unit Purchase Option 19,398 5.50 September 1997
D.H. Blair "A" Warrants 19,398 17.00 September 1997
D.H. Blair "B" Warrants 19,398 23.70 September 1997
Emanuel Co. Warrants 23,000 5.50 March 1997
The Wall Street Group 13,913 7.19 May 1998
Manbey Partners 270,000 3.00 November 1999
J.W. Charles Co. 500,000 0.68 January 2000
The Levine Group 75,000 0.75 January 1999
The Joss Company 250,000 0.01 October 2003
Flurina Development, S.A. 500,000 1.10 April 1998
Flurina Development, S.A. 50,000 0.94 April 1998
Cygni, S.A. 500,000 1.25 October 1998
---------
Total 3,908,983
=========
__________
* There are a total of 311,199 warrants outstanding with each
warrant entitling the holder to purchase 4.3264 shares of
common stock.
5. Stock Option Plans
The Company has three stock option plans; a 1989 Plan, a 1993
Plan and a 1994 Plan. The 1989 Plan has been terminated except
with respect to options to purchase 500 shares of common stock
which are outstanding.
The 1993 Plan provides for the grant of options to purchase
stock in the form of incentive stock options, non-qualified stock
options and stock appreciation rights. As of December 31, 1996,
the stockholders of the Company had authorized the issuance of
2,531,912 options pursuant to the 1993 Plan.
During 1994, the Company adopted a Stock Option Plan which
permits the issuance of up to 1,000,000 shares of the Company's
common stock to key executives. Under the terms of the plan,
options granted are incentive stock options and non-qualified
stock options and are issued at prices as determined by the
Company's Board of Directors. Options granted under the Plan are
exercisable as determined by the Board of Directors of the
Company. As of December 31, 1996, the Board of Directors had
authorized the issuance of 726,000 options pursuant to the 1994
Plan.
F-13
<PAGE>
Stock Option activity for the two prior years is summarized as
follows:
Price Per Weighted Average
Options Share Price Per Share
Outstanding at
December 31, 1994 1,272,703 $1.00 to $8.40 $1.84
Granted at market 805,267 $0.68 to $2.03 $1.21
Granted below market 100,000 $0.10 $0.10
Exercised (293,826) $1.00 to $ 1.56 $1.43
Canceled and forfeited (11,749) $1.56 to $ 5.50 $3.58
---------
Outstanding at
December 31, 1995 1,872,395 $0.10 to $ 8.40 $1.56
Granted 1,565,500 $0.68 to $ 1.81 $1.07
Exercised (1,207,767) $0.10 to $ 8.40 $1.22
Canceled and forfeited (174,712) $0.68 to $ 8.40 $4.29
---------
Outstanding at
December 31, 1996 2,055,416 $0.68 to $ 3.35 $0.92
At December 31, 1996, options to purchase 1,726,306 shares
were exercisable under all option plans.
The Company follows APB Opinion 25, Accounting for Stock Issued to Employees, to
account for stock option and employee stock purchase plans. No compensation
cost is recognized because the option exercise price is equal to the market
price of the underlying stock on the date of grant. Had compensation cost for
these plans been determined based on the Black-Scholes value at the grant dates
for awards as prescribed by SFAS Statement 123, Accounting for Stock-Based
Compensation, pro forma net income and earnings per share would have been:
Year ended December 31, 1996 1995
Pro forma net loss $10,467,550 $10,542,241
Pro forma loss per share (.44) (.74)
The weighted average Black-Scholes value of options granted under the stock
option plans during 1995 and 1996 was $0.48 and $0.58. Value was estimated
using an expected life of 18 months, no dividends, volatility of 113% and risk
free weighted average interest rates of 4.80% and 5.35% in 1995 and 1996,
respectively.
6.Debt
Long-term debt consists of the following:
December 31, December 31,
1996 1995
Note payable - bank $ 654,464 $ 801,000
Notes payable - to former Lion shareholders
bearing interest at the rate of 8% 290,563 331,634
Equipment Notes payable, secured
by the equipment 97,616 87,701
Other non-interest bearing Note 175,000 250,000
--------- ---------
1,217,643 1,470,335
Less current maturities (856,904) (1,114,301)
--------- ---------
$ 360,739 $ 356,034
========= =========
Note Payable - Bank
The Company's Lion Golf subsidiary has a $1,000,000 revolving
line of credit with its bank which is secured by substantially
all of the subsidiary's assets and which is guaranteed by the
former principal shareholder of Lion Golf and by the Company.
The note matures March 31, 1997 and bears interest at prime plus
2% or 10.25% at December 31, 1996. Loan advances are limited to
75% of eligible accounts receivable (as defined) plus 45% of
eligible inventories to a maximum of $500,000. The bank has
indicated that the loan will not be renewed after March 31, 1997.
The loan agreement with the bank contains various covenants
and restrictions, including limitations on capital expenditures,
officer compensation and other borrowings; requirements to
maintain certain levels of annual income and financial ratios not
less than specified levels. At December 31, 1996, Lion Golf was
in violation of covenants related to annual income and certain
financial ratios as to which the bank has granted waivers to
March 31, 1997.
F-14
<PAGE>
Notes Payable - Lion Shareholders
The Company's Lion Golf subsidiary has three unsecured notes
bearing interest at the rate of 8% per annum, payable to the
former shareholders of this subsidiary. These notes are
subordinated to the bank credit line. The first of the Notes,
$258,863, has annual principal payments of $54,000 commencing
March 31, 1998. These annual payments can be limited to the
extent of the subsidiary's pretax profits as defined. The second
note, $21,200, has monthly principal payments of $2,400 until
paid-in-full. The third note of $10,500 is a demand note.
Maturities of long-term debt outstanding at December 31, 1996
are as follows:
For the year ending December 31,
1997 $ 856,904
1998 114,291
1998 76,879
2000 69,519
2001 57,386
Thereafter 42,664
---------
$1,217,643
=========
Convertible Debentures
In October 1995, the Company issued $3,000,000 of its
Convertible Debentures bearing interest at the rate of nine
percent per annum for net proceeds to the Company of $2,910,000.
These debentures were convertible at the option of the holders on
or after the forty-first day after issuance into a number of
shares of common stock that can be purchased for a price equal to
seventy-three percent of the closing bid price of the common
stock on the ten trading days immediately prior to the conversion
date. At December 31, 1995, the holders of the convertible
debentures had converted $750,000 of these debentures into
1,052,185 shares of common stock of the Company. Subsequent to
December 31, 1995, the balance of the debentures outstanding,
$2,250,000, were converted into 3,815,029 shares of common stock
of the Company.
In October 1996, the Company issued $2,150,000 of its
Convertible Debentures bearing interest at the rate of eight
percent per annum for net proceeds to the Company of $1,988,750.
These debentures are convertible at the option of the holders on
or after the forty-first day of issuance into a number of shares
of common stock that can be purchased for a price equal to
seventy percent of the closing bid price of the common stock on
the five trading days immediately prior to the conversion date.
At December 31, 1996, the holders of the convertible debentures
had converted $750,000 of these debentures into 1,521,572 shares
of common stock of the Company. As of December 31, 1996, the
balance of the debentures outstanding, $1,400,000, are
convertible into 2,831,830 shares of common stock of the Company.
F-15
<PAGE>
7. Commitments
At December 31, 1996, the Company has outstanding employment
agreements with three senior officers and two other personnel.
One agreement for one senior officer expires on December 31, 1998
and provides for a base salary of $250,000 with severance pay in
the amount of $250,000. The other two agreements for senior
officers expire December 31, 1998, and provide for base
compensation ranging from $110,000 to $120,000 and severance pay
equal to one-half of base compensation. The Company recorded
approximately $106,000 in both fiscal years 1996 and 1995 for
compensation expense for 200,000 shares of common stock issued to
Mr. Palermo pursuant to his employment contract. These amounts
represent the amount of the total compensation expense
($462,500), amortized over five years, which is attributable to
the period from August 9, 1994 to December 31, 1998. The
$462,500 represents the market value of 200,000 shares of the
Company's common stock on the date of the stock grant.
Rent expense amounted to approximately $187,000, and $102,000
in fiscal 1996, and 1995, respectively.
Minimum rental payments under operating leases in future years
are as follows:
1997 $236,448
1998 $185,158
1999 $187,456
2000 $174,859
2001 $132,749
Thereafter $178,475
8. Income Taxes
Due to net losses incurred by the Company in each year since
its inception, no provision for income taxes has been recorded.
The Company has net operating loss carryforwards in the amount of
approximately $54,863,000 and $45,563,000, and research and
development tax credit carryforwards in the amount of $325,000 at
December 31, 1996 and December 31, 1995. These carryforwards
expire at various times from 2002 to 2010. The utilization of
these carryforwards may be limited by Internal Revenue Code
Section 382. Under Section 382, losses and other carryforwards
are limited whenever a Company experiences a greater than 50%
change in ownership. The amount, if any, of such limitation has
not been determined at this time. Net operating loss
carryforwards include $480,000 acquired through the acquisition
of Lion Golf of Oregon, Inc. The effect, if realized, of these
carryforwards will be applied to reduce goodwill in the period
realized.
The relationship of tax expense to loss before income taxes
differs from the U.S. statutory rate primarily because of the net
operating loss carryforward. A valuation allowance has been
recognized to offset net deferred tax assets which consist
primarily of the tax benefits associated with the net operating
losses, since the realization of tax benefits of net operating
loss carryforward is not assured. The valuation allowance has
been increased by $2,588,000 and $4,109,000 in 1996 and 1995,
respectively, to recognize the increases in deferred tax benefits
that may not be fully realized prior to expiration.
F-16
<PAGE>
December 31, December 31,
1996 1995
Deferred tax assets:
Net operating loss $21,852,000 $18,225,000
Other 1,700,000 1,700,000
---------- ----------
23,552,000 19,925,000
Less valuation allowance (23,387,000) (19,780,000)
---------- ----------
Total deferred tax assets 165,000 145,000
Deferred tax liabilities:
Other (165,000) (145,000)
---------- ----------
Total deferred tax liabilities (165,000) (145,000)
---------- ----------
Net deferred taxes $ -0- $ -0-
========== ==========
9. Related Party Transactions
The Company during fiscal year 1995, finalized the termination
of its founder and former chief executive officer, Mr. Richard A.
Fisher. This agreement called for amongst other things:
1)A final payment to Mr. Fisher of $74,000 in
February 1996 for full and complete payment of his
consulting agreement to December 31, 1995.
2)A final payment to Mr. Fisher of $300,000 in
February 1996 as full and complete payment for the
purchase of the original convertible preferred
stock which liability the Company assumed from
Conagher & Co. in February 1995 to obtain voting
control.
3)Allowed Mr. Fisher to offset his liability to the
Company of $675,000 for the purchase of common
stock via stock options against the Company's
liability, $675,000, to him for entering into a
five year non-competition agreement with the
Company in fiscal 1994.
The Company has a one-third interest in a limited partnership
which is the owner of the Company's corporate headquarters. The
Company occupies these facilities pursuant to a ten-year lease
which expires in October 2003. The Company's ownership interest
in the limited partnership which owns the corporate headquarters
is a second deed of trust payable to the Company in the amount of
$250,000. The Company's investment in the limited partnership is
reflected on its books at December 31, 1996, at the cost of
$250,000.
F-17
<PAGE>
10. Restructuring Costs
During fiscal year 1995, the Company determined that its
long-term objectives did not require the services of various
executives and certain intangible assets required revaluation.
Accordingly, the Company expensed $2,600,000 in fiscal year 1995
as its estimate for such restructuring costs.
During fiscal year 1996, the Company expensed an additional
$1,325,000 for restructuring costs to cover the costs of
terminating the Wimbledon racquet license, $360,000, legal and
professional costs relating to
business divestitures and personnel
terminations,
$715,000 and the write-off of McManis Sports
production molds and designs, $250,000.
11. Pro Forma Financial Information
On December 29, 1995, the Company acquired all of the
outstanding stock of Lion Golf of Oregon, Inc. ("Lion Golf"), a
manufacturer and distributor of golf equipment, for $42,200 in
common stock of the Company. The Company accounted for this
acquisition using the purchase method. Accordingly, the purchase
price was allocated to the assets acquired based on their
estimated fair values. This treatment resulted in approximately
$119,000 of cost over assets acquired as of December 31, 1995.
The Company's Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1995 has been adjusted
to reflect the issuance of 50,000 shares of the Company's common
stock to Lion Golf's former shareholders. No other pro forma
adjustments have been made to the condensed consolidated
statement of operations.
F-18
<PAGE>
Condensed Consolidated Pro Forma Statement of Operations for the
year ended December 31, 1995:
Total revenue $ 7,323,005
Cost of sales 5,484,503
----------
GROSS PROFIT 1,838,502
Expenses:
Selling, general and administrative 8,370,270
Interest 1,330,596
Financing related costs -0-
Restructuring costs 2,600,000
----------
12,300,866
----------
PRO FORMA LOSS BEFORE INCOME TAXES ($10,462,364)
PRO FORMA INCOME TAX CREDIT 42,000
----------
PRO FORMA LOSS ($10,420,364)
==========
PRO FORMA LOSS PER COMMON SHARE ($0.73)
==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 14,315,310
==========
12. Contingencies
In January 1997, the Company was named as a defendant in a
lawsuit by Advanced Pultrusion Technologies Ltd. and its
subsidiary, Power Stick Manufacturing, whereby the plaintiff
demanded that the Company turn over to plaintiff a pultrusion
machine purchased by the Company from Vega, U.S.A., in fiscal
1996 and to cease manufacturing hockey stick shafts on such
machine as to which Power Stick Manufacturing claims patent
rights as well as unspecified damages. The United States Federal
District Court of Rhode Island granted preliminary injunctive
relief to the plaintiff in February 1997. The court also held
that prior to the physical removal of the pultrusion machine by
plaintiff from the Company's Rhode Island facility, plaintiff
must post a $200,000 bond and keep the machine under its control
at all times until the machine's ownership is determined at
trial. At this time, plaintiff has not posted the $200,000 bond
required to remove the machine. The Company does not know if
plaintiff can or will post the bond in the foreseeable future.
The Company is of the opinion that this lawsuit is without merit
and intends to defend itself vigorously.
From time to time, the Company is involved in litigation
relating to claims arising out of its operations in the normal
course of business. The Company is not currently a party to any
legal proceedings, the adverse outcome of which, in management's
opinion, individually or in the aggregate, would have a material
adverse effect on the Company's results of operations or
financial position.
F-19
<PAGE>
13. Accounting Changes
Previously the Company accounted for the conversion of
convertible securities, issued with conversion rights at a
discount to market as sales of securities and treated the discount
as a cost of capital. The Company has restated its financial
statements for the year ended December 31, 1995 to reclassify the
discount on convertible debentures as interest and record it as a
cost of borrowing. The effect on income for the year ended
December 31, 1995 was $1,109,589 in additional interest expense.
While for the fiscal year ending December 31, 1996, the amount of
additional interest expense was $1,635,714. For convertible
preferred stock issued during 1996 and subsequently converted to
common stock at a discount to market, the discount was accounted
for as a preferred stock dividend and deducted from paid-in
capital. The amount of such preferred stock dividends in fiscal
1996 was $1,166,666.
F-20
<PAGE>
Exhibit 3.1 - Certificate of Incorporation of the Company amended
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL,, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF
THE CERTIFICATE OF AMENDMENT OF "QUADRAX CORPORATION", FILED IN THIS
OFFICE ON THE THIRD DAY OF SEPTEMBER, A.D. 1996, AT 12 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
AUTHENTICATION:
2085204 8100 8090829
960255413
DATE: 09-04-96
Certificate of Amendment of
Certificate of Incorporation
of
QUADRAX CORPORATION
It is hereby certified that:
The following amendment of the Certificate of Incorporation of
Quadrax Corporation (the "Corporation") has been duly adopted in
accordance with the provisions of Section 242 of the Delaware General
Corporation Law:
1That the Certificate of Incorporation of this Corporation,
as heretofore amended, be further amended by adding the following new
ARTICLE THIRTEENTH hereof
THIRTEENTH:
(i) At the 1996 Annual Meeting of Stockholders, the
directors shall be divided into three classes, with respect to
the time that they severally hold office, as nearly equal in
number as possible, with the term of office of the first class
of directors to expire at the 1997 Annual Meeting of
Stockholders, the initial term of office of the second class of
directors to expire at the 1998 Annual Meeting of Stockholders
and the initial term of office of the third class of directors
to expire at the 1999 Annual Meeting of Stockholders.
Commencing with the 1997 Annual Meeting of Stockholders,
directors elected to succeed those directors whose terms have
thereupon expired shall be elected for a term of office to
expire at the third succeeding Annual Meeting of Stockholders
after their election, and upon the election and qualification of
their successors. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so
as to maintain or attain, if possible, the equality of the
number of directors in each class, but in no case will a
decrease in the number of directors shorten the term of any
incumbent director. If such equality is not possible, the
increase or decrease shall be apportioned among the classes in
such a way that the difference in the number of directors in any
two classes shall not exceed one.
2.The foregoing amendment of the Certificate of Incorporation has
been adopted by the Board of Directors and the stockholders of the
Corporation in accordance with Section 242 of the General Corporation
Law.
Signed and attested to on August 29, 1996QUADRAX CORPORATION
/s/ James J.
Palermo________________
James J. Palermo
President
Attest: /s/ Carolyn Cote
Carolyn Cote
Secretary
Exhibit 3.1(b) - Certificate of Designation of Class A Preferred
Stock - Series B.
CERTIFICATE OF DESIGNATION
OF RIGHTS AND PREFERENCES OF THE
CLASS A PREFERRED STOCK - SERIES B OF
QUADRAX CORPORATION
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
We, being respectively the President and Secretary of Quadrax
Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware
(hereinafter the "Corporation"), DO HEREBY CERTIFY:
FIRST: That pursuant to authority expressly granted and vested
in the Board of Directors of said Corporation by the provisions of the
Certificate of Incorporation, said Board of Directors adopted the
following resolution setting forth the designations, powers,
preferences and rights of its Class A Preferred Stock - Series B:
RESOLVED:That the designations, powers, preferences
and rights of the Class A Preferred Stock
- - Series B be, and hereby are, as set
forth below:
1. Number of Shares of Class A Preferred Stock - Series B.
Of the 10,000,000 shares of authorized and unissued Class A Preferred
Stock, $.01 par value per share ("Preferred Stock") of the
Corporation, seven thousand (7,000) shares shall be designated and
known as "Series B Convertible Preferred Stock."
2. Voting.
(a) Each holder of outstanding shares of Series B
Convertible Preferred Stock at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings)
with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration shall be entitled to
the number of votes equal to the number of whole shares of Common
Stock, as hereinafter defined, into which the shares of Series B
Convertible Preferred Stock held by such holder are convertible on the
record date established for such meeting. Except as provided by law,
by the provisions of Subparagraph 2(b) below, or by the provisions
establishing any other series of Class A Preferred Stock, holders of
Series B Convertible Preferred Stock shall vote together with the
holders of all other classes and series of securities of the
Corporation as a single class.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series B
Convertible Preferred Stock so as to affect adversely the Series B
Convertible Preferred Stock, without the written consent or
affirmative vote of the holders of at least a majority of the then
outstanding shares of Series B Convertible Preferred Stock to be
affected by amendment, alteration or repeal, given in writing or by
vote at a meeting, consenting or voting (as the case may be)
separately as a class. For this purpose, without limiting the
generality of the foregoing, the authorization or issuance of any
series of Preferred Stock with preference or priority over or on a
parity with the Series B Convertible Preferred Stock as to the right
to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall not be deemed to
affect adversely the designated class of Series B Convertible
Preferred Stock.
3. Dividends.
The holders of shares of Series B Convertible Preferred
Stock shall be entitled to receive, before any cash dividend shall be
declared and paid upon or set aside for the Common Stock in any fiscal
year of the Corporation, only when, as and if declared by the Board of
Directors of the Corporation out of the funds legally available for
that purpose, dividends payable in cash or Common Stock in an amount
per share for such fiscal year equal to the product of (i) the per
share amount, if any, of the cash dividend declared, paid or set aside
for the Common Stock during such fiscal year, multiplied by (ii) the
number of whole shares of Common Stock into which each such share of
Series B Convertible Preferred Stock is then convertible as determined
by Paragraph 7 below.
4. [NOT USED]
5. Liquidation. In the event of a voluntary or involuntary
dissolution, liquidation, or winding up of the Corporation, the
holders of shares of Series B Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation legally
available for distribution to holders of its capital stock, before any
payment or distribution shall be made to holders of Common Stock or
any other class of stock ranking junior to Series B Convertible
Preferred Stock, an amount per share equal to $1,000 (the "Stated
Value") of such shares of Series B Convertible Preferred Stock plus
all dividends which have accrued and are unpaid and therefore are in
arrears. If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Series B Convertible Preferred Stock
shall be insufficient to permit payment to the holders of Series B
Convertible Preferred Stock of the amount distributable as aforesaid,
then the entire assets of the Corporation to be so distributed shall
be distributed ratably among the holders of Series B Convertible
Preferred Stock. Upon any such liquidation, dissolution or winding up
of the Corporation, after the holders of Series B Convertible
Preferred Stock shall have been paid in full the amounts to which they
shall be entitled, the remaining net assets of the Corporation may be
distributed to the holders of stock ranking on liquidation junior to
the Series B Convertible Preferred Stock. Written notice of such
liquidation, dissolution or winding up, stating a payment date, the
amount of the liquidation payments and the place where said
liquidation payments shall be payable, shall be given by mail, postage
prepaid or by telex or facsimile to non-U.S. residents, not less than
10 days prior to the payment date stated therein, to the holders of
record of Series B Convertible Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the records
of the Corporation. For purposes hereof, the Common Stock shall rank
on liquidation junior to the Series B Convertible Preferred Stock.
