<PAGE>
U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1996
0-18145
Commission file number
QUALITY PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2273221
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
560 Dublin Avenue, Columbus, OH 43215
(Address of principal executive offices)
(614) 228-8120
(Issuer's telephone number)
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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
(1) Yes No X
As of March 31, 1996 there were 2,395,680 shares of the Company's common stock
outstanding.
<PAGE>
QUALITY PRODUCTS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31,
1996
(Unaudited)
ASSETS
Current Assets
Cash $ 458,239
Certificate of Deposit (Note B) 144,728
Accounts receivable from liquidation (Note C) 506,149
Accounts receivable 636,170
Inventories 809,647
Other current assets 6,190
Total Current Assets 2,561,123
Property, plant and equipment: 854,103
Less accumulated depreciation 807,868
Net property, plant and equipment 46,235
TOTAL ASSETS $2,607,358
See accompanying notes
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QUALITY PRODUCTS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31,
1996
(Unaudited)
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Bank Indebtedness $2,352,310
Accounts Payable 751,261
Accrued expenses 220,264
Due to related party 81,979
Total Current Liabilities 3,405,814
Long-term unsecured note payable 500,000
Total Long-Term Liabilities 500,000
TOTAL LIABILITIES 3,905,814
Commitments and Contingencies (Note D)
STOCKHOLDERS' EQUITY
Preferred stock, convertible, voting,
par value $.00001, authorized 10,000,000
shares,issued and outstanding 25
Common stock, $.00001 par value, authorized 20,000,000
shares, issued and outstanding 2,395,680 shares 24
Additional paid-in capital 29,918,597
Retained earnings (deficit) (26,191,105)
3,727,516
Less:
Treasury stock, 255,708 shares (5,025,972)
Total Stockholders Equity (deficiency) (1,298,456)
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 2,607,358
See accompanying notes
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<PAGE>
QUALITY PRODUCTS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the six months ended For the three months ended
March 31, 1996 March 31, 1996
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 2,408,085 $ 18,665,193 $ 1,225,697 $ 10,313,820
Cost of Goods Sold 1,651,138 18,162,586 $ 827,925 9,962,878
Gross Profit 756,947 502,607 397,772 350,942
Selling, General, & Administrative Expenses 923,021 3,869,404 450,983 2,202,602
Operating Income (loss) (166,074) (3,366,797) (53,211) (1,851,660)
Other Income or (Expense)
Interest Expense (344,046) (375,984) (115,057) (265,117)
Litigation Settlement Expense (652,929) -- (586,229) --
Litigation Judgement Expense (42,012) -- -- --
Other (10,215) (641,802) (4,881) (643,799)
Total Other Income (Expense) (1,049,202) (1,017,786) (706,167) (908,916)
Income (Loss) Before Income Taxes (1,215,276) (4,384,583) (759,378) (2,760,576)
Income Tax Expense (Benefit)
Net Income (loss) ($ 1,215,276) ($ 4,384,583) ($ 759,378) ($ 2,760,576)
Per Common Share Data:
Net income (loss) before income taxes ($ 0.61) ($ 2.23) ($ 0.38) ($ 1.40)
Net income (loss) ($ 0.61) ($ 2.23) ($ 0.38) ($ 1.40)
Weighted average used in per share calculations 1,976,931 1,968,042 1,976,931 1,973,080
</TABLE>
See accompanying notes
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<PAGE>
QUALITY PRODUCTS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended
March 31,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities
Net Income (Loss) ($1,215,276) ($4,384,583)
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities:
Depreciation and amortization 8,986 609,134
Provision for Bad Debts -- 119,500
Impairment reserve - assets held for sale -- 650,000
Stock Compensation 20,937 35,000
Certificates of deposit (1,596) (151,679)
Accounts receivable (147,854) (2,817,277)
Inventories (27,169) 1,650,076
Other Assets 1,710 37,157
Accounts payable (14,781) 2,892,260
Income taxes -- 141,000
Accrued expenses 19,537 662,004
Deferred rent expense -- (290,000)
Due to related party 81,979 --