6. Restrictions. At any time when shares of Series B
Convertible Preferred Stock are outstanding, except where the vote or
written consent of the holders of a greater number of shares of the
Corporation is required by law or by the Corporation's Certificate of
Incorporation, as amended, without the approval of the holders of at
least a two-thirds majority of the then outstanding shares of Series B
Convertible Preferred Stock given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a series, the
Corporation will not modify the terms of the Series B Convertible
Preferred Stock.
7. Optional Conversion. The holders of shares of Series B
Convertible Preferred Stock shall have the following conversion
rights:
(a) Right to Convert: Conversion Price. Subject to the
terms, conditions, and restrictions of this Paragraph 7, the holder of
any share or shares of Series B Convertible Preferred Stock shall have
the right to convert each such share of Series B Convertible Preferred
Stock (except that upon any liquidation of the Corporation, the right
of conversion shall terminate at the close of business on the business
day fixed for payment of the amount distributable on the Series B
Convertible Preferred Stock) into an amount of shares of Common stock
equal to the Stated Value of such share or shares of Series B
Convertible Preferred Stock based upon (i) the average bid price of
the Common Stock (the "Average Closing Price"), as reported by the
Nasdaq SmallCap Market or NASDAQ Electronic Bulletin Board during the
period of five trading days immediately preceding the date of
conversion (the "Conversion Date"), after (ii) discounting the Average
Closing Bid Price by an amount equal to twenty-five percent (25%) of
the Average Closing Bid Price to determine the conversion price (the
"Conversion Price"). To illustrate, if the Average Closing Bid Price
on the Conversion Date is $2.00 and one-half (1/2) of the shares of
Series B Convertible Preferred Stock are being converted, the Stated
Value for which would be $3,500,000, then the Conversion Price shall
be $1.50 per share of Common Stock ($2.00 x .75), whereupon the Stated
Value of $3,500,000 of Series B Convertible Preferred Stock would
entitle the holder thereof to convert one-half (1/2) of the shares of
Series B Convertible Preferred Stock into 2,333,333 shares of Common
Stock ($3,500,000 divided by $1.50 equals 2,333,333). However, in no
event shall the Conversion Price be less than $0.75 (the "Minimum
Conversion Price") or greater than $1.50 (the "Maximum Conversion
Price"). The Average Closing Bid Price shall be discounted by a
further five percent (5%) (30% total discount) if the Conversion
Notice is received after the 122nd day after the Original Issuance
Date (as defined in the next paragraph), and by a further five percent
(5%) (35% total discount) if the Conversion Notice is received after
the 246th day after the Original Issuance Date, subject always to the
Minimum Conversion Price and the Maximum Conversion Price. Only in the
event that the Corporation shall received written notice from Nasdaq
that the Company no longer meets the minimum financial requirements
for continued listing of its Common Stock on the Nasdaq Small-Cap
Market, then (i) the Company shall give each holder written notice of
the same within two business days, (ii) the Minimum Conversion Price
shall no longer be in effect, (iii) the discount from the Average
Closing Bid Price otherwise then in effect shall be increased by an
additional ten percent (10%), and (iv) the limitations on conversions
set forth in the following subparagraph shall not apply.
(b) Conversion Dates. The holder of any share or shares
of Series B Convertible Preferred Stock may not convert any of such
shares for a period of at least forty-four (44) calendar days
following the date upon which the Series B Convertible Preferred Stock
was originally issued (the "Original Issuance Date"), and thereafter
may convert such shares only on the dates and in the amounts as
follows: commencing on the 45th calendar day following the Original
Issuance Date and continuing up to and including the 79th calendar day
following the Original Issuance Date, the holder may convert up to
one-third (1/3) of the Series B Convertible Preferred Stock held by
the holder on such date; commencing on the 80th calendar day following
the Original Issuance Date and continuing up to and including the
109th calendar day following the Original Issuance Date, the holder
may convert up to an additional one-third (1/3) of the Series B
Convertible Preferred Stock held by the holder on such date
(cumulatively with all shares previously converted); and commencing on
the 110th calendar day following the Original Issuance Date and
continuing thereafter, the holder may convert up to 100% of the Series
B Convertible Preferred Stock held by the holder on such date.
(c) Notice of Conversion. The right of conversion shall
be exercised by the holder thereof by giving written notice (the
"Conversion Notice") to the Corporation that the holder elects to
convert a specified number of shares of Series B Convertible Preferred
Stock representing a specified Stated Value thereof into Common Stock
and by surrender of a certificate or certificates for the shares so to
be converted to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate
by notice in writing to the holders of the Series B Convertible
Preferred Stock) at any time during its usual business hours on the
date set forth in the Conversion Notice, together with a statement of
the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued. The
Conversion Notice shall include therein the Stated Value of shares of
Series B Convertible Preferred Stock to be converted, and a
calculation (i) of the Average Closing Price, (ii) the Conversion
Price, and (iii) the number of shares of Common Stock to be issued in
connection with such conversion. The Corporation shall have the right
to review the calculations included in the Conversion Notice, and
shall provide notice of any discrepancy or dispute therewith within
three business days of the receipt thereof.
(d) Issuance of Certificates; Time Conversion Effected.
Promptly, but in no event more than seven business days, after the
receipt of the Conversion Notice referred to in Subparagraph 7(c) and
surrender of the certificate or certificates for the share or shares
of Series B Convertible Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of
whole shares of Common Stock into which such shares of Series B
Convertible Preferred Stock are converted. To the extent permitted by
law, such conversion shall be deemed to have been effected as of the
close of business on the date on which such Conversion Notice shall
have been received by the Corporation, and at such time the rights of
the holder of such share or shares of Series B Convertible Preferred
Stock shall cease, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
Issuance of shares of Common Stock issuable upon conversion which are
requested to be registered in a name other than that of the registered
holder shall be subject to compliance with all applicable federal and
state securities laws. In the event that the Corporation shall fail to
deliver certificates for Common Stock issuable upon conversion within
seven days of receipt of the certificate representing the Series B
Convertible Preferred Stock being converted, the Corporation shall pay
the converting holder the sum of One Thousand Dollars ($1,000) per day
for each day until delivery shall be made, as liquidated damages and
not as a penalty.
(e) Fractional Shares; Dividends; Partial Conversion.
No fractional shares shall be issued upon conversion of Series B
Convertible Preferred Stock into Common Stock. All fractional shares
shall be rounded down to the nearest whole share. In case the number
of shares of Series B Convertible Preferred Stock represented by the
certificate or certificates surrendered pursuant to Subparagraph 7(a)
exceeds the number of shares converted, the Corporation shall, upon
such conversion, execute and deliver to the holder, at the expense of
the Corporation, a new certificate or certificates for the number of
shares of Series B Convertible Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted.
(f) Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of
such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of
Series B Convertible Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately
theretofore receivable upon the conversion of such share or shares of
Series B Convertible Preferred Stock, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the
number of shares of such Common Stock immediately theretofore
receivable upon such conversion had such reorganization or
reclassification not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without
limitation provisions for adjustments of the conversion rights) shall
thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise of such conversion rights.
(g) Adjustments for Splits, Combinations, etc. The
Conversion Price and the number of shares of Common Stock into which
the Series B Convertible Preferred Stock shall be convertible shall be
adjusted for stock splits, combinations, or other similar events.
Additionally, an adjustment will be made in the case of an exchange of
Common Stock, consolidation or merger of the Company with or into
another corporation or sale of all or substantially all of the assets
of the Company in order to enable the holder of Series B Convertible
Preferred Stock to acquire the kind and the number of shares of stock
or other securities or property receivable in such event by a holder
of the Series B Convertible Preferred Stock of the number of shares
that might otherwise have been issued upon the conversion of the
Series B Convertible Preferred Stock. No adjustment to the Conversion
Price will be made for dividends (other than stock dividends), if any,
paid on the Common Stock or for securities issued pursuant to exercise
for fair value of options, warrants, or restricted stock.
8. Mandatory Conversion.
(a) Mandatory Conversion Date. If at March 31, 1999
(the "Mandatory Conversion Date"), there remains issued and
outstanding any shares of Series B Convertible Preferred Stock, then
the Corporation shall be entitled to require all (but not less than
all) holders of shares of Series B Convertible Preferred Stock then
outstanding to convert their shares of Series B Convertible Preferred
Stock into shares of Common Stock at the then effective Conversion
Price pursuant to Subparagraph 7(a). The Corporation shall provide
written notice (the "Mandatory Conversion Notice") to the holders of
shares of Series B Convertible Preferred Stock of such mandatory
conversion. The Mandatory Conversion Notice shall include (i) the
Stated Value of the shares of Series B Convertible Preferred Stock to
be converted, (ii) the Conversion Price at March 31, 1999, and (iii)
the number of shares of the Corporation's Common Stock to be issued
upon such mandatory conversion at the then applicable Conversion
Price. No Minimum Conversion Price shall be applicable to mandatory
conversion of the Series B Convertible Preferred Stock pursuant to
this Paragraph 8.
(b) Surrender of Certificates. On or before the
Mandatory Conversion Date, each holder of shares of Series B
Convertible Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place
designated in such Mandatory Conversion Notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which
such holder is entitled. On the Mandatory Conversion Date, all rights
with respect to the Series B Convertible Preferred Stock so converted,
including the rights, if any, to receive notices and vote, will
terminate. All certificates evidencing shares of Series B Convertible
Preferred Stock that are required to be surrendered for conversion in
accordance with the provisions hereof, from and after the Mandatory
Conversion Date, shall be deemed to have been retired and canceled and
the shares of Series B Convertible Preferred Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the
failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter
take such appropriate action as may be necessary to reduce the
authorized Series B Convertible Preferred Stock accordingly.
9. Redemption of Series B Convertible Preferred Stock.
(a) Right to Redeem Series B Convertible Preferred
Stock. At any time, and from time to time, on and after the
expiration of the restrictions of conversion contained in Subparagraph
7(b), if the closing bid price of the Company's Common Stock as
reported by the Nasdaq SmallCap Market or NASDAQ Electronic Bulletin
Board equals or exceeds $10.00 for 20 consecutive trading days, then
the Corporation may, in its sole discretion, but shall not be
obligated to, redeem, in whole or in part, the then issued and
outstanding shares of Series B Convertible Preferred Stock, at a price
of $1,000 per share of such Series B Convertible Preferred Stock (the
"Redemption Price"), subject to adjustment as provided in Paragraph 7.
(b) Notice of Redemption. The Corporation shall provide
each holder of record of the Series B Convertible Preferred Stock with
written notice of redemption (the "Redemption Notice") not less than
30 days prior to any date stipulated by the Corporation for the
redemption of the Series B Convertible Preferred Stock (the
"Redemption Date"). The Redemption Notice shall contain (i) the
Redemption Date, (ii) the number of shares of Series B Convertible
Preferred Stock to be redeemed from the holder to whom the Redemption
Notice is delivered, (iii) instructions for surrender to the
Corporation of the certificate or certificates representing the shares
of Series B Convertible Preferred Stock to be redeemed, and (iv)
specification by the Corporation of the number of shares of Series B
Convertible Preferred Stock to be redeemed as provided in this
Paragraph 8, and (v) a procedure for the holder to specify the number
of shares of Series B Convertible Preferred Stock to be converted into
Common Stock pursuant to Paragraph 7.
(c) Right to Convert Series B Convertible Preferred
Stock upon Receipt of Redemption Notice. Upon receipt of the
Redemption Notice, the recipient thereof shall have the option, at its
sole election, to specify what portion of the Series B Convertible
Preferred Stock called for redemption in the Redemption Notice shall
be redeemed as provided in this Paragraph 8 or converted into Common
Stock in the manner provided in Paragraph 7. If the holder of the
Series B Convertible Preferred Stock called for redemption elects to
convert such shares, then such conversion shall take place on the
Redemption Date, in accordance with the terms of Paragraph 7.
(d) Surrender of Certificates; Payment of Redemption
Price. On or before the Redemption Date, each holder of the shares of
Series B Convertible Preferred Stock to be redeemed shall surrender
the required certificate or certificates representing such shares to
the Corporation, in the manner and at the place designated in the
Redemption Notice, and upon the Redemption Date, the Redemption Price
for such shares shall be paid by the Corporation via check to the
order of the person whose name appears on such certificate or
certificates as the owner thereof, and each such surrendered
certificate shall be canceled and retired. If a certificate is
surrendered and all the shares evidenced thereby are not being
redeemed, the Corporation shall issue new certificates to be
registered in the names of the person(s) whose name(s) appear(s) as
the owners on the respective surrendered certificates and deliver such
certificate to such person(s).
(e) Deposit of Redemption Price. On the Redemption Date
in respect to any shares of Series B Convertible Preferred Stock, or
prior thereto, the Corporation shall deposit with any bank or trust
company (the "Depository") having a capital and surplus of at least
$50,000,000, a sum equal to (i) the aggregate Redemption Price of all
such shares called for redemption, less (ii) the aggregate Redemption
Price for those shares of Series B Convertible Preferred Stock in
respect of which the Corporation has received notice from the holder
thereof of its election, pursuant to Subparagraph 8(c), to convert
shares of Series B Convertible Preferred Stock into Common Stock. The
Corporation shall provide instructions and authority to the Depository
to pay, on or after the Redemption Date, the Redemption Price to the
respective holders upon the surrender of their share certificates.
The deposit of the Redemption Price by the Corporation with the
Depository shall constitute full payment for the shares of Series B
Convertible Preferred Stock to be redeemed, and from and after that
date of the deposit, the redeemed shares shall be deemed to be no
longer issued and outstanding, and the holders thereof shall cease to
be holders with respect to such shares and shall have no rights with
respect thereto, except the right to receive from the Depository
payment of the Redemption Price, without interest, upon surrender of
their certificates therefor. Any funds so deposited and unclaimed at
the end of one year from the Redemption Date shall be released and
delivered to the Corporation, after which the former holders of shares
of Series B Convertible Preferred Stock called for redemption shall be
entitled to receive payment of the Redemption Price in respect of
their shares only from the Corporation.
10. Notices. In case at any time:
(a) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other pro rata
distribution to the holders of its Common Stock; or
(b) the Corporation shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock
of any class or other rights; or
(c) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into, or a sale of
all or substantially all its assets to, another entity or entities; or
(d) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by
first class mail, postage prepaid, or by telex or facsimile or by
recognized overnight delivery service to non-U.S. residents, addressed
to each holder of any shares of Series B Convertible Preferred Stock
at the address of such holder as shown on the books of the
Corporation, (i) at least 10 days' prior to written notice of the date
on which the books of the Corporation shall close or a record shall be
taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least 10 days' prior
written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (i) shall also specify,
in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled
thereto and (ii) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
11. Stock to be Reserved. The Corporation, upon the effective
date of this Certificate of Designation, has a sufficient number of
shares of Common Stock available to reserve for issuance upon the
conversion of all outstanding shares of Series B Convertible Preferred
Stock, assuming that the Minimum Conversion Price remains in effect.
(The Corporation, under such circumstances would require to issue a
maximum of 4,666,666 shares of Common Stock upon conversion of all of
the outstanding shares of Series B Convertible Preferred Stock if all
of such shares were converted at the Minimum Conversion Price). The
Corporation will at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issuance upon the
conversion of Series B Convertible Preferred Stock as herein provided,
such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series B Convertible
Preferred. The Corporation convenants that all shares of Common Stock
which shall be so issued shall be duly and validly issued. The
Corporation will take all such action as may be so taken without
violation of any applicable law or regulation, or of any requirement
of any national securities exchange upon which the Common Stock may be
listed. The Corporation will not take any action which results in any
adjustment of the conversion rights if the total number of shares of
Common Stock issued and issuable after such action upon conversion of
the Series B Convertible Preferred Stock would exceed the total number
of shares of Common Stock then authorized by the Corporation's
Certificate of Incorporation, as amended.
12. No Reissuance of Series B Convertible Preferred Stock.
Shares of Series B Convertible Preferred Stock which are converted
into shares of Common Stock as provided herein shall not be reissued.
13. Issue Tax. The issuance of certificates for shares of
Common Stock upon conversion of Series B Convertible Preferred Stock
shall be made without charge to the holder for any United States
issuance tax in respect thereof, provided that the Corporation shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in
a name other than that of the holder of the Series B Convertible
Preferred Stock which is being converted.
14. Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Series B Convertible
Preferred Stock or of any shares of Common Stock issued or issuable
upon the conversion of any shares of Series B Convertible Preferred
Stock in any manner which interferes with the timely conversion of
such Series B Convertible Preferred Stock, except as may otherwise be
required to comply with applicable securities laws.
15. Definition of Common Stock. As used in this Certificate
of Designation, the term "Common Stock" shall mean and include the
Corporation's authorized Common Stock, $.000009 par value per share,
as constituted on the date of filing of these terms of the Series B
Convertible Preferred Stock, and shall also include any capital stock
of any class of the Corporation thereafter authorized which shall
neither be limited to a fixed sum or percentage of par value in
respect of the rights of the holders thereof to participate in
dividends nor entitled to a preference in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding
up of the corporation; provided that the shares of Common Stock
receivable upon conversion of shares of Series B Convertible Preferred
Stock shall include only shares designated as Common Stock of the
Corporation on the date of filing of this instrument, or in case of
any reorganization, reclassification, or stock split of the
outstanding shares thereof, the stock, securities or assets provided
for in Subparagraph 7(f) and (g).
16. Amendments. No provision of these terms of the Series B
Convertible Preferred Stock may be amended, modified or waived without
the written consent or affirmative vote of the holders of at least a
majority of the then outstanding shares of Series B Convertible
Preferred Stock.
SECOND: That said determination of the designation, preferences
and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, relating to the
Class A Preferred Stock - Series B was duly made by the Board of
Directors pursuant to the provisions of the Corporation's Certificate
of Incorporation and in accordance with the provisions of Section 151
of the General Corporation Law of the State of Delaware.
IN WITNESS HEREOF, this Certificate has been signed by James J.
Palermo, its President and Carolyn Cote, its Secretary, this 11th day
of June, 1996.
/S/ James J. Palermo
James J. Palermo
President
/s/ Carolyn Cote _________
Carolyn Cote
Secretary
Exhibit 4.5(a) - Certificate for $2,150,000 Convertible Debenture
bearing interest at the rate of 8% per annum due October 9, 1998.
No.1 $50,000 USD
QUADRAX CORPORATION
$5,000,000 8% Convertible Debenture
THE SECURITIES REPRESENTED HEREBY, INCLUDING SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION HEREOF, HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES (AS
DEFINED IN REGULATION S UNDER THE ACT) OR TO OR FOR THE ACCOUNT OR
BENEFIT OF US PERSONS (AS DEFINED IN REGULATION S UNDER THE ACT)
EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT OR AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE ACT.
THIS DEBENTURE is one of a duly authorized issue of Debentures of
QUADRAX CORPORATION, a corporation duly organized and existing under
the laws of the State of Delaware (the "ISSUER") designated as its
Eight (8%) Percent Convertible Debenture due October 9, 1998, in an
aggregate face amount not exceeding Five Million (USD $5,000,000)
Dollars, issuable in Fifty Thousand ($50,000) Dollars par value face
amounts.
FOR VALUE RECEIVED, the ISSUER promises to pay to
CYGNI S.A.
the registered holder hereof and its successors and assigns (the
"HOLDER"), the principal sum of:
Fifty Thousand United States Dollars,
on October 9, 1998 (the "Maturity Date"), and to pay interest, as
outlined below, at the rate of 8% per annum, on the principal sum
outstanding from time to time for the term of the Debenture or until
the Debenture is completely converted. Accrual of Interest shall
commence on the first business day to occur after the date hereof and
shall continue until payment in full of the principal sum has been
made or duly provided for. The interest so payable will be paid to
the person in whose name this Debenture (or one or more predecessor
Debentures) is registered on the records of the Issuer regarding
registration and transfers of the Debenture (the "Debenture
Register"), provided, however, that the ISSUER'S obligation to a
transferee of this Debenture arises only if such transfer, sale or
other disposition is made in accordance with the terms and conditions
of the Offshore Subscription Agreement dated as of October 10, 1996
between the ISSUER and HOLDER (the "Subscription Agreement"). The
principal of, and interest on, this Debenture are payable in such
coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts, at
the address last appearing on the Debenture register of the ISSUER as
designated in writing by the Holder hereof from time to time. The
ISSUER will pay the principal of and all accrued and unpaid interest
due upon this Debenture on the Maturity Date, less any amounts
required by law to be deducted or withheld, to the Holder at the last
address on the Debenture Register. The forwarding of such check
shall constitute a payment of principal and interest hereunder and
shall satisfy and discharge the liability for principal and interest
on the Debenture to the extent of the sum represented by such check
plus any amounts so deducted.
The Debenture is subject to the following additional provisions:
1. The Debenture is exchangeable for like Debentures in
equal aggregate principal amount of authorized denominations, as
requested by the HOLDERS surrendering the same. No service charge
will be made for such registration or transfer or exchange.
2. The ISSUER shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture any amounts
required to be withheld under the applicable provisions of the United
States Income Tax or other applicable laws at the time of such
payments.
3. This Debenture has been issued subject to investment
representations of the original HOLDER hereof and may be transferred
or exchanged in the US only in compliance with Securities Act of
1933, as amended (the "Act") and applicable state securities laws.
Prior to the due presentment for such transfer of this Debenture, the
ISSUER and any agent of the ISSUER may treat the person in whose name
this Debenture is duly registered on the ISSUER'S Debenture Register
as the owner hereof for the purpose of receiving payment as herein
provided and all other purposes, whether or not this debenture is
overdue, and neither the ISSUER nor any such agent shall be affected
by notice to the contrary. The transferee shall be bound, as the
original HOLDER by the same representations and terms described
herein and under the Subscription Agreement.
4. The Subscriber is entitled, at its option, commencing at
any time on or after forty-one (41) days after the Closing Date to
convert One Hundred (100%) percent of the original principal amount
of Debentures into shares of Common Stock of the Company (the
"Shares") at a conversion price which shall be the lesser of:
(i) The Purchase Date Price; and
(ii) In the event the Subscriber wishes to convert after
forty-one (41) days up until one hundred and four (104) days after
the Closing Date, the conversion price shall be Seventy (70%) percent
of the Market Price (as defined below). In the event the Subscriber
wishes to convert one hundred and five (105) days or more after the
Closing Date, the conversion price shall be sixty-five (65%) percent
of the Market Price (as defined below). All conversions made prior
to one hundred twenty (120) days from the Closing Date are subject to
a minimum conversion price of $.30. All conversions made after one
hundred twenty (120) days from the Closing Date are subject to a
minimum conversion price of $.20.
For purposes of this Section 4, "Purchase Date Price" shall
be the closing bid price of the Common Stock as reported on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") for the trading day prior to the Closing Date. For
purposes of this Section 4, "Market Price" shall be the average of
the closing bid prices of the Common Stock as reported by NASDAQ for
the five (5) trading days prior to the date of conversion of the 8%
Convertible Debenture, as adjusted to reflect any stock dividend on,
or stock split, or stock combination of, the Common Stock since the
Closing Date.
No fractional shares or script representing fractions of
shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share, with the
fraction paid in cash at the discretion of the ISSUER. For purposes
of this Debenture, the "Conversion Date" on which notice of
conversion is given by the HOLDER shall be deemed to be the day
Notice is sent by facsimile, provided thereafter Debenture is sent by
overnight courier within three (3) business days, subject to the
Conversion Dates aforesaid and, with the conversion notice duly
executed, to the Transfer Agent via recognized overnight courier.
5. No provision of this Debenture shall alter or impair the
obligation of the ISSUER, which is absolute and unconditional, to pay
the principal of, and interest on this Debenture at the place, time,
and rate, and in the coin or currency herein prescribed.
6. The ISSUER hereby expressly waives demand and presentment
for payment, notice on nonpayment, protest, notice of protest, notice
of dishonor, notice of acceleration or intent to accelerate, and
diligence in taking any action to collect amounts called for
hereunder and shall be directly and primarily liable for the payment
of all sums owing and to be owing hereon, regardless of and without
any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
7. The ISSUER agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in
collecting any amount due or exercising the conversion rights under
this Debenture.
If one or more of the following described "Events of Default"
shall occur,
a. The ISSUER shall default in the payment of principal or
Interest on this Debenture and continuance for thirty (30) days; or
b. Any of the representations or warranties made by the
ISSUER herein, or in the Subscription Agreement shall have been
incorrect in any material respect; or
c. The ISSUER shall fail to perform or observe any other
covenant, term, provision, condition, agreement or obligation of the
ISSUER under this Debenture and such failure shall continued uncured
for a period of seven (7) days after notice from the Holder of such
failure; or
d. A trustee, liquidator or receiver shall be appointed
for the ISSUER or for a substantial part of its property or business
without its consent and shall not be discharged within thirty (30)
days after such appointment; or
e. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume
custody or control of the whole or any substantial portion of the
properties or assets of the ISSUER and shall not be dismissed within
thirty (30) calendar days thereafter; or
f. Bankruptcy reorganization, Insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief or debtors shall be instituted by or
against the ISSUER, and if instituted against the ISSUER, ISSUER
shall by any action or answer approve of, consent to or acquiesce in
any such proceedings or admit the material allegations of, or default
in answering a petition filed in any such proceeding; or
g. The ISSUER'S Common Stock is delisted from trading on
NASDAQ Small Cap Market unless it is thereupon admitted to trading on
the NASDAQ National Market or a national stock exchange.
Then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing by the
HOLDER (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the HOLDER and in the HOLDER'S
sole discretion, the HOLDER may consider this Debenture immediately
due and payable, without presentment, demand protest or notice of any
kind, all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary
notwithstanding, and HOLDER may immediately, and without expiration
of any period of grace, enforce any and all of the HOLDER'S rights
and
remedies provided herein or any other rights or remedies afforded by
law.
9. If changes or modification to the rules governing the
transaction restriction period and/or the exemptions for resales of
the securities under Regulation S are enacted during undertakes, upon
the written demand of the HOLDER for conversion of the Debentures, to
file a Registration Statement to register the Common Shares to be
issued upon conversion with the United States Securities Exchange
Commission in accordance with Registration Section 2(J) of the
Subscription Agreement, including all such penalties for failure to
file same.
10. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum
extent
possible, and the validity and enforceability of the remaining
provisions of this Debenture will not in any way be affected or
impaired thereby.
11. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement
between the ISSUER and HOLDER with respect hereof. Neither this
Debenture nor any terms hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the ISSUER
and the HOLDER.
12. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the ISSUER has caused this instrument to
be duly executed by an officer thereunto duly authorized.
QUADRAX CORPORATION
By /s/ James Palermo
Name: James Palermo
Title: CEO
Date: October 10, 1996
Exhibit 4.5(b) - Certificate for $3,600,000 Convertible Debenture
bearing interest at the rate of 8% per annum due February 10, 1999.
No:
$50,000 USD
QUADRAX CORPORATION
$3,600,000 8% Convertible Debenture
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND ARE BEING OFFERED
AND SOLD ONLY TO ACCREDITED INVESTORS IN RELIANCE UPON EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE ACT. SUCH SECURITIES MAY
NOT BE REOFFERED FOR SALE OR RESOLD OR OTHERWISE TRANSFERRED UNLESS
THEY ARE REGISTERED UNDER THE APPLICABLE PROVISION OF THE ACT OR ARE
EXEMPT FROM SUCH REGISTRATION.
This Debenture is one of a duly authorized issue of Debentures of
Quadrax Corporation, a corporation duly organized and existing under
the laws of the State of Delaware (the "Issuer") designated as its
Eight (8%) Percent Convertible Debenture due February 10, 1999, in an
aggregate face amount not exceeding Three Million Six Hundred
Thousand (USD $3,600,000) Dollars, issuable in Fifty Thousand
($50,000) Dollars principal amounts.
For Value Received, the Issuer promises to pay to
the registered holder hereof and its successors and assigns (the
"Holder"), the principal sum of:
Fifty Thousand United States Dollars,
on February 10, 1999 (the "Maturity Date"), and to pay interest, as
outlined below, at the rate of 8% per annum, on the principal sum
outstanding from time to time for the term of the Debenture or until
the Debenture is completely converted. The interest so payable will
be paid to the person in whose name this Debenture (or one or more
predecessor Debentures) is registered on the records of the Issuer
regarding registration and transfers of the Debenture (the "Debenture
Register"), provided, however, that the Issuer's obligation to a
transferee of this Debenture arises only if such transfer, sale or
other disposition is made in accordance with the terms and conditions
of the Subscription Agreement dated as of January 31, 1997 between
the Issuer and Holder (the "Subscription Agreement"). Holder shall
be entitled to receive interest, which shall accrue and be payable
quarterly, in cash or the Issuer's common stock, $.000009 par value
per share ("Common Stock"), at the option of the Board of Directors
of the Issuer. The interest shall be accrue on last day of each
fiscal quarter of the Issuer (March 31, June 30, September 30 and
December 31) . If the Issuer exercises its option to pay a quarterly
dividend in shares of Common Stock, the number of shares which Holder
will receive shall be computed by dividing the interest due in such
quarter by the closing bid price of a share of the Common Stock on
the last day of the quarter in which the interest accrued. The
Holder shall waive its right to receive such interest in the event
this Debenture is converted to Common Stock during the six calendar
months following the date of this Debenture. Accordingly, interest
shall be held by the Issuer until six months following the date of
this Debenture.
The principal of, and interest on, this Debenture are payable
in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private
debts, at the address last appearing on the Debenture register of the
Issuer as designated in writing by the Holder hereof from time to
time. The Issuer will pay the principal of and all accrued and
unpaid interest due upon this Debenture on the Maturity Date, less
any amounts required by law to be deducted or withheld, to the Holder
at the last address on the Debenture Register. The forwarding of
such check shall constitute a payment of principal and interest
hereunder and shall satisfy and discharge the liability for principal
and interest on the Debenture to the extent of the sum represented by
such check plus any amounts so deducted.
The Debenture is subject to the following additional provisions:
The Debenture is exchangeable for like Debentures in equal
aggregate principal amount of authorized denominations, as requested
by the Holders surrendering the same. No service charge will be made
for such registration or transfer or exchange.
The Issuer shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to
be withheld under the applicable provisions of the United States
Income Tax or other applicable laws at the time of such payments.
This Debenture has been issued subject to investment
representations of the original Holder hereof and may be transferred
or exchanged in the US only in compliance with Securities Act of
1933, as amended (the "Act") and applicable state securities laws.
Prior to the due presentment for such transfer of this Debenture, the
Issuer and any agent of the Issuer may treat the person in whose name
this Debenture is duly registered on the Issuer's Debenture Register
as the owner hereof for the purpose of receiving payment as herein
provided and all other purposes, whether or not this debenture is
overdue, and neither the Issuer nor any such agent shall be affected
by notice to the contrary. The transferee shall be bound, as the
original Holder by the same representations and terms described
herein and under the Subscription Agreement.
Terms of Conversion.
(A) Conversion Date. The Holder is entitled, at its option,
to convert the Debentures into shares of the Common Stock on the
dates and in the amounts as follows: commencing on the 60th calendar
day following the Original Issuance Date and continuing up to and
including the 89th calendar day following the Original Issuance Date,
the subscriber may convert up to one-third (1/3) of the Debentures
held by the Holder on such date; commencing on the 90th calendar day
following the Original Issuance Date and continuing up to and
including the 119th calendar day following the Original Issuance
Date, the Holder may convert up to an additional one-third (1/3) of
the Debentures held by the Holder on such date (cumulatively with all
shares previously converted); and commencing on the 120th calendar
day following the Original Issuance Date and continuing thereafter,
the Holder may convert up to 100% of the Debentures held by the
Holder on such date.
(B) Conversion Price. The Holder has the right to convert
any Debentures he owns (except that upon any liquidation of the
Issuer, the right of conversion shall terminate at the close of
business on the business day fixed for payment of the amount
distributable on the Debentures) into a number of shares of Common
Stock equal to the Debenture Face Value multiplied by the number of
Debentures to be converted divided by the "Conversion Price", which
is defined as the lesser of
1. Floating Conversion Price. 80% of the average
closing bid price of the Common Stock (the "Average Closing Price"),
as reported by the Nasdaq SmallCap Market or NASDAQ Electronic
Bulletin Board during the period of five trading days immediately
preceding the date of conversion (the "Conversion Date"), or
2. Fixed Conversion Price. The market bid price of
the Common Stock on the Original Issuance Date.
To illustrate, if the average closing bid price on the
Conversion Date is $2.00 and one-half (1/2) of the Debentures are
being converted, or 36 individual Debentures, the total face value
for which would be $1,800,000, then the Conversion Price would be
$1.60 per share of Common Stock ($2.00 x .80), assuming the market
bid price on the Original Issuance Date was greater than $1.60,
whereupon the face value of $1,800,000 of the Debentures would
entitle the Holder thereof to convert such Debentures into 1,125,000
shares of Common Stock ($1,800,000 divided by $1.60 equals
1,125,000).
(C) Maximum Conversion. The maximum number of shares of
Common Stock that each Debenture can convert into is 125,000.
Therefore, in the event the Holder delivers its Notice of Conversion
to the Issuer, and such conversion would result in the issuance by
the Issuer of a number of shares of Common Stock which would exceed
125,000 per Debenture (which would occur when the Conversion Price is
less than $.40), then each Debenture to be converted will convert
into 125,000 shares of Common Stock. The Issuer will then redeem the
portion of each Debenture which is not convertible. The redeemable
portion of each Debenture will be a percentage computed as follows:
1. Divide the total Face Value (Debenture Face Value
multiplied by number of Debentures to be converted) by the Conversion
Price, which will yield the "Product".
2. Multiply 125,000 by the number of Debentures to be
converted, which will yield the "Maximum Factor".
3. Divide Maximum Factor by the Product, which will yield
the "Percentage "Satisfied".
4. 1 minus the Percentage Satisfied will yield the
"Redeemable Percentage".
The Holder shall receive the Redeemable Percentage multiplied
by the total face value of the Debentures to be converted, plus all
accrued but unpaid interest, within 60 days.
In addition, Holder shall be paid interest at a rate yielding
seven (7) percent per annum on the amount of cash due, which shall
accrue from the date of Holder's Notice of Conversion.
No fractional shares or script representing fractions of shares
will be issued on conversion, but the number of shares issuable shall
be rounded to the nearest whole share.
No provision of this Debenture shall alter or impair the
obligation of the Issuer, which is absolute and unconditional, to pay
the principal of, and interest on this Debenture at the place, time,
and rate, and in the coin or currency herein prescribed.
The Issuer hereby expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of
dishonor, notice of acceleration or intent to accelerate, and
diligence in taking any action to collect amounts called for
hereunder and shall be directly and primarily liable for the payment
of all sums owing and to be owing hereon, regardless of and without
any notice, diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
The Issuer agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in
collecting any amount due or exercising the conversion rights under
this Debenture.
If one or more of the following described "Events of Default"
shall occur,
The Issuer shall default in the payment of principal or
interest on this Debenture and continuance for thirty (30)
days; or
. Any of the representations or warranties made by the
Issuer herein, or in the Subscription Agreement shall have
been incorrect in any material respect; or
. The Issuer shall fall to perform or observe any other
material covenant, term, provision, condition, agreement or
obligation of the Issuer under this Debenture and such
failure shall continued uncured for a period of seven (7)
days after notice from the Holder of such failure; or
. A trustee, liquidator or receiver shall be appointed for
the Issuer or for a substantial part of its property or
business without its consent and shall not be discharged
within thirty (30) days after such appointment; or
. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall
assume custody or control of the whole or any substantial
portion of the properties or assets of the Issuer and shall
not be dismissed within thirty (30) calendar days thereafter;
or
. Bankruptcy reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief or debtors shall be
instituted by or against the Issuer, and if instituted
against the Issuer, Issuer shall by any action or answer
approve of, consent to or acquiesce in any such proceedings
or admit the material allegations of, or default in answering
a petition filed in any such proceeding; or
. The Issuer's Common Stock is delisted from trading on
NASDAQ Small Cap Market unless it is thereupon admitted to
trading on the NASDAQ National Market or a national stock
exchange.
Then, or at any time thereafter, and in each and every such
case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent default) at the option of the Holder
and in the Holder's sole discretion, the Holder may consider
this Debenture immediately due and payable, without
presentment, demand protest or notice of any kind, all of which
are hereby expressly waived, anything herein or in any note or
other instruments to the contrary notwithstanding, and Holder
may immediately, and without expiration of any period of grace,
enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by
law.
In case any provision of this Debenture is held in arbitration,
as set forth in the Subscription Agreement, to be excessive in scope
or otherwise invalid or unenforceable, such provision shall be
adjusted rather than voided, if possible, so that it is enforceable
to the maximum extent possible, and the validity and enforceability
of the remaining provisions of this Debenture will not in any way be
affected or impaired thereby.
This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between
the Issuer and Holder with respect hereof. Neither this Debenture
nor any terms hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Issuer and the
Holder.
This Debenture shall be governed by and construed in accordance
with the laws of the State of Rhode Island.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
duly executed by an officer thereunto duly authorized.
QUADRAX CORPORATION
By: /s/ James Palermo
Name: James Palermo
Title: President
Date: February 10, 1997
("Original Issuance Date")
Exhibit 10.5 - Business Loan Agreement between Bank of the Cascades
and Lion Golf of Oregon, Inc., dated December 16, 1994
BANK OF THE CASCADES
BUSINESS LOAN AGREEMENT
Principal $1,000,000.00 Loan Date 01-30-1996
Maturity 10-31-1996 Loan No 10026579
Call 4 Collateral 16
Account L099900 Officer PLM Initials
References in the shaded area are for Lender's use only and do not
limit the applicability of this document to any particular loan or
item.
Borrower: LION GOLF OF OREGON INC Lender: BANK OF THE CASCADES
63026 00 RILEY AD #20 THIRD & REVERE BRANCH
BEND, OR 97701 1700 NE THIRD ST
P 0 Box 5879
BEND, OR 977M
THIS BUSINESS LOAN AGREEMENT between LION GOLF OF OREGON INC
("Borrower") and BANK OF THE CASCADES ("Lender") is made and executed
on the following terms and conditions. Borrower has received prior
commercial loans from Lender or has applied to Lender for a
commercial loan or loans and other financial accommodations,
Including those which may be described on any exhibit or schedule
attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial
accommodations from Lender to Borrower, are referred to in this
Agreement Individually as the "Loan" and collectively as the "Loans."
Borrower understands and agrees that: (a) In granting, renewing, or
extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by
Lender at all times shall be subject to Lender's sole judgment and
discretion; and (c) all such Loans shall be and shall remain subject
to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of January 30, 1996, and
shall continue thereafter until all indebtedness of Borrower to
Lender has been performed In full and the parties terminate this
Agreement In writing.
DEFINITIONS. The following words shall have the following meanings
when used in this Agreement. Terms not otherwise defined in this
Agreement shall have the meanings attributed to such terms in the
Uniform Commercial Code. All references to dollar amounts shall mean
amounts in lawful money of the United States of America.
Agreement. The word "Agreement" means this Business Loan Agreement,
as this Business Loan Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.
Borrower. The word "Borrower" means LION GOLF OF OREGON INC. The
word "Borrower" also includes, as applicable, all subsidiaries and
affiliates of Borrower as provided below in the paragraph titled
"Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
Collateral. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security for
a Loan, whether real or personal property, whether granted directly
or indirectly, whether granted now or in the future, and whether
granted in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien
or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income
Security Act of 1974. as amended.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in
the section titled "Events of Default."
Grantor. The word "Grantor" means and includes without limitation
each and all of the persons or entities granting a Security interest
in any Collateral for the Indebtedness, including without limitation
all Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with any indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as
well as all claims by Lender against Borrower, or any one or more of
them; whether now or hereafter existing, voluntary or involuntary,
due or not due, absolute or contingent, liquidated or unliquidated;
whether Borrower may be liable individually or jointly with others;
whether Borrower may be obligated as a guarantor, surety, or
otherwise; whether recovery upon such Indebtedness may be or
hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may be otherwise
unenforceable.
Lender. The word "Lender" means BANK OF THE CASCADES, its successors
and assigns.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on
hand plus Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without
limitation any and all commercial loans and financial accommodations
from Lender to Borrower, whether now or hereafter existing, and
however evidenced, including without limitation those loans and
financial accommodations described herein or described on any exhibit
or schedule attached to this Agreement from time to time.
Note. The word "Note" means and includes without limitation
Borrower's promissory note or notes, If any, evidencing Borrower's
Loan obligations in favor of Lender, as well as any substitute,
replacement or refinancing note or notes therefor.
Permitted Liens. The words "Permitted Liens' means: (a) liens and
security interests securing indebtedness owed by Borrower to Lender;
(b)liens for taxes, assessments, or similar charges either not yet
due or being contested in good faith; (c) liens of materialmen,
mechanics, warehouseman, or carriers, or other like liens arising in
the ordinary course of business and securing obligations which are
not yet delinquent; (d)purchase money liens or purchase money
security interests upon or in any property acquired or held by
Borrower in the ordinary course of business to secure indebtedness
outstanding on the date of this Agreement or permitted to be incurred
under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of
this Agreement, have been disclosed to and approved by the Lender in
writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount
with respect to the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing, executed
in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing. representing, or creating a
Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the
form of a lien, charge, mortgage, deed of trust, assignment, pledge,
chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien or title retention contract,
lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law,
contract or otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness
and liabilities of Borrower which have been subordinated by written
agreement to indebtedness owed by Borrower to Lender in form and
substance acceptable to Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's
total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible items, but including leaseholds and leasehold
improvements) less total Debt.
Working Capital. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current
liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make
the initial Loan Advance and each subsequent Loan Advance under this
Agreement shall be subject to the fulfillment to Lender's
satisfaction of all of the conditions set forth in this Agreement and
in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form
satisfactory to Lender the following documents for the Loan; (a) the
Note, (b) Security Agreements granting to Lender security interests
in the Collateral. (c) Financing Statements perfecting Lender's
Security Interests; (d)evidence of insurance as required below; and
(e) any other documents required under this Agreement or by Lender or
its counsel, including without limitation any assignments of life
insurance described below, any guaranties described below and any
subordinations described below.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note
and the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties
set forth in this Agreement, in the Related Documents, and in any
document or certificate delivered to Lender under this Agreement are
true and correct.
No Event of Default. There shall not exist at the time of any
advance a condition which would constitute an Event of Default under
this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender, as of the date of this Agreement, as of the date of each
disbursement of Loan proceeds, as of the date of any renewal,
extension or modification of any Loan, and at all times any
indebtedness exists.
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Oregon and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in
which it is presently engaged or presently proposes to engage.
Borrower also is duly qualified as a foreign corporation and is in
good standing in all states in which the failure to so qualify would
have a material adverse affect on its businesses or financial
condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly
authorized by all action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental
body; and do not conflict with, result in a violation of, or
constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied
to Lender truly and completely disclosed Borrower's financial
condition as of the date of the statement, and there has been no
material adverse change in Borrower's financial condition subsequent
to the date of the most recent financial statement supplied to
Lender. Borrower has no material contingent obligations except as
disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any Instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective
terms.