Cash used in operating activities $(1,273,527) (847,408)
Cash Flows From Investing Activities:
Capital expenditures (17,574) (546,841)
Proceeds from sale of assets held for sale -- 648,608
Stock acquired - asset held for sale -- (279,675)
Accounts receivable from liquidation 4,322,573
Cash provided by (used in) investing activities 4,304,999 (177,908)
Cash Flows From Financing Activities:
Repayment to Officer (333,202) --
Net borrowings (repayments) -short term -- 1,456,213
Repayments - Notes payable (4,106,908) (448,806)
Unsecured Note Payable issued 500,000 --
Cash provided by (used in) financing activities (3,940,110) 1,007,407
Net increase (decrease) in cash 364,889 (17,909)
Cash at Beginning of Period 93,350 17,909
Cash at End of Period $ 458,239 $ --
</TABLE>
See accompanying notes to condensed financial Statements
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<PAGE>
QUALITY PRODUCTS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended March 31, 1995
<TABLE>
<CAPTION>
Common Additional Amounts Total
Stock Treasury Paid-In Due From Retained Stockholders'
Shares Amount Stock Capital Officers Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C>
As of September 30, 1994 1,966,931 20 ($5,025,972) $29,862,664 ($60,103) ($6,447,574) $18,329,035
Stock Issuance:
Officer severance 10,000 $35,000 $35,000
Net Loss (4,384,583 ) (4,384,583 )
As of March 31, 1995 1,976,931 $20 ($5,025,972) $29,897,664 ($60,103) ($10,832,157) $13,979,452
</TABLE>
See accompanying notes to condensed financial statements
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<PAGE>
QUALITY PRODUCTS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
For the Six Months Ended March 31, 1996
<TABLE>
<CAPTION>
Common Additional Total
Stock Treasury Paid-In Retained Stockholders'
Shares Amount Stock Capital Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1995 1,976,931 20 (5,025,972) 29,897,664 (24,975,829) (104,117)
Stock Issuance:
Bonus 418,749 $4 $20,933 20,937
Net Loss (1,215,276) (1,215,276)
As of March 31, 1996 2,395,680 $24 ($5,025,972) $29,918,597 ($26,191,105) ($1,298,456)
</TABLE>
See accompanying notes to condensed financial statements
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<PAGE>
QUALITY PRODUCTS, INC. & SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note A -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are
presented in accordance with the requirements for Form 10-QSB and consequently
do not include all the disclosures normally required by generally accepted
accounting principles. Reference should be made to the Quality Products, Inc.
(the "Company") Form 10-KSB for the year ended September 30, 1995, for
additional disclosures including a summary of the Company's accounting policies,
which have not significantly changed.
The information furnished reflects all adjustments ( all of which were of a
normal recurring nature) which are, in the opinion of management, necessary to
fairly present the financial position, results of operations, and cash flows on
a consistent basis. Operating results for the three and six months ended March
31, 1996, are not necessarily indicative of the results that may be expected for
the year ended September 30, 1996.
Note B. Certificate of Deposit
A Certificate of Deposit in the amount of $141,400 provides collateral for a
Letter of Credit issued to an Insurance carrier to secure the Company's
potential obligations under its Workman's Compensation Plan. Any excess above
$141,400 represents accrued interest which is available for regular Company use.
Note C -- Accounts Receivable from liquidation
In late fiscal 1995, as disclosed more completely in the Company's report on
Form 10-KSB for the year ended September 30, 1995, Technical Metals Company and
QPI Consumer Products Corporation, two of the Company's subsidiaries, were being
wound down and their assets were being liquidated.
The assets and liabilities of these subsidiaries are not included in the
Company's consolidated financial statements but rather are shown as a one line
item on the balance sheet as "accounts receivable from liquidation" at that
particular point in time.