Properties. Except as contemplated by this Agreement or as
previously disclosed in Borrower's financial statements or in writing
to Lender and as accepted by Lender, and except for property tax
liens for taxes not presently due and payable, Borrower owns and has
good title to all of Borrower's properties free and clear of all
Security Interests, and has not executed any security documents or
financing statements relating to such properties. All of Borrower's
properties are titled in Borrower's legal name, and Borrower has not
used, or filed a financing statement under, any other name for at
least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used
in this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq., or other applicable state or
Federal laws, rules, or regulations adopted pursuant to any of the
foregoing or intended to protect human health or the environment
("Environmental Laws"). Except as disclosed to and acknowledged by
Lender in writing. Borrower represents and warrants that. (a) During
the period of Borrower's ownership of the properties. there has been
no use, generation, manufacture, storage. treatment, disposal,
release or threatened release of any hazardous waste or substance by
any person on, under, about or from any of the properties. (b)
Borrower has no knowledge of, or reason to believe that there has
been (i) any use, generation, manufacture, storage, treatment,
disposal, release, or threatened of any hazardous waste or substance
on, under, about or from the properties by any prior owners or
occupants of any of the properties, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such
matters. (e) Neither Borrower nor any tenant, contractor, agent or
other authorized user of any of the properties shall use, generate,
manufacture, store, treat, dispose of, or release any hazardous waste
or substance on, under, about or from any of the properties; and any
such activity shall be conducted in compliance with all applicable
federal, state, and local laws, regulations, and ordinances,
including without limitation Environmental Laws. Borrower authorizes
Lender and its agents to enter upon the properties to make such
inspections and tests as Lender, deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or test made by Lender s be at Borrower's expense and
for Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to
any other person. The representations and warranties contained
herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower
hereby (a) releases and waives any future claim against Lender for
indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to
indemnity and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach
of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened
release occurring prior to Borrower's ownership or interest in the
properties, whether or not the same was or should have been known to
Borrower, or as a result of a violation of any Environmental Laws.
The provisions of this section of the Agreement, including the
obligation to indemnity. shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and
shall not be affected by Lender's acquisition of any interest in any
of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no other
event has occurred which may materially adversely affect Borrower's
financial condition or properties, other than litigation, claims, or
other events, if any, that have been disclosed to and acknowledged by
Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and
reports of Borrower that are or were required to be filed. have been
filed, and all taxes, assessments and other governmental charges have
been paid in full, except those presently being or to be contested by
Borrower in good faith in the ordinary course of business and for
which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests. on or affecting any of the Collateral directly or
indirectly securing repayment of Borrower's Loan and Note, that would
be prior or that may in any way be superior to Lender's Security
Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and all of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representatives and assigns, and are
legally enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds
solely for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which
Borrower may have any liability complies in all material respects
with all applicable requirements of law and regulations, and (i) no
Reportable Event nor Prohibited Transaction (as defined in ERISA) has
occurred with respect to any such plan, (ii) Borrower has not
withdrawn from any such plan or initiated steps to do so, (iii) no
steps have been taken to terminate any such plan, and (iv) there are
no unfunded liabilities other than those previously disclosed to
Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more
than one place of business, is located at 63025 OB RILEY RD #20,
BEND, OR 97701. Unless Borrower has designated otherwise in writing
this location is also the office or offices where Borrower keeps its
records concerning the Collateral.
Information. All information heretofore or contemporaneously
herewith furnished by Borrower to Lender for the purposes of or in
connection with this Agreement or any transaction contemplated hereby
is, and all information hereafter furnished by or on behalf of
Borrower to Lender will be, true and accurate in every material
respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by
omitting to state any material fact necessary to make such
information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying
upon the above representations and warranties in extending Loan
Advances to Borrower. Borrower further agrees that the foregoing
representations and warranties shall be continuing in nature and
shall remain in full force and effect until such time as Borrower's
Indebtedness shall be paid in full, or until this Agreement shall be
terminated in the manner provided above, whichever is the last to
occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that, while this Agreement is in affect, Borrower will:
Litigation. Promptly Inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all
existing and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower or
any Guarantor which could materially affect the financial condition
of Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but
in no event later than ninety (90) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year
ended, reviewed by a certified public accountant satisfactory to
Lender, and, as soon as available, but in no event later then fifteen
(15) days after the end of each month, Borrower's balance sheet and
profit and loss statement for the period ended, prepared and
certified as correct to the best knowledge and belief by Borrower's
chief financial officer or other officer or person acceptable to
Lender, All financial reports required to be provided under this
Agreement shall be prepared in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified
by Borrower as being true and correct.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables
and payables, inventory schedules, budgets, forecasts, tax returns,
and other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants
and ratios;
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible
Net Worth of less than 3.00 to 1.00.
Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities in excess of 1.25 to 1.00.
Income. Maintain not less than the following income level: not less
than $100,000.00 for the fiscal year of 1996. Except as provided
above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance
with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and
correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with
respect to Borrower's properties and operations, in form, amounts,
coverages and with insurance companies reasonably acceptable to
Lender. Borrower, upon request of Lender, will deliver to Lender from
time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will
not be canceled or diminished without at least ten (10) days' prior
written notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Borrower or
any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest for the Loans,
Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender,
reports on each existing insurance policy showing such information as
Lender may reasonably request, including without limitation the
following: (a) the name of the insurer; (b) the risks insured; (c)
the amount of the policy;(d) the properties insured; (e) the then
current property values on the basis of which insurance has been
obtained, and the manner of determining those values; and (f) the
expiration date of the policy. In addition, upon request of Lender
(however not more often than annually), Borrower will have an
independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any
Collateral. The cost of such appraisal shall be paid by Borrower.
Life Insurance. As soon as practical, obtain and maintain life
insurance in form and with Insurance companies reasonably acceptable
to Lender on the following individual in the amount indicated below
and at Lender's option, cause such insurance coverage to be pledged,
made payable to, or assigned to Lender on Lender's forms. Lender, at
its discretion, may apply the proceeds of any insurance policy to the
unpaid balances of any Indebtedness:
Name of Insured Amount
ROBERT K COLE $1,000,000.00
Guaranties Prior to disbursement of any Loan proceeds, furnish
executed guaranties of the Loans In favor of Lender, on Lender's
forms, and in the amount and by the guarantor named below,
Guarantor Amount
QUADRAX CORPORATION $1,000,000.00
Subordination. Prior to disbursement of any Loan proceeds, deliver
to Lender subordination agreements on Lenders forms, executed by
Borrower's creditors named below, subordinating all of Borrower's
indebtedness to such creditors, or such lesser amounts as may be
agreed to by Lender in writing, and any security interests in
collateral securing that indebtedness to the Loans and security
interests of Lender.
Name of Creditors Amounts
ROBERT K COLE $270,OOO.00
COLE FAMILY TRUST $270,000.00
ROBERT K COLE $1,250,000.00
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and
any other party and notify Lender immediately in writing of any
default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender
in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such
assessment tax, charge, levy, lien or claim so long as (a) the
legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books
adequate reserves with respect to such contested assessment. tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish
to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens and
claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents
in a timely manner, and promptly notify Lender if Borrower learns of
the occurrence of any event which constitutes an Event of Default
under this Agreement or under any of the Related Documents.
Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender
of any change in executive and management personnel; conduct its
business affairs in a reasonable and prudent manner and in compliance
with all applicable federal, state and municipal laws, ordinances,
rules and regulations respecting its properties. charters, businesses
and operations, including without limitation, compliance with
Americans With Disabilities Act and with all minimum funding
standards and other requirements of ERISA and other laws applicable
to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable
time to inspect any and all Collateral for the Loan or Loans and
Borrower's other properties and to examine or audit Borrower's books,
accounts, and records and to make copies and memoranda of Borrower's
books, accounts, and records. If Borrower now or at any time
hereafter maintains any records (including without limitation
computer generated records and computer software programs for the
generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request. all at
Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement
are true and correct as of the date of the certificate and further M"
certifying that, as of the date of the certificate, no Event of
Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects. with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons.
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection
with any environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements. instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that
while this Agreement is in effect, Borrower shall not without the
prior written consent of Lender:
Capital Expenditures. Make or contract to make capital expenditures,
including leasehold improvements, in any fiscal year in excess of
$25,000.00 or incur liability for rental of property (including both
real and personal property ) in an amount which, together with
capital expenditures, shall in any fiscal year ex such sum.
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, (b) except as allowed as a Permitted
Lien, sell, transfer, mortgage, assign, pledge, lease, grant a
security interest in, or encumber any of Borrower's assets, or (c)
sell with recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than
dividends payable in its stock), provided, however that
notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the
payment of dividends, if Borrower is a "Subchapter S Corporation" (as
defined in the Internal Revenue Code of 1986, as amended), Borrower
may pay cash dividends on its stock to its shareholders from time to
time in amounts necessary to enable the shareholders to pay income
taxes and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from their
status as Shareholders of a Subchapter S Corporation because of their
ownership of shares of stock of Borrower, or (d) purchase or retire
any of Borrower's outstanding shares or alter or amend Borrower's
capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
Salaries. Make or permit any withdrawals or pay or contract to pay
any salaries, commissions, bonuses or other compensation for services
in excess of the following annual amounts for the persons indicated
below or to any other person or persons performing services of a
similar nature:
Names Amounts
ROBERT K. COLE $100,000.00
MICHELLE YEAGER $ 55,000.00
KIMBALL JAMES COLE (Plus 1% of Commissioned Sales) $ 52,000.00
CESSATION OF ADVANCES. If Lender has made any commitment to make any
Loan to Borrower, whether under this Agreement or under any other
agreement, Lender shall have no obligation to make Loan Advances or
to disburse Loan proceeds if: (a) Borrower or any Guarantor is in
default under the terms of this Agreement or any of the Related
Documents or any other agreement that Borrower or any Guarantor has
with Lender; (b) Borrower or any Guarantor becomes insolvent, files a
petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's
financial condition, in the financial condition of any Guarantor, or
in the value of any Collateral securing any Loan; (d) any Guarantor
seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender; or
(e) Lender in good faith deems itself insecure, even though no Event
of Default shall have occurred.
ADVANCE MARGINS ON COLLATERAL.
75% OF ELIGIBLE ACCOUNTS RECEIVABLE
45% OF RAW MATERIALS INVENTORY
45% OF FINISHED GOODS INVENTORY
0% OF WORK IN PROCESS INVENTORY
$500,000.00 CAP ON INVENTORY ADVANCES
$500,000.00 CAP ON LETTERS OF CREDIT
Eligible accounts mean all of borrower's accounts excluding all
accounts under which payment is not received within 60 days from
invoice date and not declared ineligible for any other reason,
including but not limited to accounts having more than 50% of the
amount due in excess of 60 days from date of invoice. Special
provisions will be made for seasonal dating on selected accounts.
ADDITIONAL PROVISIONS. CUSTOMER TO SUBMIT ON A MONTHLY BASIS WITHIN
15 DAYS AFTER EACH MONTH END, A LISTING OF ASSIGNED INVENTORY, AN
AGING OF OUTSTANDING ACCOUNTS RECEIVABLE, AND A LISTING OF ACCOUNTS
PAYABLE.
NO DIVIDENDS TO BE PAID TO QUADRAX WITHOUT PRIOR BANK APPROVAL.
NO MANAGEMENT FEES OR CASH REPAYMENTS TO QUADRAX WITHOUT PRIOR BANK
APPROVAL.
BORROWER TO SUBMIT A BORROWING CERTIFICATE WITH EACH ADVANCE, OR
MONTHLY IF NO ADVANCES ARE MADE, OR LETTER OF CREDITS ISSUED.
IF BORROWING CERTIFICATE RESULTS IN A NEGATIVE BORROWING BASE, CREDIT
LINE TO BE PAID DOWN TO CONFORM WITH BORROWING BASE.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges,
and transfers to Lender all Borrower's right, title and interest in
and to, Borrower's accounts with Lender (whether checking, savings,
or some other account), including without limitation all accounts
held jointly with someone else and all accounts Borrower may open in
the future, excluding however all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on
the indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event
of Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment
when due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or
to perform when due any other term, obligation, covenant or condition
contained in this Agreement or if any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of
the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence
as a going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency
laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency. This Includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
amounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of,
or liability under, any Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five percent
(26%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
Insecurity. Lender, In good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur,
except where otherwise provided in this "Agreement or the Related
Documents, all commitments and obligations of Lender under this
Agreement or the Related Documents or any other agreement immediately
will terminate (including any obligation to make Loan Advances or
disbursements), and, at Lender's option, all Indebtedness immediately
will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have
all the rights and remedies provided in the Related Documents or
available at law, in equity, or otherwise. Except as may be
prohibited by applicable law, all of Lender's rights and remedies
shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of
any other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor shall
not affect Lender's right to declare a default and to exercise its
rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are
a part of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in
writing and signed by the party or parties sought to be charged or
bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Oregon. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction
of the courts of DESCHUTES County, the State of Oregon. Lender and
Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower
against the other. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oregon.
Caption Holdings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Multiple Parties; Corporals Authority. All obligations of Borrower
under this Agreement shall be joint and several, and all references
to Borrower shall mean each and every Borrower. This means that each
of the Borrower's signing below is responsible for all obligations in
this Agreement.
Consent to Loan Participation. Borrower agrees and consents to
Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers,
whether related or unrelated to Lender. Lender may provide, without
any limitation whatsoever, to any one or more purchasers, or
potential purchasers any information or knowledge Lender may have
about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect
to such matters. Borrower additionally waives any and all notices of
sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees
that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and
will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests.
Borrower further waives all rights of offset or counterclaim that it
may have now or later against Lender or against any purchaser of such
a participation interest and unconditionally agrees that either
Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of
any such participation interests may enforce its interest
irrespective of any personal claims or defenses that Borrower may
have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of
Lender's expenses, including without limitation attorneys' fees,
incurred in connection with the preparation, execution, enforcement
modification and collection of this Agreement or in connection with
the Loans made pursuant to this Agreement. Lender may pay someone
else to help collect the Loans and to enforce this Agreement, and
Borrower will pay that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including attorneys'
fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will
pay any court costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimile, and shall be
effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States mail.
first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice
purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances.
If feasible, any such offending provision shall be deem to be
modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall
be stricken and all other provisions of this Agreement in all other
respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context
of any provisions of this Agreement makes it appropriate, including
without limitation any representation, warranty or covenant, the word
"Borrower" as used herein shall include all subsidiaries and
affiliates of Borrower. Notwithstanding the foregoing however, under
no circumstances shall this Agreement be construed to require Lender
to make any Loan or other financial accommodation to any subsidiary
or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or
on behalf of Borrower shelf bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent
of Lender.
Survival. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
Waiver. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement will not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any obligations
of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not
constitute continuing consent in subsequent instances where such
consent is required, and in all cases such consent may be granted or
withhold in the sole discretion of Lender.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY
US (LENDER) AFTER OCTOBER 3,1989 CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES
OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING,
EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS
LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS
DATED AS OF JANUARY 30,1996.
BORROWER:
LION GOLF OF OREGON INC
By:/s/ Robert K. Cole
ROBERT K COLE, CEO
LENDER:
BANK OF THE CASCADES
By; /s/ Patrica Moss
Authorized Officer
Exhibit 10.15 -Commercial Lease between the Dunes Motel and Gift Shop
of Bend, Ltd. as Landlord, and the Lion Golf of Oregon, Inc., as
Tenant, dated July 7, 1994
Commercial Lease Agreement for SAWYER PARK PLAZA
THIS AGREEMENT is made and entered into this 7th day of July, 1994 by
and between Dave Wagoner - Dunes Motel and Gift Shop of Bend, Ltd.,
Landlord, and Lion Golf of Oregon, Inc., Tenant.
Landlord leases to Tenant the following described property on the
terms and conditions stated below:
Sawyer Park Plaza, 63025 OB Riley Road, Bend, Oregon
Units 12 through 20
SECTION 1. OCCUPANCY
Original Term. The term of this lease shall be for three (3) years
commencing on July 8, 1994 and ending on July 7, 1997 unless sooner
terminated pursuant to any provision hereof. The lease will extend
for an additional term of six (6) years commencing on July 8, 1997 and
ending on July 7, 2003 unless sooner terminated pursuant to any
provision hereof.
SECTION 2. FIXED RENT
Basic Rent: Tenant shall pay to Landlord as rent the sum of $5,467.50
per month in advance, for a total of $196,830.00 during the first
three (3) year term of this agreement and $5,832.00 per month in
advance, for a total of $419,904.00 during the next six (6) years of
this agreement. Rent shall be payable on the first (1st) day of each
month at c/o Equity Management; 265 NW Franklin, Suite 202, Bend, OR
97701. A late fee of $20.00 will be charged for any rent not received
by the 5th day of each month.
Additional Rent: As additional rent, Tenant shall pay the following
amounts:
(a) All taxes upon Tenant's personal property on the premises
including fixtures.
(b) The cost of all insurance for which tenant is required to
pay.
(c) All amounts which tenant is required to reimburse Landlord
for expenses incurred by Landlord in discharging Tenant's
obligations.
(d) The amount, if any, which Tenant is required to reimburse
Landlord for increased insurance costs occasioned by Tenant's
use.
(e) Prorata cost of electrical, gas, water, sewer and garbage
charges.
(f) Prorata cost of property taxes.
(g) Prorata cost of building replacement insurance.
(h) All other amounts which the Tenant is required to pay by any
other provision of this Lease.
Deposit: Tenant shall pay to Landlord the sum of $ -0- . This security
deposit will be fully refundable if tenant leaves property in a clean
condition and in the same condition as when they took occupancy. This
deposit will not be used as a last months rent, with the exception of
default on rent by the tenant.
SECTION 3. OPTION TO RENEW
Tenant shall have the option to renew this lease agreement for an
additional five (5) year term. All terms and conditions of this lease
agreement will remain the same, except for rate. The amount of rent
will be at current market rent at the end of the term of this lease.
Tenant to exercise the option to renew this lease agreement in writing
to the landlord no later than 120 days prior to the termination of
this lease.
SECTION 4. USE OF THE PREMISES
Permitted Use: The premises shall be used for manufacturing of golf
clubs and for no other purpose. If this use is prohibited by law or
governmental regulation, this Lease shall terminate. Tenant shall do
business on the premises under the name of Lion Golf of Oregon, Inc.
Restrictions on Use: In connection with use of the premises, Tenant
shall:
(a) Conform to all applicable laws and regulations of any public
authority affecting the premises and the use, and correct at
Tenants own expense any failure of compliance created through
Tenant's fault or by reason of Tenant's use. Tenant shall
not otherwise be required to make expenditures to comply with
any laws or regulations.
(b) Refrain from an activity which would make it impossible to
insure the premises against casualty.
(c) Refrain from any use which would be reasonably offensive to
the Landlord, other tenants or owners or users of adjoining
premises, or which would tend to create a nuisance or damage
the reputation of the premises.
(d) Refrain from making any marks on or attaching any sign,
insignia, antenna, aerial or other device to the exterior or
interior walls Is, windows or roof of the premises without
the written consent of the Landlord.
(e) Comply with any reasonable rules respecting the use of the
premises promulgated by the Landlord from time to time and
communicated to the Tenant in writing.
Continuity of Use: Tenant shall use the premises continuously during
normally business hours except to the extent the use is interrupted
or prevented by causes beyond the Tenant's control.
SECTION 5. REPAIRS AND MAINTENANCE
Landlord's Obligations: The following shall be the responsibility of
the Landlord:
(a) Structural repairs and maintenance and repairs necessitated
by structural disrepair or defect.
(b) All repairs or restoration made necessary by fire or other
peril which could be covered by a standard fire insurance
policy with an extended coverage endorsement or by reason of
war, or by earthquake or natural casualty.
Tenant's Obligations: The following shall be the responsibility of
the Tenant:
(a) Any interior redecorating.
(b) Any repairs necessitated by the negligence of Tenant, its
agents, employees and invitees, except where the loss of
damage could have been covered by a standard fire insurance
policy with an extended coverage endorsement.
(c) Ordinary maintenance of the heating and air conditioning
system.
(d) Any repair or alterations required under Tenant's obligation
to comply with laws and regulations as set forth in
"Restrictions on Use" above.
(e) All other repairs to the premises which Landlord is not
required to make under "Landlord's Obligations" above.
Inspection of Premises: Landlord shall have the right to inspect the
premises at any reasonable time or times to determine the necessity of
repair. Whether or not such inspection is made, the duty of the
Landlord to make repairs as outlined above in any area in Tenant's
possession and control shall not mature until a reasonable time after
Landlord has received from Tenant notice in writing of the repairs
that are required.
SECTION 6. ALTERATIONS
Alterations Prohibited: Tenant shall make no improvements or
alterations on the leased premises of any kind without the prior
written consent of the Landlord.
Ownership of Alterations: All improvements and alterations performed
on the leased premises by the Landlord shall be the property of the
Landlord.
SECTION 7. INSURANCE
Insurance Required: The Landlord shall keep the leased premises
insured against fire and other risks covered by a standard fire
insurance policy with an endorsement for extended coverage. Tenant
will be required to pay a prorata share of this cost of insurance and
Tenant shall bear the expense of any insurance insuring the property
of the Tenant on the premises against such risks.
Waiver of Subrogation: The parties shall obtain from their
respective insurance carriers waivers of subrogation against the other
party, agents, employees and, as to the Tenant, invitees. Neither
party shall be liable to the other for any loss or damage caused by
fire or any of the risks enumerated in a standard fire insurance
policy with an extended coverage endorsement is such insurance was
obtainable at the time of such loss or damage. The party benefiting
from a waiver of subrogation clause in an insurance policy shall pay
any additional premium required to obtain such a clause within ten
days after being notified by the other party of such additional cost
unless the benefiting party can obtain such insurance without the
additional cost from another insurance carrier satisfactory to the
first party.
SECTION 8. DAMAGE AND DESTRUCTION
Partial Damage: If the leased premises are partly damaged and the
paragraph entitled "Destruction" below does not apply, the property
shall be repaired as follows:
(a) If the damage is caused by a risk which would be covered by a
standard fire insurance policy with an endorsement for
extended coverage, repair shall be at the expense of the
Landlord whether or not the damage occurred as the result of
fault on the part of Tenant.
(b) If the damage occurred from a risk which would not be covered
by insurance of the kind described above, repairs shall be
at the expense of the Landlord unless the damage was the
result of the fault of the Tenant, in which case the Tenant
shall have the obligation to repair.
(c) In any event, repairs shall be accomplished with all
reasonable dispatch, subject to interruptions and delays from
labor disputes and matters beyond the control of the party
responsibility. Rent shall be abated to the damage and
during the period of repair except when damage occurs because
of the fault of the Tenant.
Destruction: If the leased premises are thirty percent (30%) or more
destroyed the parties shall proceed as follows:
(a) Landlord may elect to terminate the Lease as of the date of
the damage or destruction by notice given to Tenant in
writing not more than 30 days following the date of the
damage. In such event all rights and obligations of the
parties shall cease as of the date of termination, and Tenant
shall be entitled to the reimbursement of any prepaid rent,
security deposit or other amounts paid by the Tenant and
attributable to the anticipated term subsequent to the
termination date.
(b) In the absence of an election under paragraph (a) above,
Landlord shall proceed to restore the leased premises to
substantially the same form as prior to the damage or
destruction so as to provide for the Tenant usable space
equivalent in quantity and in character to that before the
damage. Work shall be commenced as soon as reasonably
possible and thereafter shall proceed without interruption
except for work stoppages on account of labor disputes and
matters not under control of Landlord.
(c) In either event rent shall be abated from the date of damage
except when the damage occurs because of the fault of Tenant
and Landlord elects to rebuild.
SECTION 9. LIABILITY TO THIRD PERSONS
Liens:
(a) Except with respect to activities for which the Landlord is
responsible, the Tenant shall pay as due all claims for work
done on and for services rendered or material furnished to
the leased premises and shall keep the premises free from any
liens. If Tenant fails to pay any such claims or to
discharge any lien, Landlord may do so and collect the cost
as additional rent. Any amount so added shall bear interest
at the rate of 9% per annum from the date expended by
Landlord and shall be payable on demand. Such action by
Landlord shall not constitute a waiver of any right of remedy
which Landlord may have on account of Tenant's default.
Indemnification: Tenant shall indemnify and defend Landlord from any
claim, loss or liability arising out of or related to any activity of
Tenant on the leased premises or any condition of the leased premises
in the possession or under the control of the Tenant, including any
such claim, loss or liability which may be caused or contributed to in
whole or in part by Landlord's own negligence or failure to effect any
repair or maintenance required by this Lease. Tenant's duty to
indemnify shall not apply to or prevent any claim by Tenant against
Landlord for injury or damage to Tenant or Tenant' s property for
which Landlord may be liable.
Liability Insurance: Before going into possession of the premises,
Tenant shall procure and thereafter during the term of the Lease shall
continue to carry the following insurance at Tenant's cost:
(a) Public liability and property damage insurance in a
responsible company with limits of not less than
$1,000,000.00 for injury to one person, $1,000,000.00 for
injury to two or more persons in one occurrence, and
$1,000,000.00 for damage to property. Such insurance shall
cover all risks arising directly or indirectly out of
Tenant's activities on or any condition of the leased
premises whether or not related to an occurrence caused or
contributed to by Landlord's negligence, shall protect Tenant
against the claims of Landlord on account of the obligations
assumed by Tenant under paragraph "Indemnification" above,
and shall protect Landlord and Tenant against claims of third
persons. Certificates evidencing such insurance and bearing
endorsements requiring ten days written notice to Landlord
prior to any change or cancellation shall be furnished to
Landlord prior to Tenant's occupancy of the property.
SECTION 10. QUIET ENJOYMENT
Landlord's Warranty: Landlord warrants that it is the owner of the
leased premises and has the right to lease them, free of all
encumbrances. Landlord will defend Tenant's right to quiet enjoyment
of the leased premises from the lawful claims of all persons during
the Lease term.
SECTION 11. ASSIGNMENT AND SUBLEASE
No part of the leased property may be assigned, mortgaged or
subleased, nor may a right of use of any portion of the property be
conferred on any third person by any other means, without the prior
written consent of Landlord.
SECTION 12. DEFAULT
The following shall be event of default:
Default in Rent: Failure of Tenant to pay any rent or other charge
within ten days after it is due.
Default in Other Covenants: Failure of Tenant to comply with any term
or condition or fulfill any obligation of the Lease (other than the
payment of rent or other charges) within ten days after written notice
by Landlord specifying the nature of the default with reasonable
particularity. If the default is of such nature that it cannot be
completely remedied within the ten day period, this provision shall be
complied with if Tenant begins correction of the default within the
ten day period and thereafter proceeds with reasonable diligence and
in good faith to effect the remedy as soon as practicable.
Abandonment: Failure of the Tenant for 15 days or more to occupy the
property for one or more of the purposes permitted under this Lease
unless such failure is excused under other provisions of this Lease.
SECTION 13. REMEDIES ON DEFAULT'
Termination: In the event of a default, the Lease may be terminated
at the option of the Landlord by notice in writing to Tenant. The
notice may be given before or within 30 days after the running of the
grace period for default and may be included in a notice of failure of
compliance given under the further terms of this Lease. If the
property is abandoned by Tenant in connection with a default,
termination shall be automatic and without notice.
Damages Without Termination: If the Lease is not terminated by
election of Landlord or otherwise, Landlord shall be entitled to
recover damages from tenants for the default.
Re-Entry After Termination: If the Lease is terminated for any
reason, Tenant's liability to Landlord for damages shall survive such
termination, and the rights and obligation of the parties shall be as
follows:
(a) Tenant shall vacate the property immediately, remove any
property of Tenant including any fixtures which Tenant is
required to remove at the end of the Lease term, perform any
clean up, alterations or other work required to leave the
property in the condition required at the end of the term and
deliver all keys to Landlord.
(b) Landlord may re-enter, take possession of the premises and
remove any persons or property by legal action or by self-
help with the use of reasonable force and without liability
for damages.
Reletting: Following re-entry or abandonment, Landlord may relet the
premises and in that connection may:
(a) Make any suitable alterations or refurbish the premises, or
both, or change the character or use of the premises, but
Landlord shall not be required to relet for any use or
purpose (other than that specified in the Lease) which
Landlord may reasonably consider injurious to the premises,
or to any tenant which Landlord may reasonably consider
objectionable.
(b) Relet all or part of the premises, alone or in conjunction
with other properties, for a term longer or shorter than the
terms of this Lease, upon any reasonable terms and
conditions, including the granting of some rent-free
occupancy or other rent concession.
Damages: In the event of termination or default, Landlord shall be
entitled to recover immediately, without waiting until the due date of
any future rent or until the date fixed for expiration of the Lease
term, the following amounts as damages:
(a) Any excess of (1) the value of all Tenant's obligations
under this lease, including the obligation to pay rent, from
the date of default until the end of the term, over (2) the
reasonable rental value of the property for the same period
figures as of the date of default, the net result to be
discounted to the date of default at a reasonable rate not
exceeding 4% per annum.
(b) The reasonable costs of re-entry and reletting including
without limitation the cost of any clean up, refurbishing,
removal of Tenant's property and fixtures, or any other
expense occasioned by Tenant's failure to quit the premises
under termination and to leave them in the required
condition, any remodeling costs, attorney fees, court costs,
broker commissions and advertising costs.
(c) The loss of reasonable rental value from the date of default
until a new tenant has been, or with the exercise of
reasonable efforts could have been, secured.
Remedies Cumulative: The foregoing remedies shall be in addition to
and shall not exclude any other remedy available to Landlord under
applicable law.
SECTION 14. SURRENDER AT EXPIRATION
Conditions of Premises: Upon expiration of the Lease term or earlier
termination on account of default, Tenant shall deliver all keys to
the Landlord and surrender the leased premises in first-class
condition and broom-clean. Tenant has deposited with Landlord the sum
of $-0- as a security deposit. Landlord shall have the right to deduct
all expenses of cleaning the premises from such deposit and repair any
damage other than normal wear and tear. Alterations constructed by
Tenant with permission from the Landlord shall not be removed or
restored to the original condition unless the terms of permission for
the alterations so require. Depreciation and wear from ordinary use
for the purpose for which the premises were let need not be restored,
but all repair for which the Tenant is responsible shall be completed
to the latest practical date prior to such surrender. The Tenant's
obligations under this paragraph shall be subordinate to the
provisions of Section 7 related to destruction.
Fixtures:
(a) All existing fixtures upon the leased premises during the
term, other than Tenant's trade fixtures, shall be the
property of the Landlord.
(b) All fixtures and personal property brought onto the property
shall remain the property of the tenant.
Holdover:
(a) If the Tenant does not vacate the leased premises at the time
required, the Landlord shall treat the Tenant as a tenant
from month to month.
Nonwaiver: Waiver by either party of strict performance of any
provision of this lease shall not be a waiver of or prejudice the
party's right to require strict performance of the same provision in
the future or of any other provision.
Sign Approval: Landlord retains the right to approve any sign placed
on the premises. Any sign that Tenant has the right to place,
construct and maintain shall comply with all laws, and Tenant shall
obtain any approval required by such laws. Tenant to pay all costs
for signage.
Late Fees: If Tenant shall fail or neglect to pay the monthly rental
or any other charge or expense payable by Tenant within ten (10) days
of the date it is due, then Tenant shall pay a late fee of $20.00.
Tenant agrees to pay Landlord's reasonable attorney fees and
collection costs if collection of any payment or rent due under this
lease is referred to an attorney for collection, even though suit or
action is filed hereon.
Attorney Fees: If suit or action is instituted in connection with
any controversy arising out of this Lease, the prevailing party shall
be entitled to recover, in addition to costs, such sum as the Court
may adjudge reasonable as attorney fees.
Notices: Any notice required or permitted under this Lease shall be
given when actually delivered or when deposited in the United States
mail as certified mail, addressed as follows:
Landlord: Equity Management & Commercial Leasing, Inc.
265 NW Franklin, Suite 202, Bend, OR 97701 389-4757
Tenant:
or to such other address as may be specified from time to time by
either of the parties in writing.
Succession: Subject to the above-stated limitations on transfer of
Tenant's interest, this Lease shall be binding upon and inure to the
benefit of the parties, their respective successors and assigns.
Landlord's Right to Cure Defaults: If the Tenant fails to perform any
obligation under this Lease, the Landlord shall have the option to do
so after 30 days written notice to the Tenant. All of the Landlord's
expenditures to correct the default shall be reimbursed by Tenant on
demand with interest at the rate of 9% per annum from the date of
expenditure by the Landlord.
Recordation: This lease shall not be recorded without the consent in
writing of Landlord. Landlord shall execute and acknowledge a
memorandum of this Lease in a form suitable for recording, and the
Tenant may record the memorandum.
Additional Provisions:
IN WITNESS WHEREOF, the parties have hereto set their hands in
duplicate the day and year first hereinabove written.
TENANT: /s/ Warren Elsner DATE: 7-7-94
LANDLORD: /s/ Dave Wagoner DATE: 7-7-94
Exhibit 10.16 - Commercial Lease between Coral Tree Commerce Center
Associates as Landlord, and the Company, as Tenant,
dated April 10, 1996.
CORAL TREE COMMERCE CENTER
INDUSTRIAL LEASE
Quadrax Corporation
April 10, 1996
WPA DEVELOPMENT
2440 Grand Ave., Suite E
Vista, CA. 92083
(619) 599-9009
CORAL TREE COMMERCE CENTER
TABLE OF CONTENTS
1. Parties
2. Premises, Parking and Common Areas
2.1 Premises
2.2 Vehicle Parking
2.3 Common Areas - Definition
2.4 Common Areas - Lessee's Rights
2.5 Common Areas - Rules and Regulations
2.6 Common Areas - Changes
3. Term
3.1 Term
3.2 Delay in Possession
3.3 Early Possession
3.4 Option to Extend Lease
4. Rent
4.1 Base Rent
4.2 Operating Expenses
4.3 Increased Base Rent
5. Security Deposit
6. Uses and Uses Prohibited
6.1 Use
6.2 Compliance With Law
6.3 Condition of Premises
6.4- - Uses Prohibited
6.5 Toxic, Radioactive and Hazardous Materials
7. Maintenance, Repairs, Alterations and Common Area Services
7.1 Lessor's Obligations
7.2 Lessee's Obligation
7.3 Alterations and Additions
7.4 Utility Additions
8. Insurance; Indemnity
8.1 Liability Insurance - Lessee
8.2 Liability Insurance - Lessor
8.3 Property Insurance
8.4 Payment of Premiums and Premium Increases
8.5 Insurance Policies
8.6 Waiver of Subrogation
8.7 Indemnity
8.8 Exemption of Lessor from Liability
9. Damage or Destruction
9.1 Definitions
9.2 Premises Partial Damage
9.3 Premises Total Destruction; Premises Building
Total Destruction;
Industrial Center Buildings Total Destruction
9.4 Damage Near End of Term
9.5 Lessor's Failure to Repair Timely
9.6 Termination - Advance Payments
9.7 Waiver
10. Real Property Value
10.1 Payment of Taxes
10.2 Additional Improvements
10.3 Definition of Real Property Tax
10.4 Joint Assessment
10.5 Personal Property Tax
11. Utilities
12. Subletting and Assignment
12.1 No Assignment; consent required to Sublet
12.2 Lessee Affiliate
12.3 Terms and Conditions Applicable to Subletting
12.4 Attorney's Fees 16
13. Default; Remedies
13.1 Default
13.2 Remedies
13.3 Default by Lessor
13.4 Late Charges
14. Condemnation; Retroactive Building Code Changes
14.1 Condemnation
14.2 Condemnation Award
15. Brokers
16. Estoppel Certificate
17. Lessor's Liability
18. Severability
19. Interest on Past-due Obligations
20. Time of Essence
21. Additional Rent 19
22. Incorporation of Prior Agreements; Modification of Agreement 19
23. Notices 19
24. Waivers 19
25. Recording 19
26. Holding Over
27. Cumulative Remedies
28. Covenants and Conditions
29. Binding Effect; Choice of Law
30. Subordination
31. Attorney's Fees
32. Lessor's Access
33. Auctions
34. Signs
35. Merger
36. Consents
37. Quite Possession
38. Security Measures
39. Easements
40. Performance Under Protest
41. Authority
42. Options
42.1 Definition
42.2 Options Personal
42.3 Multiple Options
42.4 Effect of Default on Options
43. Offer
44. Amendments
45. Exhibits
Acceptance and Signatures
CORAL TREE COMMERCE CENTER ASSOCIATES
INDUSTRIAL LEASE
1. Parties. This Lease, dated, for reference purposes only,
April 10, 1996 is made by and between Coral Tree Commerce Center
Associates (herein called "Lessor") and Quadrax Corporation, A
Delaware Corporation (herein called "Lessee").
2. Premises, Parking and Common Areas.
2.1 Premises. Lessor hereby leases to Lessee and
Lessee leases from Lessor for the term, at the rental, and upon all of
the conditions set forth herein, that certain real property situated
in the County of San Diego, State of California, commonly known as
2591 Pioneer Ave., Suites F & G, Vista, California, 92083 containing
approximately 9,573 square feet (and as may be outlined on Exhibit "A"
attached hereto), herein referred to as the "Premises," including
right to the Common Areas as hereinafter specified, but not including
any rights to the roof of the Premises or to any Building in the
Industrial Center. The Premises are a portion of a building, herein
referred to as the "Building." The Premises, the Building., the Common
Areas, the land upon which the same are located, along with all other
buildings and improvements thereon, are herein collectively referred
to as the "Industrial Center."
2.2 Vehicle Parking. Lessee shall be entitled to
twenty (20) vehicle parking spaces, unreserved and unassigned, on
those portions of the Common Areas designated by Lessor for parking.
Lessee shall not use more parking spaces than said number. Said
parking spaces shall be used only for parking by vehicles no larger
than full size six passenger automobiles or two ton trucks.
2.2.1 Lessee shall not permit or allow any
vehicles that belong to or are controlled by Lessee or Lessee's
agents, employees, contractors, customers, suppliers, shippers,
licensees or invitees to be loaded, unloaded, or parked in areas other
that those designated by Lessor for such activities.
2.2.2 Lessee shall not permit or allow any
personal vehicles that belong to or controlled by Lessee or Lessee's
agents, employees, contractors, customers, suppliers, shippers,
licensees or invitees to be parked overnight or over weekends.
Commercial vehicles which require overnight or weekend parking must be
registered with Lessor.
2.2.3. If Lessee permits or allows any of the
prohibited activities described in Paragraph 2.2.2 of this Lease then
Lessor shall have the right, without notice, in addition to such other
rights and remedies that it may have, to remove or tow away the
vehicle involved and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.3 Common Areas - Definition. The term "Common
Areas" is defined as all areas and facilities outside the Premises and
within the exterior boundary line of the Industrial Center that are
provided and designated by Lessor from time to time for the general
non-exclusive use of Lessor, Lessee, and of other lessees of the
Industrial Center and their respective employees, contractors,
customers, suppliers, shippers, customers or invitees, including
parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, driveways and landscaped areas.
2.4 Common Areas - Lessee's Rights. Lessor hereby
grants to Lessee, for the benefit of Lessee and its employees,
suppliers, shippers, customers and invitees, during the term of this
Lease, the non-exclusive right to use, in common with others entitled
to such use, the Common Areas as they exist from time to time, subject
to any rights, powers, and privileges reserved by Lessor under the
terms hereof or under the terms of any rules, regulations and
restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas
be, deemed to include the right to store any property, temporarily or
permanently, in the Common Areas except for Lessee's vehicles. Any
such storage shall be permitted only by the prior written consent of
Lessor shall have the right, without notice, in addition to such other
rights and remedies that it may have, to remove the property and
charge the cost to Lessee, which cost shall be immediately payable
upon Lessor's demand.
2.5 Common Areas - Rules and Regulations. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive
control and management of the Common Areas and shall have the right,
from time to time, to establish, modify, amend and enforce reasonable
rules and regulations with respect thereto. Lessee agrees to abide by
and conform to all such rules and regulations, and to cause its
agents, employees, contractors, customers, suppliers, shippers,
licensees or invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and
regulations by other Lessees of the Industrial Center.
2.6 Common Areas - Changes. Lessor shall have the
right, at Lessor's sole discretion, from time to time:
(a) To make changes to the Common Areas,
including, without limitation, changes in the location, size, shape
and number of driveways, entrances, parking spaces, parking areas,
loading and unloading areas, ingress, egress, direction to traffic,
landscaped areas and walkways;
(b) To close temporarily any of the Common
Areas for maintenance purposes, so long as reasonable access to the
Premises remains available;
(c) To add additional buildings and
improvements to the Common Areas;
(d) To use the Common Area while engaged in
making additional improvements, repairs or alterations to the
Industrial Center, or any portion thereof;
(e) To do and perform such other acts and make
such other changes in, to, or with respect to the Common Areas and
Industrial Center as Lessor may, in the exercise of sound business
judgment, deem to be appropriate.
3. Term.
3.1 Term. The term of this Lease shall be for sixty (60)
months commencing June 1, 1996 or sooner(the "commencement date") and
ending on May 31, 2001 unless terminated sooner pursuant to any
provision hereof.
3.2 Delay in Possession. Notwithstanding the commencement
date, if for any reason Lessor cannot deliver possession of the
Premises to Lessee on said date, Lessor shall not be subject to any
liability therefore, nor shall such failure affect the validity of
this Lease or the obligations of Lessee hereunder, but in such a case
Lessee shall not be obligated to pay rent or Lessee's Share of
Operating Expenses (as those terms are defined hereinafter) until
possession of the Premises is tendered to Lessee; provided, however,
that if Lessor shall not have delivered possession of the Premises
within ninety (90) days from said commencement date, Lessee may at
Lessee's option, by notice in writing to Lessor within ten (10) days
following the expiration of said ninety (90) day period, cancel this
Lease, in which event the parties shall be discharged from all
obligations hereunder; provided further, however, that if such written
notice from Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease hereunder shall terminate
and be of no further force or effect. In the event of a delay in
possession, the Commencement Date shall be the date on which
possession of the Premises is tendered to Lessee, and the term of this
Lease shall be for sixty (60)months from such date.
3.3 Early Possession. If Lessee occupies the Premises prior
to the commencement date, such occupancy shall be subject to all
provisions of the Lease, such occupancy shall not advance the
termination date, except that Lessee shall pay no rent for such
period.
3.4 Option to Extend Lease. Subject to the provisions of
Article 42 and each and every other provision of this Lease, Lessee
shall have the right to extend this Lease by one (1) three (3) year
period. Lessee shall give Lessor written notice not less than one
hundred twenty (120) days prior to the expiration of the initial term
of this Lease of its intent to exercise this option to extend. Base
Rent during the first year of said option period shall be at the then
current market for like facilities of comparable size, location and
quality of construction, and/or a five (5%) percent increase over the
previous years base rent, whichever is greater. For each successive
year of the option period, the Base Rent shall increase by five
percent (5%) pursuant to paragraph 4.3 of this Lease. Base Rent during
the option period, prior to the determination of the then current
market rate, shall be at the Base Rent in effect during the
immediately preceding year plus ten percent (10%), but shall be
retroactively adjusted when the then current market rate has been
determined; notwithstanding the aforementioned, in no event shall the
Base Rent during the first year of the option period be less than that
of the last year of the term.
3.4.1 In the event that the parties hereto cannot, prior
to the commencement of the option terms, agree upon the current market
rate, they shall agree upon a licensed commercial real estate broker
who is familiar with the that specific industrial market, or such
other person as may be mutually acceptable, (the "Arbiter") and said
Arbiter shall determine the then current market rate. The then
current market rate so determined shall be binding upon the parties
and binding upon the parties and shall be the Base Rent for the first
year of the option period. The Arbiter's fees shall be shared equally
by-Lessor and Lessee.
3.4.2. In the event that the parties cannot agree upon an
Arbiter as hereinabove required, they shall each, within fifteen (15)
days of written demand therefore by either party, designate a licensed
commercial real estate broker or other person (the "Representatives")
to determine the then current market rate as hereinabove described.