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As at March 31, 1996 the net amount receivable from liquidation and disposal was
$506,149 represented by:
Accounts Receivable 538,533
Inventory 312,557
Fixed Assets 250,000
Patents 40,443
1,141,533
Less:
Subordinated Secured Creditor 164,369
SBA Loan --
Liquidation Costs 471,015
$ 506,149
Note D - Commitments and Contingencies
During the three months ended March 31, 1996, the Company has recorded the
settlement of its largest contingent claim by issuing a five year unsecured
$500,000 convertible promissory note due August 31, 2001 to PI, Inc. The note is
convertible at the Company's option into common shares at between $0.75 and
$1.00 per share depending on the market price per share of the Company's shares.
The note is convertible at the holder's option between $0.75 and $1.00 per share
subject to the market price of the Company's common shares at the time of
conversion, and the number of shares to be received by the Holder will not be
less than 12.5% of the Company's fully diluted shares after giving effect to the
conversion.
The Company also recorded the settlement of the contract with its former
President and CEO, Thomas Raabe during the period with cash payments totaling
$75,000, the issuance of 139,583 shares at $0.05/share, and the forgiveness of a
loan in the amount of $18,750.
Two class action suits against the Company were administratively dissolved
during the quarter, and to the Company's knowledge have not been reopened.
The above amounts have been recorded as litigation settlement expense during the
three months ended March 31, 1996.
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<PAGE>
For further information on commitments and contingencies please see Part II,
Item I.
Note E
The Company's non-cash investing and financing activities and cash payments for
interest and income taxes were as follows:
Six Months Ended Three Months Ended
March 31, March 31,
1996 1995 1996 1995
Cash paid for interest $344,046 375,984 115,057 233,143
Common Stock issued for
Officer /Employee bonuses 13,958 -- 13,958 --
Officer Severance 6,979 35,000 6,979 35,000
Note F -- Reclassification
Certain amounts for 1995 have been reclassified to conform with the 1996
presentation.
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<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Six Months Ended March 31, 1996 Compared to Six Months Ended March 31, 1995
Consolidated net sales for the six months ended March 31, 1996 were
$2,408,085 as compared to $18,665,193 a year earlier. The decrease in sales was
due to the discontinuance of operations at Technical Metals Company and also at
QPI Consumer Products Corporation which was liquidating under protection of
Chapter 11. The only remaining operating subsidiary during this period was QPI
Multipress Inc. ("Multipress"). Sales for Multipress for the six months ended
March 31, 1996 were $2,408,085 as compared to $2,692,779 for the comparable
period a year ago, a decrease of approximately 11%.
Despite the significant drop in overall sales year to year, gross
profit increased during the period, due to the discontinuance of operations at
Technical Metals and QPI Consumer Products which had been generating low or
negative gross margins. Gross profit during the period was $756,947 or 31% of
sales as compared to $502,607 or 3% of sales during the period ended March 31,
1995.
Selling, general and administrative expenses were $923,021 for the six
months ended March 31, 1996 compared with $3,869,404 for the comparable period
ending a year earlier. Selling, general and administrative expenses for the
comparable period in 1995, excluding expenses relating to Technical Metals and
QPI Consumer Products were $1,122,586. The decrease was due to overhead
reductions at the corporate level which were initiated during the last three
months of the six month period ending March 31, 1996.
Interest Expense was $344,046 for the six months ended March 31, 1996
as compared to $375,984 for the six month period ended March 31, 1995. For the
first three months of the year, the outstanding principal balance was higher
than that during the corresponding period a year prior, and the interest rate
was higher than the previous year at prime plus 3%. However, during the second
quarter of 1996, the outstanding principal balance of bank indebtedness was
being reduced to lower levels than the previous year and the interest rate was
reduced to prime plus 1%, resulting in an overall interest charge approximately
equal to the prior year's comparable six month period.
Certain litigation that was settled in the fourth quarter of fiscal
1996 has been retroactively shown in the six month period ending March 31, 1996.