Each of the two said Representatives shall then, within thirty (30)
days of his appointment, determine the then current market rate as
herein required, agree upon a third person who shall be a licensed
commercial real estate broker who is familiar with the that specific
industrial market (the "Arbiter") and submit in writing his said
determination of market rate to the Arbiter. Within fifteen (15) days
of his appointment, the Arbiter shall choose, without averaging or
compromising in any way, the market rate determined by one of the two
Representatives. The then current market rate so determined shall be
binding upon the parties and shall be the Base Rent for the first year
of the option period. Each party shall pay the fees of its own
representative; the Arbiter's fees shall be paid by the party who's
Representative's submitted market rate determination was rejected
by the Arbiter.
4. Rent.
4.1 Base Rent. Lessee shall pay to Lessor, as Base
Rent for the premises, without any offset or deduction, except as may
be otherwise expressly provided in this lease, on the first day of
each month of the term hereof, monthly payments, in advance, of
$4403.58. Lessee shall pay Lessor upon execution hereof $4403.58 as
Base Rent for the month of June, 1996. Base Rental shall be as -
follows:
June 1, 1996 - May 31, 1997 $4403.58
June 1, 1997 - May 31, 1998 $4595.04
June 1, 1998 - May 31, 1999 $4786.50
June 1, 1999 - May 31, 2000 $4977.96
June 1, 2000 - May 31, 2001 $5169.42
Each month shall consist of thirty (30) days and all procation
shall be based accordingly. Rent for any period during the term
hereof which is for less than one month shall be a daily pro rata
portion of the Base Rent. Rent shall be payable in lawful money of
the United States to Lessor at the address stated herein or to such
other persons or at such other places as Lessor -may designate in
writing.
4.2. Operating Expenses. Lessee shall pay to Lessor as Rent
during the term hereof, in addition to the Base Rent, Lessee's Share,
as hereinafter defined, of all Operating Expenses, as hereinafter
defined, during each calendar year of the term of this Lease, in
accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this
Lease, as twenty-five point zero seven percent (25.07%) of expenses
relating to the Building and seven point three two percent (7.32%) of
expenses relating to the Industrial Center and/or Common Areas.
(b) "Operating Expenses" is defined, for purposes of
this Lease, as all costs incurred by Lessor for:
(i) Any deductible portion of an insured loss
concerning any of the items or matters described in this paragraph
4.2;
(ii) The cost of the premiums for the liability and the
property insurance policies to be maintained by Lessor under Article 8
of this Lease;
(iii) The amount of "real property tax" (as defined in
paragraph 10.3) to be paid by Lessor under Article 10 hereof;
(iv) The cost of water, gas and electricity to service
the Common Areas; and
(v) The operation, repair, maintenance, and replacement
if required, (including routine inspection and service contracts) in
neat, clean, good order and condition, of the following:
(A) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks,
parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities and fences and gates;
(B) Trash disposal services;
(C) Tenant directories;
(D) Fire detection and sprinkler systems,
including the maintenance and repair thereof;
(E) Security services;
(F) HVAC;
(G) Roof repair;
(H) Downspouts, gutters, and roof drainage
facilities; and
(I) Any other service to be provided by Lessor
that is elsewhere in this Lease stated to be
an "Operating Expense."
(J) Reserves
(vi) Any capital improvement which will conceivably
reduce prorating expenses as may be mandated by law;
(vii) All costs associated with the supervision and
administration of the Common Areas. Said costs shall include
reasonable fees for such supervision and administration, and shall
equal not more than ten percent (10%) of the total Operating Expenses
defined in subsections (i) through (vi), inclusive.
(c) The inclusion of any improvements, facilities or services in
the definition of Operating Expenses shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities
or to provide those services unless Lessor has agreed elsewhere in
this Lease to provide the same.
(d) Lessee's Share of Operating Expenses shall be payable by
Lessee within five (5) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option,
however, an amount may be estimated by Lessor from time to time of
Lessee's Share of annual Operating Expenses and the same shall be
payable monthly (or otherwise, as Lessor shall designate) during each
twelve month period of the Lease term, on the same day as the Base
Rent is due hereunder. In the event that Lessee pays Lessor's
estimate of Lessee's Share of Operating Expenses as aforesaid, Lessor
shall deliver to Lessee within sixty (60) days after the expiration of
each calendar year a reasonably detailed statement showing Lessee's
share of the actual Operating Expenses incurred during the preceding
year. If Lessee's payments under this paragraph 4.2 (d) during said
preceding year exceed Lessee's Share as indicated on said statement,
Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expenses next falling due. If
Lessee's payments under this paragraph during said preceding year were
less than Lessee's Share as indicated on said statement, Lessee shall
pay to Lessor the amount of the deficiency within five (5) days after
delivery by Lessor to Lessee of said statement.
(e) During any period of "free rent" or other period of
occupancy during which Lessee is not required to pay Base Rent, Lessee
shall nonetheless be required to pay Lessee's Share of Operating
Expenses.
5. Security Deposit. Lessee deposit with Lessor upon execution
hereof $5472.88 as security for Lessee's faithful performance of
Lessees obligations hereunder. If Lessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any other
provision of this lease, Lessor may use, apply or retain all or any
portion of said deposit for the payment of any rent, change for
repair(s), cleaning, or replacement of damaged equipment, or other
charge in default, or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate
Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said deposit, Lessee
shall within ten (10) days after written demand therefore deposit cash
with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly rent shall, from
time to time, increase during the term of this Lease, Lessee shall, at
the time of such increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held
by Lessor shall at all times bear the same proportion to the then
current Base Rent as the initial security deposit bears to the initial
Base Rent set forth in paragraph 4.1. Lessor shall not be required to
keep said deposit separate from its general accounts. If Lessee
performs all of Lessees obligations, said deposit or so much thereof
as has not theretofore been applied by lessor, shall be returned,
without payment of interest or other increment for its use, to Lessee
(or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security
Deposit.
6. Use and Uses Prohibited.
6.1 Use. The Premises shall be used and occupied for general
offices, manufacturing, warehousing, and or distribution of advanced
thermoplastic composites for sporting goods, defense and aerospace
industries, or any other use which is reasonably comparable, and for
not other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard
to the use for which Lessee will occupy the Premises, does not violate
any covenants or restrictions of record or any applicable building
code, regulation or ordinance in effect on such Lease term
commencement date. In the event it is determined that this warranty
has been violated, then it shall be the obligation of the Lessor,
promptly after written notice from Lessee, to rectify any such
violation at Lessor's sole cost and expense. In the event the Lessee
does not give to Lessor written notice of the violation of this
warranty within six months from the date that the Lease term
commences, the correction of the same shall be the obligation of the
Lessee at Lessee' sole cost and expense except for those items which
are Lessor's responsibility in paragraph 7.1. The warranty contained
in this paragraph 6.2(a) shall be of no force or effect if, prior to
the date of this Lease, Lessee was an owner or occupant of the
Premises and, in such event, Lessee shall correct any such violation
at Lessee's sole cost
(b) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes,
ordinances, rules, regulations, orders, covenants and restrictions of
record, and requirements of any fire insurance underwriters or rating
bureaus, now in effect or which may hereafter come into effect,
whether or not they reflect a change in policy from that now existing,
during the term or any part of the term hereof, relating in any manner
to the Premises and, in such event, Lessee of the Premises and of the
Common Areas.
(c) Without in any way limiting the application or generality
of any other provision of this Article 6, Lessee shall at all times
keep itself apprised of, and shall strictly comply with, each and
every condition and restriction of the sanitation district servicing
the Premises relating to the discharge of substances into the sewage
system.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to the Lessee clean
and free of debris on the Lease commencement date (unless Lessee is
already in possession) and Lessor warrants to Lessee that the
plumbing, lighting, air conditioning, heating, and loading doors in
the Premises shall be in good operating condition on the Lease
commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor,
after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole
cost, rectify such violation. Lessee's failure to give such written
notice to Lessor within thirty (30) days after the Lease commencement
date shall cause the conclusive, nonrebuttable, presumption that
Lessor has complied with all of Lessor's obligations hereunder. The
warranty contained in this paragraph 6.3(a) shall be of no effect if,
prior to the date of this lease, Lessee was an occupant of the
Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease
commencement date or the date that the Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning,
municipal, county and state laws, ordinances and regulations governing
and regulating the Premises, and any exhibits attached hereto. Lessee
acknowledges that neither Lessor, nor any agent, representative or
employee of Lessor, has made any representation or warranty as to the
present or future suitability of the Premises for the conduct of
Lessee's business.
6.4 Uses Prohibited. Lessee shall not do or permit anything to
be done in or about the Premises or the Industrial Center nor bring or
keep anything therein which is not within the permitted use of the
Premises, or which will in any way increase the existing rate of or
affect any existing fire or other insurance upon the Industrial
Center, the building or any of its contents, or cause a cancellation
of any insurance policy covering the Industrial Center, the building
or any part thereof or any of its contents. Lessee shall not do or
permit anything to be done in or about the Premises or the Industrial
Center which will in any way obstruct or interfere with the rights of
other Lessees or occupants of the Industrial Center or the building or
injure or annoy them, or use or allow the Premises to be used for any
improper, immoral, unlawful or objectional purposes, nor shall Lessee
cause, maintain or permit any nuisance in, on or about the Premises.
Lessee shall not commit or allow to be committed any waste in or upon
the Premises.
6.5 Toxic, Radioactive and Hazardous Materials.
(a) Tenant shall not cause or permit any hazardous, toxic or
radioactive materials to be brought upon, kept or used in or about the
property by Tenant, its agents, employees, contractors, invitees or
subtenants, without the prior written consent of Landlord (which
Landlord shall not unreasonably withhold as long as Tenant
demonstrates to Landlord's reasonable satisfaction that such
hazardous, toxic or radioactive materials is necessary or useful to
tenant's business and will be used and stored in a manner that
complies with all Laws regulating any such hazardous, toxic or
radioactive materials so brought upon or used or kept in or about the
property).
(b) No tenant nor any agent, employee, contractor, invitee
or subtenant shall cause any hazardous, toxic or radioactive materials
to be brought upon, kept, or used in, on or about the Property, or
transported to or from the property without the prior written consent
of Landlord, except to the extent that
(i) such hazardous, toxic or radioactive materials is
necessary or useful to or a part of such tenant's business operations
and;
(ii) such hazardous, toxic, or radioactive materials are
used, kept, stored and disposed of in a manner that fully complies
with all laws, rules, statutes, ordinances, order, requirements or
policies of any governmental agency or authority or any fire insurance
underwriter applicable to any such hazardous, toxic or radioactive
materials (collectively, "Hazardous Material Laws").
To the extent that any tenant or any agent, employee, contractor,
invitee or subtenant of any Tenant shall cause any hazardous, toxic or
radioactive materials to be kept, used or be present in, on or about
the property, such Tenant shall insure that such hazardous, toxic or
radioactive materials is in full compliance with all Hazardous
Materials Laws.
(c) Except for hazardous, toxic or radioactive materials used
in connection with the operation of Tenant's business or Tenant s
intended use of the property, Tenant shall not cause any hazardous,
toxic or radioactive materials to be used, generated, stored or
disposed of on, under or about the property without Landlord's prior
written consent. Tenant shall comply with any and all federal, state
and/or local laws, ordinances or regulations relating to hazardous,
toxic or radioactive materials permitted to be used, generated or
stored on, under or about the property by Tenant.
(d) Nothing in this paragraph 6.5 shall in any way limit the
generality of paragraph 6.4.
7. Maintenance, Repairs, Alterations and Common Area Service.
7.1 Lessor's Obligations. Subject to the provisions of
paragraphs 4.2 (Operating Expenses), 6 (Use and Uses Prohibited), 7.2
(Lessee's Obligations) and 9 (Damage or Destruction), Lessor, at
Lessor's expense, subject to reimbursement pursuant to paragraph 4.2,
shall keep in good condition and repair the foundations, exterior
walls and structural condition of interior bearing walls, as well as
the parking lots, walkways, driveways, landscaping, fences, signs and
utility installations of the Common Areas and all parts thereof, as
well as providing the services for which there is an Operating Expense
pursuant to paragraph 4.2. Lessor shall not, however, be obligated to
paint the interior surface of exterior walls, nor shall Lessor be
required to maintain, repair or replace windows, doors or plate glass
of the Premises. Lessor shall have no obligation to make repairs
under this paragraph 7.1 until a reasonable time after receipt of
written notice from Lessee of the need for such repairs. Lessor shall
not be liable for damages or loss of any kind or nature by reason of
Lessor's failure to furnish any Common Area Services when such failure
is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or by any other cause
beyond the reasonable control of Lessor.
7.2 Lessee's Obligations.
(a) Subject to the provisions of Articles 6 (Use) and 9
(Damage or Destruction) and paragraph 7.1 (Lessor's Obligations),
Lessee, at Lessee's expense, shall keep in good order, condition and
repair the Premises and every part thereof (whether or not the damage
portion of the Premises or the means of repairing the same are
reasonably or readily accessible to Lessee) including, without
limiting the generality of the foregoing, all plumbing, electrical and
lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surfaces of exterior walls, ceilings,
windows, doors, plate glass, and skylights located within the
Premises.
(b) If Lessee fails to perform Lessee's obligations under
this paragraph 7.2 or under any other provision of this Lease, Lessor
may enter upon the Premises after thirty (30) days prior written
notice to Lessee (except in the case, of an emergency, in which case
no notice shall be required), perform such obligations on Lessees
behalf and put the Premises in good order, condition and repair, and
the cost thereof, together with a ten (10%)percent service charge,
shall be due and payable as additional rent to Lessor within (30) days
of receipt of an invoice from Lessor.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received (ordinary wear and tear excepted), clean and
free of debris. Any damage or deterioration of the Premises shall not
be deemed ordinary wear and tear if the same could have been prevented
by good maintenance practices and prudent care. Lessee shall repair
any damage to the Premises occasioned by the installation or removal
of Lessee's trade fixtures, alterations, furnishings and equipment.
Notwithstanding anything to the contrary otherwise stated in this
lease, Lessee shall leave the air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the Premises in good operating
condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written
consent, make any alterations, improvements, additions, or Utility
Installations (as hereinafter deemed) in, on, or about the Premises,
or the Industrial Center except for non-structural alterations to the
Premises not exceeding $2,500 in cumulative costs, during the term of
this Lease. In any event, whether or not in excess of $2,500 in
cumulative cost, Lessee shall make no change or alteration to the
exterior of the Premises nor the exterior of the Building or the
Industrial Center without Lessor's prior written consent. As used in
this paragraph 7.3, the term "Utility Installation" shall mean
carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing, and fencing. Should Lessee make any
alterations, improvements, additions or Utility Installations without
the prior approval of Lessor, Lessor may at any time during the term
of this Lease, require that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Industrial Center that
Lessee shall desire to make and which requires the consent of the
Lessor shall be presented to Lessor in written form, with detailed
proposed plans. If Lessor shall give its consent, the consent shall
be deemed conditioned upon Lessees acquiring a permit to do so from
appropriate governmental agencies, the furnishing a copy thereof to
Lessor prior to the commencement of the work and the compliance by
Lessee with all conditions of said permit in a prompt and expeditious
manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee
at or for use in the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or the
Industrial Center, or any interest therein. Lessee shall give Lessor
not less than ten (1O) days notice prior to the commencement of any
work in the Premises, and, within such ten (10) day period, Lessee
shall provide Lessor with evidence that Lessee has posted notices of
Lessor's non-responsibility in or on the Premises or the Building as
provided by law. If Lessee shall, in good faith, contest the
enforcement thereof against Lessor or the Premises, the Building or
the Industrial Center, upon the condition that if Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to
Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the
Premises and the Industrial Center free from the effect of such lien
or claim. In addition, Lessor may require Lessee to pay Lessor's
attorneys fees and costs in participating in such action if Lessor
shall elect, in Lessor's sole discretion, to do so.
(d) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute
trade fixtures of Lessee), which may be made on the Premises, shall be
the property of Lessor and shall remain upon and be surrendered with
the Premises at the expiration of the Lease term. Notwithstanding the
provisions of this paragraph 7.3 (d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it
cannot be removed without material damage to the Premises, and other
than Utility Installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2.
7.4 Utility Additions. Lessor reserves the right to install new
or additional utility facilities throughout the Building and the
Common Areas for the benefit of Lessor or Lessee, or any other Lessee
of the Industrial Center, including, but not by way of limitation,
such utilities as plumbing, electrical systems, gas distribution
systems, security systems, communication systems, and fire detection
systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. Insurance; Indemnity
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's
expense, obtain and keep in force during the term of this Lease a
policy of Combined Single Limit Bodily Injury and Property Damage
insurance insuring Lessee and Lessor against any liability arising out
of the use occupancy or maintenance of the Premises and the Industrial
Center. Such insurance shall be in the amount not less than $500,000
per occurrence. The policy shall insure performance by Lessee of the
indemnity provisions of this Article 8. The limits of said insurance
shall not, however, limit the liability of Lessee hereunder.
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep
in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage insurance, insuring Lessor,
but not Lessee, against any liability arising out of the ownership,
use, occupancy or maintenance of the Industrial Center in an amount
not less than $500,000 per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force
during the term of this Lease a policy of insurance covering loss or
damage to the Industrial Center improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in an
amount not to exceed the full replacement value thereof, as the same
may exist from time to time, providing protection against all perils
included within the classification of fire, extended coverage,
vandalism, malicious mischief, flood (in the event same is required by
lender having a lien on Premises) special extended perils ("all Risk,"
as such term is used in the insurance industry), plate glass insurance
and such other insurance as Lessor deems advisable. In the event that
the Premises shall suffer an insured loss as defined in paragraph
9.1(g) hereof, the deductible amounts under the casualty insurance
policies relating to the Premises shall be paid by Lessee.
8.4 Payment of Premiums and Premium Increases. Lessee shall
pay, pursuant to paragraph 4.2, Lessee's Share of all insurance
premiums, including increases thereto, relating to insurance which
Lessor is required to obtain or which Lessor. in Lessor's discretion,
believes it is prudent to obtain. Provided, however, that after the
term of this Lease has commenced, Lessee shall not be responsible for
paying Lessee's Share of any increase in any insurance premium for the
Industrial Center specified by Lessor's insurance carrier as being
caused by the use, acts or omissions of any other Lessee of the
Industrial Center, or by the nature of such the Lessee's occupancy,
which create an extraordinary or annual risk. Provided, however, that
Lessee shall, pay the entirety of any increase premium for the
Industrial Center over what it was immediately prior to the
commencement of the term of this Lease if the increase is specified by
Lessor's insurance carrier as being caused by the nature of Lessee's
occupancy or any act or omission of Lessee.
8.5 Insurance Policies. Insurance required hereunder shall be
in the companies holding a "General Policyholders Rating" of at least
B plus, or such other rating as may be required by a lender having a
lien on the Premises, as set forth in the most current issue of
"Best's Insurance Guide." Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies carried by
Lessor. Lessee shall deliver to Lessor copies of liability insurance
policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after
the commencement date of this Lease. No such policy shall be
cancelable or subject to reduction of coverage or other modification
except after thirty (30) days prior to written notice to Lessor.
Lessee shall, at least (30) days prior to the expiration of such
policies, furnish Lessor with proof of such insurance.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby
release and relieve the other, and waive their entire right of
recovery against the other for loss and damage arising out of or
incident to the perils insured against which perils occur in, on or
about the Premises, whether due to the negligence of Lessor or Lessee,
or their agents, employees, contractors, customers, suppliers,
shippers, licensees or invitees. Lessee and Lessor shall, upon
obtaining the policies of insurance required, give notice to the
insurance carrier that the foregoing mutual waiver of subrogation is
continued in this Lease.
8. Indemnity. Lessee shall indemnify and hold harmless Lessor
from and against any and all claims arising from Lessee's use of
Lessee's use of the Industrial Center, or from the conduct of Lessee's
business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere, and shall
further indemnify and hold harmless Lessor from and against any and
all claims arising from any breach or default in the performance of
any obligation on Lessee's part to be performed under the terms of
this Lease, or arising from any act or omission of Lessee, or any of
Lessee's agents, contractors, or employees, and from and against all
costs, attorney's fees, expenses and liabilities incurred in the
defense of any such claim or any action or proceeding thereon; except
to extend caused by the willful or negligent acts or omissions of the
Lessor, and in case any action or proceeding be brought against Lessor
by reason of any such claim, Lessee, upon notice from Lessor, shall
promptly and diligently defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor, and Lessor shall cooperate with
Lessee in such defense. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property
of Lessee or injury to persons, in, upon or about the Industrial
Center arising from any cause, and Lessee hereby waives all claims in
respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees
that Lessor shall not be liable for injury to Lessee's business or any
loss of income therefrom or for damage to the goods, wares,
merchandise or other property of Lessee, Lessee's agents, employees,
contractors, customers, suppliers, shippers, licensees or invitees, or
any other person in, upon or about the Industrial Center, nor shall
Lessor be liable for injury to the person of Lessee, Lessee's agents,
employees, contractors, customers, suppliers, shippers, licensees or
invitees, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether said damage or injury results from conditions
arising upon the Premises or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the
cause of such damage or injury or the means of repairing the same is
inaccessible to Lessee. Lessor shall not be liable for any damages
arising from any act or neglect of any other Lessee, occupant or other
user of the Industrial Center, nor from the failure of Lessor to
enforce the provisions of any other lease of the Industrial Center.
9. Damage or Destruction.
9.1 Definitions.
(a) "Promises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less
than fifty percent of the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises
are damaged or destroyed to the extent that the cost of repair is
fifty percent or more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to
the extent that the cost to repair is less than fifty (50%) percent of
the then replacement cost of the Building.
(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to
the extent that the cost of repair is fifty (50%) percent or more of
the then replacement cost of the Building.
(e) "Industrial Center Buildings" shall mean all of the
buildings on the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall
mean if the Industrial Center Buildings are damaged or destroyed to
the extent that the cost of repair is fifty (50%) percent or more of
the then replacement cost of the Industrial Center Buildings.
(e) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described
in Article 8. The fact that such required insurance was not in fact
obtained or is not in effect, or that an insured loss has a deductible
amount shall not make the insured loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area
to the condition that existed immediately prior to the damage
occurring, excluding all improvements made by Lessees.
9.2. Premises Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4
and 9.5. if at any time during the term of this Lease there is damage
to the Premises which is an Insured Loss and which falls into the
classification of Premises Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage to the Premises (but not Lessee's
fixtures, equipment, or tenant improvements) as soon as reasonably
practicable following Lessor's receipt from Lessee of written
notification of the occurrence of such damage, and this Lease shall
continue in full force and effect. If Lessor shall have repaired such
damage to the Premises with twenty (20) days after Lessor's receipt
from Lessee there shall be no abatement, offset or reduction of rent.
Commencing on the twenty-first (21st) day following Lessor's receipt
from Lessee of said written notification of such damage, provided that
such damage shall not be theretofore have been repaired, and
continuing until such damage is repaired, Lessee shall be entitled to
an equitable reduction in rent based upon the extent to which such
damage materially interferes with Lessee's business in the Premises.
Provided, however, that if such damage shall have been caused by any
act or omission of Lessee (or any agent, employee, contractor,
customer, supplier, shipper, licensee or invitee of Lessee), then this
Lease shall continue in full force and effect, Lessee shall
immediately upon demand reimburse Lessor for any loss, cost or expense
incurred by Lessor on an account of such damage, and there shall be no
abatement, offset or reduction of rent.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage
to the Premises which is not an Insured Loss (or as to which the
insurance proceeds available to Lessor are less than eighty-five (85%)
percent of the cost of repair and restoration), which was not caused
by any act or omission of Lessee (or any agent, employee, contractor,
customer, supplier, shipper, licensee or invitee of Lessee), which
prevents Lessee from using the Premises and which falls within the
classification of Premises Partial Damage, Lessor may, at Lessor's
option, either:
(i) Repair such damage at Lessor's expense as soon as
reasonably practicable, in which case this Lease shall continue in
full force and effect, and in which case, if Lessor shall have
repaired such damage to the Premises within twenty (20) days after
Lessor's receipt from Lessee of written notification of such damage,
there shall be no abatement, offset or reduction of rent, but,
commencing on the twenty-first (21st) day following Lessor's receipt
from Lessee of said written damage, provided that such damage shall
not be theretofore have been repaired, Lessee shall be entitled to an
equitable reduction in rent based upon the extent to which such damage
materially interferes with Lessee's business in the Premises; or
(ii) Give written notice to Lessee within thirty (30) days
after Lessor's receipt from Lessee of written notification of such
damage of Lessor's intention to cancel and terminate this Lease as of
the date of Lessor's receipt from Lessee of said written notification.
In the event Lessor to give such notice of Lessor's intention to
cancel and terminate this Lease, Lessee shall have the right within
ten (10) days after the receipt of such notice to give written notice
to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease
shall be canceled and terminated as of the date of the occurrence of
such damage.
Provided, however, that if such damage shall have been caused by any
act or omission of Lessee (or any agent, employee, contractor,
customer, supplier, shipper, licensee or invitee of Lessee), then this
Lease shall continue in full force and effect, Lessee shall
immediately upon demand reimburse Lessor for any loss, cost or expense
incurred by Lessor on account of such damage, and there shall be no
abatement, offset reduction of rent.
9.3 Premises Total Destruction; Premises Building Total
Destruction; Industrial Center Buildings Total Destruction.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if
at any time during the term of this Lease there is any damage, whether
or not it is an Insured Loss, and which falls into the classifications
of either;
(i) Premises Total Destruction, or
(ii) Premises Building Total Destruction, or
(iii) Industrial Center Buildings Total Destruction, then
Lessor may at Lessor's option either;
(A) repair such damage or destruction, but not
Lessee's fixtures, equipment, or tenant improvements, as soon as
reasonably practicable at Lessor's expense, and this Lease shall
continue in full force and effect, without abatement, offset or
reduction of rent, or
(B) give written notice to Lessee within thirty (30)
days after the date of occurrence of such damage of Lessor's intention
to cancel and terminate this Lease, in which case this Lease shall be
canceled and terminated as of the date of the occurrence of such
damage.
9.4 Damage Near End of Term.
(a) Subject to the provisions of paragraph 9.4(b), if at any
time during the last six (6) months of the term of this Lease there is
damage, whether or not it is an Insured Loss, which falls into the
classifications of Premises Partial Damage, Lessor may at Lessor's
option cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Lessee of Lessor's election to
do so within thirty (30) days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that
Lessee has an option to extend or renew this Lease, and the time
within which said option may be exercised has not yet expired, Lessee
shall exercise such option, if it is to be exercised at all, no later
than twenty (20) days after the occurrence of an Insured Loss falling
within the classification of Premises Partial Damage during the last
six (6) months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at
Lessor's expense repair such damage, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably practicable
and this Lease shall continue in full force and effect, without
abatement, offset or reduction of rent. If Lessee fails to exercise
such option during said twenty (20) day period, then Lessor may, at
Lessor's option, terminate and cancel this Lease as of the expiration
date of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within thirty (30) days after the
expiration of said twenty (20) day period, notwithstanding any term or
provision in the grant of option to the contrary.
9.5 Lessor's Liability to Repair Timely. If Lessor is obligated
to repair or restore the Premises pursuant to the provisions of this
Article 9 and if, in Lessor's determination, the Premises cannot be
repaired or restored within ninety (90) days after the last to occur
of,
(a) receipt of insurance proceeds adequate to complete such
repair or restorations and
(b) all governmental approvals, permits and authorizations
required to perform such repair or restoration, Lessor shall notify
Lessee of such fact and Lessee may terminate this Lease by delivery of
written notice to Lessor within thirty (30) days of receipt of
Lessor's notice.
In such event this Lease shall terminate effective as of the date
Lessor receives such notice. If Lessee does not terminate this Lease
and if in Lessor's estimation the Premises can be restored within the
ninety (90) day period set forth in the first sentence of this section
9.5, then Lessor shall commence to restore the Premises in compliance
with then existing laws and shall complete such repair or restoration
with due diligence. The foregoing ninety (90) day period shall be
extended for a period equal to the period that Lessor is delayed or
prevented from the performance of its repair obligation under this
Article 9 by reasons of acts of god, strikes, lookouts, labor
troubles, inability to procure material, restrictive governmental laws
or regulations or other cause, without fault and beyond the reasonable
control of Lessor (financial inability excepted).
9.6 Termination - Advance Payments. Upon termination of this
Lease pursuant to this Article 9, an equitable adjustment shall be
made concerning advance rent and any advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of
Lessee's security deposit as has not theretofore been applied by
lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any
statute which relate to termination of leases when leased property is
damaged or destroyed, and agree that any such event shall be governed
by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax,
as defined in paragraph 10.3, applicable to the Industrial Center
subject to reimbursement by Lessee of Lessee's Share of such taxes in
accordance with the provisions of paragraph 4.2, except as otherwise
provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible
for paying any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional
improvements placed upon the Industrial Center by other lessees, or by
Lessor, for the exclusive enjoyment of such other lessees. Lessee
shall, however, pay to Lessor, at the time that Operating Expenses are
payable under paragraph 4.2 (c), Lessee's Share of any other increase
in real property tax caused by additional improvements placed upon the
Industrial Center, except that Lessee shall pay the entirety of any
increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises or the Industrial
Center by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax." As used herein, the
term 'real property tax" shall include any form of real estate tax or
assessment, general or special, ordinary or extraordinary, and any
license fee, commercial rental tax, improvement bond or bonds, levy or
tax (other than inheritance, personal income or estate taxes) imposed
on the Industrial Center or any portion thereof or interest therein by
any authority having the direct or indirect power to tax, including
any city, county, state, or federal government, or any school,
agriculture, sanitation, fire, street, drainage, or other improvement
district thereof. "The term 'real property tax" shall also include any
tax, fee, levy, assessment or charge;
(i) in substitution (partially or totally) of any tax, fee,
levy, assessment or charge hereinabove included within the definition
of "real property tax" or
(ii) the nature of which was hereinbefore included within the
definition of "real property tax" or
(iii) which is imposed for a service or right not charged
prior to the reference date of this Lease, or, if previously charged,
has been increased since the reference date of this Lease, or
(iv) which is imposed as a result of a transfer, either
partial or total, of Lessor's interest in the Industrial Center or
which is added to a tax or charge hereinabove included within the
definition of real property tax by reason of such transfer, or
(v) which is imposed by reason of this transaction, or any
modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Industrial Center is not
separately assessed, Lessee's Share of the real property tax liability
shall be an equitable proportion of the real property taxes for all of
the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable and
good faith determination thereof shall be conclusive.
10.5 Personal Property Tax.
(a) Lessee shall pay prior to delinquency all taxes
assessed against and levied upon trade fixtures, furnishings,
equipment and all other personal property of Lessee contained in the
Premises or elsewhere. When possible, Lessee shall cause said trade
fixtures, furnishings, equipment and all other personal property to be
assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the
taxes attributable to Lessee within ten (10) days after the receipt of
a written statement setting forth the takes applicable to Lessee's
property.
11. Utilities. Lessee shall pay for all water, gas, heat, light,
power, telephone an(f other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are
not separately metered to the Premises, Lessee shall pay at Lessor's
option, either Lessee's share or a reasonable proportion, equitably
determined by Lessor, of all charges jointly metered with other
premises in the Building or the Industrial center.
12. Subletting and Assignment.
12.1 No Assignment; Consent Required To Sublet. Lessee shall
not voluntarily or by operation of law assign, hypothecate, mortgage,
or otherwise transfer or encumber all or any part of Lessee's interest
in the Lease or in the Premises, nor shall Lessee, by its action or
inaction, permit or suffer the occurrence of any such event without
prior written consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder within
ten (10) days of Lessor's receipt of all financial data and other
information respecting the proposed sublessee reasonably requested by
Lessor. Any attempted subletting without Lessor's said consent shall
be void and shall constitute a breach of this Lease under paragraph
13.1 without the need for Lessee; provided, however, that Lessor's
failure to notify Lessee within the sixty (60) days set forth in this
paragraph 12.1 that the request to sublet is disapproved shall
constitute Lessor's consent thereto.
12.2 Lessee Affiliate. Notwithstanding the provisions of
paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or
any corporation which controls, is controlled by or is under common
control with Lessee, or to any corporation resulting from a merger or
consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is
being conducted on the Premises by Lessee, all of which are referred
to as "Lessee Affiliates," provided that before such assignment or
subletting shall be effective said assignee shall assume, in full, the
obligations of Lessee under this Lease. Such assignment by Lessee
shall be to an entity with a demonstrated net worth greater than that
of Lessee. Lessee is to provide Lessor a true financial statement of
assignee. Any such assignment or subletting shall in no way affect or
limit the liability of Lessee under the terms of this Lease even if
after such assignment or subletting the terms of this Lease are
materially changed or altered without either notice to or the consent
of Lessee, and Lessor shall have no obligation to give such notice or
to request such consent.
12.3 Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to
any subletting by Lessee under paragraph 12. 1, or subletting or
assignment under paragraph 12.2, of all or any part of the Premises,
and such terms shall be expressly included in each and very such
sublease:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interests in all rentals and income arising from any sublease
heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a default shall occur in the
performance of Lessee's obligations under this Lease, Lessee may
receive, collect and enjoy the rents accruing under each sublease.
Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor, nor by reason of the collection of rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee
to perform and comply with any of Lessee's obligations to such
sublessee under each sublease. Lessee hereby irrevocably authorizes
and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to
become due under the sublease. Lessee agrees that such sublessee
shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary.
Lessee shall have no right to inquire as to whether such default
exists, notwithstanding any notice from or claim from Lessee to the
contrary. Lessee shall have no right or claim against such sublessee
or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In
entering into any sublease, Lessee shall use only such form of
sublease as is satisfactory to Lessor and once approved by Lessor,
such sublease shall not be changed or modified without Lessor's prior
written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to
have assumed and agreed to conform to and comply with each and every
covenant, condition and restriction of this Lease (including, but not
limited to, those respecting assignment and subletting and each and
every obligation to be performed hereunder by Lessee, other than such
obligations as are clearly and necessarily contrary to or inconsistent
with provisions contained in a sublease to which Lessor has expressly
consented in writing.
(c) If Lessee's obligations under this Lease have been
guaranteed by third parties, then a sublease, and Lessor's consent
thereto, shall, at Lessor's option, be ineffective unless said
guarantors give their written consent to each sublease and the terms
thereof. However, nothing in this paragraph 12.3(c) or elsewhere in
this Lease shall be construed so as to invalidate, waive or in any way
contradict the provision of any guaranty of this Lease that said
guaranty shall remain in force and effect notwithstanding a material
change in the Lease terms without the guarantor's consent.
(d) The consent by Lessor to any subletting shall not
release Lessee from its obligations or alter the primary liability of
Lessee or to any assignment or subletting by the sublessee. However,
Lessor may consent to subsequent subletting and/or assignments or
transfers of the sublease, or to amendments or modifications thereto,
without notifying Lessee or anyone else liable on the Lease or the
sublease and without obtaining their consent, and such action shall
not relieve such persons from liability.
(e) The consent by Lessor to any subletting shall not
constitute a consent to any subsequent subletting by Lessee or to any
assignment or subletting by the sublessee. However, Lessor may
consent to subsequent sublettings and/or assignments or transfers of
the sublease, or to amendments or modifications thereto, without
notifying Lessee or anyone else liable on the Lease or sublease and
without obtaining their consent, and such action shall not relieve
such persons from liability.
(f) In the event of any default under this Lease, Lessor
may proceed directly against Lessee, any sublessee, any guarantor or
anyone else responsible for the performance of this Lease, without
first exhausting Lessor's remedies against any other person or entity
responsible therefor to Lessor, or any security held by Lessor or
Lessee.
(g) In the event of any default under this Lease, Lessor,
at its option and without any obligation to do so, may require any
sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of Lessee under such sublease from the time of the
exorcise of said option to the termination of such sublease; provided,
however, that Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to Lessee or for any other
prior defaults of Lessee under such sublease.
(h) Each and every consent required of Lessee under a
sublease shall also require the consent of Lessor.
(i) Lessor's written consent to any subletting of the
Premises by Lessee shall not constitute an acknowledgment that no
default exists of Lessee's obligations under this Lease, nor shall
such consent be deemed a waiver of any then existing default, except
as may be otherwise stated by Lessor at the time.
(j) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by
Lessee to the sublessee. Such sublessee shall have the right to cure
a default of Lessee within ten (10) days after service of said notice
of default upon such sublessee.
12.5 Attorney's Fees. In the event Lessee shall assign or
sublet the Premises or request the consent of Lessor to any assignment
or subletting, or if Lessee shall request the consent of Lessor for
any act Lessee proposes to do, then Lessee shall pay Lessor's
reasonable attorneys fees incurred in connection therewith, which
attorneys fees shall not exceed Five Hundred Dollars ($500.00) for
each such request.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the
following events shall constitute a material default of this Lease by
Lessee:
(a) The abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or
any other payments required to be made by Lessee hereunder, within
fifteen (15) days of when due, where such failure shall continue for a
period of three (3) days after written notice thereof from Lessor to
Lessee. In the event that Lessor serves Lessee with a notice to Pay
Rent or Quit pursuant to applicable Unlawful Detainer statutes, such
Notice to Pay Rent or Quit shall also constitute the notice required
by this paragraph.
(c) Except as otherwise provided in this Lease, the failure
by Lessee to observe or perform any of the covenants, conditions or
provisions of this Lease to be observed or performed by Lessee, other
than as described in paragraph (b) above, where failure shall continue
for a period of thirty (30) days after written notice thereof from
Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in
default if Lessee commended such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
to the extent permitted by law, such thirty (30) day notice shall
constitute the sole and exclusive notice required to be given to
Lessee under applicable Unlawful Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors,
(ii) Lessee becomes a "debtor" as defined in 11U.S.C.
101 or any successor thereto (unless, in n the case of a petition
filed against Lessee, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets Located at the
Premises or of lessee's interest in this Lease, where possession is
not restored to Lessee within thirty (30) days; or
(iv) the attachment, execution or other judicial seizure
of substantially all of Lessee's assets located at the premises or of
Lessee's interest in this Lease, where such seizure is not discharged
within thirty (30) days. In the event that any provision of this
paragraph 13.1(d) is contrary to any applicable law, such provision
shall be of no force or effect, but shall not cause the invalidity of
any other provision of, or remedy under, this Lease.
(e) The discovery By Lessor that any financial statement or
other evidence of assets, income or net worth given to Lessor to
Lessee, or to any assignee, subtenant, or successor in interest of
Lessee's obligation hereunder, or by any other person on behalf of
them, was materially false or misleading.
13.2 Remedies. In the event of any such material default by
Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or
remedy which Lessor may have under this Lease, at equity or by law, by
reason of such default:
(a) Terminate Lessee's right to possession of the Premises
by any lawful means, in which case this Lease and the term hereof
shall terminate and Lessee shall immediately surrender possession of
the Premises to Lessor. In such event Lessor shall be entitled to
recover from Lessee all damages incurred by Lessor by reason of
Lessee's default including, but not limited to:
(i) the cost of recovering possession of the Premises;
and
(ii) expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; and
(iii) the worth at the time of award by a court having
jurisdiction thereof of the rent which was due and payable at the time
of the award; and
(iv) the worth at the time of award by a court having
jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of
such rental loss for the same period that Lessee proves could be
reasonably avoided; and
(v) any other amount necessary to compensate Lessor for
all the detriment proximately caused by Lessee's failure to perform
his obligations under the Lease, or which in the ordinary course of
things would be likely to result therefrom.
(b) Maintain Lessee's right to possession, in which case this
Lease shall continue in effect whether or not Lessee shall have
vacated or abandoned the Premises. In such event Lessor shall be
entitled to enforce all of Lessor's rights and remedies under this
Lease, including the right to recover the rent as it becomes due
hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the State of
California. Unpaid installments of rent and other unpaid monetary
obligations of Lessee under the terms of this Lease shall bear
interest from the date due at the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a
reasonable time, but in no event later than thirty (30) days after
written notice by Lessee to Lessor and to the holder of any first
mortgage or deed of trust covering the Premises whose name and address
shall have theretofore been furnished to Lessee in writing, specifying
wherein Lessor has failed to perform such obligation; provided,
however that if nature of Lessor's obligation is such that more than
thirty (30) days are required for performance then Lessor shall not be
in default if Lessor commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment
by Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses
or other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount which will be
impracticable or extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges,
and late charges which may imposed on Lessor by the terms of any
mortgage or trust deed covering the property. Accordingly, if any
installment of Base rent, Operating Expenses, or any other sum due
from Lessee shall not be received by Lessor or Lessor's designate
within five (5) days after such amount shall be due, then, without any
requirement for notice to Lessee, Lessee shall pay to Lessor, in
addition to the amount due, a late charge equal to ten (10%) percent
of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of
Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, at
equity or by law, whether or not collected, for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee,
then Base Rent shall automatically become due and payable quarterly in
advance, rather than monthly, notwithstanding paragraph 4.1 or any
other provision of this Lease to the contrary.
/s/ EAS
Lessees Initials
14. Condemnation; Retroactive Building Code Changes.
14.1 Condemnation. If the Premises or any other portion thereof
or the Industrial center are taken under the power of eminent domain,
or sold under the threat of the exercise of said power (all of which
are herein called "condemnation"), this Lease shall terminate as to
the part so taken as of the date the condemning authority takes title
or possession, whichever first occurs. If more than ten (100%)
percent of the floor area of the Premises, or more than twenty-five
percent of that portion of the Common Area designated as parking for
the Industrial Center, is taken by condemnation. Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within ten (10) days after the condemning
authority shall have taken possession), terminate this Lease as of the
date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease
shall remain in full force and effect as to the portion of the
Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the Promises taken bears to the,
total floor area of the Premises. No reduction of rent shall occur if
the only area taken is that which does not have the Premises located
thereon.
14.2 Condemnation Award. Any award for the taking of all or
any part of the Premises under the power of eminent domain, or any
payment made under threat of the exercise of such power, shall be the
property of Lessor, whether such award shall be made as compensation
for diminution in value of the leasehold or for the taking of the fee,
or as severance damages; provided however, that Lessee shall be
entitled to any award for loss of or damage to Lessee's trade fixtures
and removable personal property. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall, to the extent
of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed
therefore by the condemning authority. Lessee shall promptly pay any
amount in excess of such severance damages required to complete such
repairs and shall diligently prosecute such repairs to completion.
15. Brokers. Lessee's warrants that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this
Lease except Tilton Realty, and it knows of no other real estate
broker or agent who either claims or is entitled to a commission with
its Lease.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon
not less than twenty (20) days prior written notice from the other
party ("requesting party") execute, acknowledge and deliver to the
requesting party a statement in writing;
(i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in
full force and effect) and the date to which the rent and other
charges are paid in advance, if any, and
(ii) acknowledgment that there are not, to the responding
party's knowledge, any uncured defaults on the part of the requesting
party, or specifying such defaults if any are claimed.
(b) At the requesting party's option, the failure to deliver
such statement within such time shall be a material default
of this Lease by the party who was to have responded, without any
further notice to such party, or it shall be conclusive upon such
party that;
(i) this Lease is in full force and effect without
modification except as may be represented by the requesting party, not
more than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the
property, or any part thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor the annual report of Lessee's
parent corporation, Quadrax Corporation.
17. Lessor's Liability. The term "Lessor" as used herein shall mean
only the owner or owners, at the time in question, of the fee title or
a Lessee's interest in a ground lease of the Industrial Center and, in
the event of any transfer of such title or interest, Lessor herein
named (and in case of any subsequent transfers then the grantor) shall
be relieved from and after the date of such transfer of all liability
as respects Lessor's obligations thereafter to be performed. The
obligations contained in this Lease to be performed by Lessor shall be
binding on Lessor's successor and assigns during their respective
periods of ownership.
18. Severability. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction shall in no way affect
the validity of any other provision hereof
19. Interest on Past-due Obligations. Except as otherwise expressly
herein provided, any amount due to Lessor not paid when due shall bear
interest at the maximum rate then allowable by law from the date due.
Payment of such interest shall not excuse or cure any fault by Lessee
under this Lease-, provided, however, that interest shall not be
payable on late charges incurred by Lessee nor on any amounts upon
which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the
obligations to be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor
under the terms of this Lease, including, but not limited to, Lessee's
Share of Operating Expenses and insurance and tax expenses payable by
Lessee shall be deemed to be rent.
22. Incorporation of Prior Agreements; Modification of Agreement.
This Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior or contemporaneous agreement or
understanding pertaining to any matter shall be effective. This Lease
may be modified in writing only. Each such writing shall be dated and
signed by the parties in interest at the time of modification. Any
and all such writings shall be narrowly construed and shall alter the
provisions of this Lease only as is specifically set forth in such
writing. Except as otherwise stated in this Lease, Lessee hereby
acknowledges that neither Lessor nor any representative, agent or
employee of Lessor has made any oral or written warranties or
representations to Lessee relative to the condition or use by Lessee
of the Premises or any other part of the Industrial Center, and Lessee
acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act (OSHA), the legal use and adaptability
of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as
otherwise specifically stated in this Lease.
23. Notices. Any notices required or permitted to be given hereunder
shall be in writing and may be given by personal delivery or by
certified mail . and if given personally or by mail, shall be deemed
sufficiently given five (5) days after deposit in the U.S. Mail if
addressed to Lessee or to Lessor at the address immediately above the
signature of the respective parties, as the case may be. Either party
may by notice to the other specify a different address for notice
purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter
designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent
breach by Lessee of the same or any other provision. Lessor's consent
to or approval of any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to or approval of any subsequent act
by Lessee. The acceptance of rent hereunder by Lessor shall not be a
waiver of any preceding breach by Lessee of any provision hereof,
other than the failure of Lessee to pay the particular rent so
accepted, regardless of lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
25. Recording. Either Lessor or Lessee shall upon request of
the other, execute, acknowledge and deliver to the other a "short
form" memorandum of this Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in
possession of the Promises or any part thereof after the expiration of
the term hereof, such occupancy shall be a tenancy from month to month
upon all the provisions of this Lease pertaining to the obligations of
Lessee, but all Options, if any, granted under the terms of this Lease
shall be deemed terminated and be of no further effect after the
commencement of said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all
other remedies at law or in equity.
28. Covenants and Conditions. Each provision of this Lease
performable by Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the
provisions of Article 17, this Lease shall bind the parties, their
personal representatives, successors and assigns. This Lease and any
litigation concerning this Lease shall be governed by the laws of the
State of California.
30. Subordination.
(a) This Lease, and any option granted herein, at Lessor's
option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed
upon the Industrial Center and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such
subordination, Lessee's right to quiet possession of the Premises
shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the
provisions of this Lease and applicable provisions of the law, unless
this Lease is otherwise terminated pursuant to its terms.
(b) Lessee agrees to execute any documents required to
effectuate an attornment a subordination or to make this Lease or any
Option granted herein prior to the lien of any mortgage, deed of trust
or ground lease, as the case may be. Lessee shall execute such
documents within twenty (20) days of written demand.
31. Attorney's Fees. If either Lessor or Lessee shall bring an
action to enforce the terms hereof or declare rights hereunder, the
prevailing party in such action, on trial or appeal, shall be entitled
to his reasonable attorney's fees to be paid by the losing party as
fixed by the court.
32. Lessor's Access. Lessor and Lessor's agents shall have the right
to enter the Promises at reasonable times upon giving reasonable
notice for the purpose if inspecting the same, showing the same to
prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to
the building of which they are part as Lessor may deem necessary or
desirable. Lessor may at any time place on or about the Premises or
the Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred twenty (120) days of the term hereof place
on or about the Premises any ordinary "For Lease" signs. All
activities of Lessor pursuant to this Article 32 shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for
the same.
33. Auctions. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises or
the Common Areas without first having obtained Lessor's prior written
consent. Notwithstanding anything to the contrary in this Lease,
Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises or the
Industrial Center without Lessor's prior written consent. Under no
circumstance shall Lessee place a sign on any roof of the Industrial
Center.
35. Merger. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, or a termination by Lessor,
shall not work a merger, and shall, at the option of Lessor, terminate
all or any existing subtenancies or may, at the option of Lessor,
terminate all or any existing subtenancies or may, at the option of
Lessor, operate as an assignment to Lessor of any or all of such
subtenancies.
36. Consents. Except as otherwise specifically stated in this Lease,
wherever the consent of one party is required to an act of the other
party such consent shall not be unreasonably withheld or delayed.
37. Quiet Possession. Upon Lessee's paying the rent for the Premises
and observing and performing all of the covenants, conditions and
provisions on Lessee's part to be observed and performed hereunder.
Lessee shall have quiet possession of the Premises for the entire term
hereof subject to all of the provisions of this Lease.
38. Security Measures. Lessee hereby acknowledges that Lessor shall
have no obligation whatsoever to provide guard service or other
security measures for the benefit of Lessee, the Premises or the
Industrial center. Lessee assumes all responsibility for the
protection of Lessee, its agents, employees, contractors, customers,
suppliers, shippers, licensees and invitees and the property of Lessee
and of Lessee's agent, employees, contractors, customers, suppliers,
shippers, licensees and invitees from acts of third parties. Nothing
herein contained shall prevent Lessor, at Lessor's sole option, from
providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b). In
the event that Lessor elects at any time to provide such security
protection, Lessor shall not as a result thereof be held to a higher
or stricter standard of care, or to greater liability, than if no such
security protection had ever been provided.
39. Easements. Lessor reserves to itself the right, from time to
time, to grant such easements, rights and dedications as Lessor deems
necessary or desirable, and to cause the recordation of Parcel Maps,
so long as such easements, rights, dedications, maps and restrictions
do not unreasonably interfere with the use of the Premises by Lessee.
Lessee shall sign any of the aforementioned documents within thirty
(30) days of Lessor's request-, Lessee's failure to execute such
documents within ten (10)days after written demand shall constitute a
material default by Lessee hereunder without further notice to Lessee
and, at Lessor's option, Lessor shall execute such documents on behalf
of Lessee as Lessee's attorney-in-fact. Lessee does hereby make,
constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact
and in Lessee's name, place and stead, to execute such documents in
accordance with this article 39, and Lessee acknowledges that said
appointment of Lessor as its attorney-in-fact is coupled with an
interest.
40. Performance Under Protest If at any time a dispute shall arise
as to any amount or sum of money to be paid by one party to the other
under the provisions hereof, the party against whom the obligation to
pay the money is asserted shall have the right to make payments "under
protest" and such payment shall not be regarded as a voluntary payment
and there shall survive the right on the part of the said party to
institute suit for recovery of each sum. If it shall be adjudged that
there was no legal obligation on the part of said party to pay such
sum or any part thereof, said party shall be entitled to recover each
sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
41. Authority. If Lessee is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of
such entity represent and warrants that he or she is duly authorized
to execute and deliver this Lease on behalf of said
entity. If Lessee is a corporation, trust or partnership, Lessee
shall, within thirty (30) days after execution of this Lease, deliver
to Lessor evidence of such authority satisfactory to Lessor.
42. Options.
42.1 Definition. As used in this Article the word "option"
means the option or right to extend this Lease according to the terms
set forth in the option.
42.2 Options Personal. Each option granted to Lessee in this
Lease is personal to the original Lessee and may be exercised only by
the original Lessee, while occupying the Premises and without the
intent of thereafter assigning this Lease or subletting the Premises
or any portion thereof, and may be exercised or be assigned
voluntarily or involuntarily, by or to any person or entity other than
Lessee. The options, if any, granted to Lessee in or in connection
with this Lease are not assignable separate and apart from this Lease,
nor may any option be separated from this Lease in any manner, either
by reservation or otherwise.
42.3 Multiple Options. In the event that Lessee has any
multiple options to extend or renew this Lease, a later option cannot
be exercised unless the prior option to extend or renew this Lease has
been so exercised.
42.4 Effect on Default on Options.
(a) Lessee shall have no right to exercise an option,
notwithstanding any provision in the grant of option to the contrary,
if Lessee is declared in default beyond any applicable grace or cure
periods provided herein.
(b) The period of time within which an option may be
exercised shall not be extended or enlarged by reason of lessee's
inability to exercise an option because of the provision of paragraph
42.4 (a).
(c) All rights of Lessee under the provisions of an option
shall terminate and be of no further force or effect, notwithstanding
Lessee's due and timely exercise of the option, if, after such
exercise and during the term of this Lease,
(i) Lessee fails to pay Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes
due (without any necessity of Lessor to give notice thereof to
Lessee),or
(ii) Lessee fails to commence to cure a default
specified in paragraph 13.1(c) within thirty (30) days after the date
that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraph
13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give
notice of such default to Lessee), or
(iv) Lessor gives to Lessee three or more choices of
default under paragraph 13.1 (b), or paragraph 13.1 (c), whether or
not the defaults are cured.
43. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lease.
This Lease shall become binding upon Lessor and Lessee only when fully
executed by Lessor and Lessee.
44. Amendments. Amendments to this Lease which are separately dated
and signed by both parties shall be a part of this Lease. Any and all
such Amendments shall be narrowly construed and shall alter the
provisions of this Lease only as if specifically set forth in such
Amendments.
45. Exhibits. The following Exhibits (unless lined out) are incorporated
by reference in this Lease
Exhibit "A"' - Site plan of the Industrial Center.
Exhibit "B" - Floor plan of the Premises
Exhibit "C" - Description of Tenant Improvements to be provided by Lessor.
Exhibit "D" - Not Included
Exhibit "E" - Hazardous Materials Waning and Liability Release.
Exhibit "F" - Sign Criterion & Specifications
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH
TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW
THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE
THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF
LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
LESSOR: LESSEE:
Coral Tree Commerce Center Associates Quadrax Corporation
2440 Grand Ave., Suite E 300 High Point Avenue
Vista, CA. 92083 Portsmouth, RI.
By. /s/ Elliott P Woodlley By: /s/ Edward A. Stoltenberg
Elliott P. Woolley, General Partner Edward A. Stoltenberg,
Chief Financial Officer
Executed on May 6, 1996 Executed on May 26, 1996
EXHIBIT "A"
SITE PLAN
Graphic Design
-------------------------------------------
EXHIBIT "B"
Graphic Floor Plan
------------------------------------------
EXHIBIT "C"
CORAL TREE COMMERCE CENTER
TENANT IMPROVEMENTS
The tenant improvements will consist of the following:
1. Lessor at Lessors' cost shall have all office areas painted.
2. Lessor at Lessors' cost shall have all office area carpeting
replaced.
3. Lessor shall inspect and make all minor repairs to office
areas.
4. Lessor shall provide warehouse areas in broom swept condition.
5. Lessor shall provide the following electrical upgrades:
6. Lessor shall provide a 8' x 8' opening in the demising wall
located between Suites F & G in an area designed by Lessee.
7. Lessor shall provide the following electrical upgrades:
a. Provide two (2) 200 amp, 3 phase panels
1. one to be located on the south wall of
the electrical room
2. one to be located on the nearest post opposite
of demising wall
Initials: Lessor Initials: Lessee
------------------------------------------
EXHIBIT "E"
CORAL TREE COMMERCE CENTER ASSOCIATES
HAZARDOUS MATERIALS WARNING AND LIABILITY
Property: CORAL TREE COMMERCE CENTER
The following provisions dealing with Hazardous Materials are meant to
be in addition to and not supersede or limit any other provisions of
this Lease which may deal with the same subject matter.
(a) Definition. "Hazardous Materials" shall mean any
hazardous or toxic substance, material or waste which is or becomes
regulated by any local or governmental authority, the State of
California or the United States Government, including but not limited
to substances defined as "hazardous substances", "hazardous
materials", " toxic substances", or "hazardous wastes" in the
Comprehensive Environmental Responses, Compensation and Liability ACT
of 1980, as amended, 42 U.S.C. Section 9601, et seq; the Hazardous
Materials Transportation Materials Transportation ACT, 49 U.S.C.
Section 9601, et seq; the California Health & Safety Code; and any
law, ordinance or regulation dealing with underground storage tanks;
and in the regulations adopted, published and/or promulgated pursuant
to said laws, and in any other environmental law, regulation or
ordinance now existing or hereinafter enacted (hereinafter "Hazardous
Materials Laws").
(b) Use and Removal.
(1) LESSEE hereby agrees that LESSEE shall not use,
generate, manufacture, refine, process, store, or dispose
of on, under or about the PREMISES or transport to or from
the PREMISES any Hazardous Materials, except with the
written consent of LESSOR in LESSOR'S sole discretion and
in full compliance with applicable Hazardous Materials Laws
LESSEE further acknowledges that LESSEE does not intend to
use the PREMISES in the future for the purpose of
generating, manufacturing, refining, producing, storing,
handling, transferring, processing or transporting of
Hazardous Materials.
(2) If at any time during the term of this Lease,
Hazardous Materials are used, or placed by LESSEE on the
PREMISES or Hazardous Materials are discovered
by LESSEE on the PREMISES where no prior consent of LESSOR
was obtained or otherwise in violation of any Hazardous
Materials Laws, or if any contamination of the PREMISES
shall occur, LESSEE, at LESSEE'S sole cost and expense,
shall immediately remove such Hazardous Materials from the
PREMISES or from the ground or groundwater underlying the
premises in accordance with requirements of the appropriate
governmental entity. Furthermore, LESSEE shall at its own
expense procure, maintain in effect and comply with all
conditions of any and all permits, licenses and other
governmental and regulatory approvals required for LESSEE'S
use of the PREMISES, including without limitation,
discharge of (appropriately, treated) materials and wastes
into or through any sanitary sewer serving the Premises.
(3) Except for discharges into the sanitary sewer in
strict accordance and conformity with all applicable
Hazardous Materials Laws, LESSEE shall cause any and all
permitted Hazardous Materials removed from the PREMISES to
be removed and transported solely by duly licensed haulers
to duly licensed facilities for final disposal of such
materials and wastes. LESSEE shall in all respects handle,
treat, deal with and manage any and all Hazardous Materials
in, on, under or about the PREMISES in total conformity
with all applicable Hazardous Materials Laws and prudent
industry practices regarding management of such Hazardous
Materials. LESSEE shall not take any remedial action in
response to the presence of any Hazardous Materials in any
way connected with the PREMISES without first notifying
LESSOR of LESSEE'S intention to do so and affording LESSOR
ample opportunity to appear, intervene or otherwise
appropriately assert and protect LESSOR'S interest with
respect thereto. In addition to all other rights and
remedies of LESSOR hereunder, if such Hazardous Materials
are not removed from the PREMISES or the ground or
groundwater underlying the PREMISES by LESSEE within
fifteen (15) days after LESSOR or LESSEE discovers such
Hazardous Materials, LESSOR, at its sole discretion, may
but shall not be obligated to pay to have same removed, and
LESSEE shall
reimburse LESSOR within five (5) days of LESSOR'S demand
for payment.
(c) Notice.
(1) LESSEE shall immediately notify LESSOR in writing of
(i) any enforcement, clean-up, removal or other
governmental or regulatory action instituted completed or
threatened pursuant to any Hazardous Materials Laws; (ii)
any claim made or threatened by any person against LESSEE,
or the PREMISES relating to damage contribution, cost
recovery, compensation, loss or injury resulting from or
claimed to result from any Hazardous Materials; and (iii)
any reports made to any environmental agency arising out of
or in connection with any Hazardous Materials in or removed
from the PREMISES including any complaints, notices,
warnings, warnings or asserted violations in connection
therewith, upon LESSEE'S receipt of actual knowledge of the
above. LESSEE shall also supply to LESSOR as promptly as
possible, and in any event within five (5) business days
after LESSEE first receives or send the -same, with copies
of all claims, reports, complaints, notices, warnings or
asserted violations relating in any way to the PREMISES, or
LESSEE'S use thereof. LESSEE shall promptly deliver to
LESSOR copies of Hazardous waste manifests reflecting the
legal and proper disposal of all Hazardous Materials
removed from the PREMISES.
(2) LESSEE acknowledges the LESSEE has been informed that
Section 25359.7 of the California Health and Safety Code
provides that any LESSEE of real property who knows, or has
reasonable cause to believe, that any release of hazardous
substances has come to be located on or beneath the real
property shall, upon discovery by the LESSEE of the
presence or suspected presence of a hazardous substance
release, give notice of that condition to the owner of the
real property. Failure of the LESSEE to provide written
notice as required to the owner shall make the Lease
voidable at the discretion of the owner. The Health and
Safety Code provides that if the LESSEE has actual
knowledge of the presence of any hazardous substance
release and knowingly or willingly fails to provide written
notice as required by the owner, the LESSEE is liable for a
civil penalty not to exceed $5,000 for each violation.
(d) Indemnification. LESSEE shall indemnify, defend (by counsel
reasonably acceptable to LESSOR), protect, and hold LESSOR, and
each and any of LESSOR'S shareholders, partners, officers,
directors, employees, agents, attorneys, successors and assigns,
free and harmless from and against any and all claims,
liabilities, penalties, forfeitures, losses or expense (including
actual attorney's fees and costs) or death of or injury to any
person or damage to any property whatsoever, arising from or
caused in whole or in part, directly or indirectly, by (i) the
presences in, on, under or about the PREMISES or discharge in or
from the PREMISES of any Hazardous Material placed or discharged
in, on, or under the PREMISES by LESSEE or LESSEE'S use, analysis,
storage, transportation, disposal, release, discharge or
generation of Hazardous Materials to, in, or under about of from
the PREMISES, or (ii) LESSEE'S failure to comply with any
Hazardous Materials laws. LESSEE'S obligation hereunder shall
include, without limitation, and whether foreseeable or
enforceable, all costs of any required or necessary repair, clean-
up or detoxification or decontamination of the PREMISES and the
preparation and implementation of any closure, remedial action or
other required plans in connection therewith. For purposes of the
indemnity provisions hereof, any ACTS or omissions of LESSEE, or
by employees, agents, assignees, subtenant, concessionaire,
contractors or subcontractors of LESSEE or others acting for on
behalf of LESSEE(whether or not they are negligent, intentional,
willful or unlawful) shall be strictly attributable to LESSEE.
e) Survival. All representations, warranties, obligations, and
indemnities with respect to Hazardous Materials shall survive the
termination of this Lease.
LESSOR: LESSEE:
Coral Tree Commerce Center Associates Quadrax Corporation
2440 Grand Ave., Suite E 300 High Point Avenue
Vista, CA. 92083 Portsmouth, RI.
By. /s/ Elliott P Woodlley By: /s/ Edward A. Stoltenberg
Elliott P. Woolley, General Partner Edward A. Stoltenberg, Chief
Financial Officer
Executed on May 6, 1996 Executed on May 26, 1996
-------------------------------------------
EXHIBIT "F"
CORAL TREE COMMERCE CENTER
INDUSTRIAL LEASE
TENANT SIGN CRITERION - SPECIFICATIONS
Exhibit (1) - Exterior Wall Sip-n
Determination of size allowable is based on 1/2 sq/ft per
tenant frontage scale 1/8"=11
Signs to be minimum of 25 sq/ft and maximum of 50 sq/ft Wall
signs must be located within the specified height and width
perimeters above tenant space (see detail on Exhibit 1).
Design layout of proposed tenant signs, drawn to scale, must
be approved by owner or owner's representative prior to
fabrication and installation.
Exhibit (2) - Construction Detail
Dimensional graphics, consisting of laminated acrylic on
medium density foam, 2-1/8" thick.
Graphics must be mounted with non-damaging liquid adhesive
(note: use latex paint over foam, apply contact cement to
adhere acrylic to face of building).
No pin mounted graphics are allowed.
Faces and returns of all graphics to be same color.
Exhibit (3) - )Window Sign
Each tenant shall be allowed vinyl window graphics at their
main entrance.
Graphics may include company logo, company name and hours of
operation, and must fit specifications as shown on preceding
exhibit.
Design layout of proposed tenant signage, drawn to scale, must
be approved by owner's representative prior to fabrication and
installation.
Graphics and copy to be simple space-right, light beige vinyl
cutouts, typestyle is Times Roman.
Exhibit 21.1 List of Subsidiary Corporations
List of Subsidiaries
State Percentage of
of Stock Owned
Name of Subsidiary Incorporation By Quadrax Corp.
McManis Sports Associates, Inc. Wyoming 100%
Quadrax Advanced Materials
Systems, Inc. Rhode Island 100%
Lion Golf of Oregon, Inc. Oregon 100%
Quadrax Sports, Inc. Rhode Island..............100%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FILED AS PART OF THE FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000814273
<NAME> Quadrax Corporation
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,200,063
<SECURITIES> 0
<RECEIVABLES> 883,005
<ALLOWANCES> 0
<INVENTORY> 1,266,074
<CURRENT-ASSETS> 3,533,990
<PP&E> 6,618,327
<DEPRECIATION> 3,467,661
<TOTAL-ASSETS> 7,299,724
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<BONDS> 1,400,000
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<COMMON> 298
<OTHER-SE> 68,701,531
<TOTAL-LIABILITY-AND-EQUITY> 7,299,724
<SALES> 3,207,282
<TOTAL-REVENUES> 3,567,567
<CGS> 3,674,034
<TOTAL-COSTS> 3,674,034
<OTHER-EXPENSES> 6,247,327
<LOSS-PROVISION> 1,325,000
<INTEREST-EXPENSE> 1,880,774
<INCOME-PRETAX> (9,599,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,559,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,559,568)
<EPS-PRIMARY> ($0.40)
<EPS-DILUTED> ($0.40)
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