The most significant is the PI, Inc. v. Quality Products, Inc. lawsuit that was
settled August 31, 1996 by issuing to PI a $500,000 unsecured promissory note
due August 31, 2001. This was recorded during the six month period ended March
31, 1996 as a litigation settlement expense and was the main component of the
$652,929 charge for the period, compared to no charge for the year prior.
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<PAGE>
The net loss for the six months ended March 31, 1996 was $1,215,276 as
compared to $4,384,583 during the corresponding period in the prior year. This
reduction was due to the discontinuance of the unprofitable subsidiaries. The
comparable figure for the six months ended March 31, 1995, excluding Technical
Metals and QPI Consumer Products, was a loss of $565,639, lower than the current
six month period by $649,537, due primarily to the litigation settlement expense
of $652,929 which the Company has treated as having been incurred during the
period ending March 31, 1996.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Consolidated net sales for the three months ended March 31, 1996 were
approximately $1,225,697 as compared to $10,313,820 for the three month period
ended March 31, 1995. The decrease in sales was due to the discontinuance of the
operations of QPI Consumer Products and Technical Metals, leaving Multipress as
the only active operating subsidiary during this period. Sales for Multipress
for the three months ended March 31, 1996 were $1,225,697 as compared to
$1,085,903 for the corresponding period in the prior year.
Gross Profit was $397,772 for the three months ended March 31, 1995 as
compared to $350,942 for the same period a year earlier. Gross profit improved
due to the elimination of results from the unprofitable subsidiaries. All of the
gross profit for the three months ended March 31, 1996 was generated by
Multipress. Comparable gross profit for the same period a year earlier was
$396,620.
Selling, general and administrative expenses were $450,983 or 36% of
sales during the second quarter as compared to $2,202,602 or 21% of sales a year
earlier. Selling, general and administrative expenses as a percentage of sales
were higher for the period ended March 31, 1996 as compared to the period ended
March 31, 1995, because of the continued time lag between the discontinuance of
the operating activities and the resulting immediate drop in sales and the
elimination of the expenses. Additionally, legal fees continued to increase as
lawsuits in which the Company was a defendant escalated further during the
quarter.
Selling, general and administrative expenses as a percentage of sales
were 36% in the second quarter of fiscal 1996 as compared to 40% in the first
quarter of fiscal 1996 despite an increase of sales of $45,000 or 4% in the
second quarter. This was due to reductions made in corporate overhead during the
three months ended March 31, 1996. Selling, general and administrative expenses
will decrease in the next quarters as the cost reductions associated with the
liquidated subsidiaries comes into effect and cuts made in corporate overhead
continue.
Interest expense was $115,057 for the three months ended March 31, 1996
as compared to $265,117 for the corresponding period in the prior year. This was
due to the reductions in the principal amount of secured bank debt made during
the quarter as a result of the continued sale and liquidation of the assets of
Technical Metals and QPI Consumer Products. The interest expense of $115,057
during the second quarter was significantly lower than interest expense of
$228,989 during
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<PAGE>
the first quarter of fiscal 1996. Interest expense will continue to decline over
at least the next quarter as the amount of outstanding indebtedness will
continue to decline as the remaining assets of Technical Metals and QPI Consumer
Products are sold off. Also, during the quarter ended March 31, 1996 the Company
renegotiated as part of an overall workout agreement with its lender, the
interest rate charged on its outstanding indebtedness from prime plus 3% to
prime plus 1%.
Liquidity and Capital Resources
Working capital at March 31, 1996 was a deficiency of $844,691, as
compared to a working capital deficiency of $603,730 at December 31, 1995. Cash
used in operating activities was $1,273,527 as compared to cash used in
operating activities of $847,408 for the period ended a year earlier. The most
significant source of cash generated during the period was cash of $5,596,100
from the liquidation of the subsidiary companies, primarily Technical Metals
Company which had sold and liquidated substantially all of its assets by
March 31, 1996. During the quarter ended March 31, 1996 an agreement was reached
with its secured lender whereby the Company was granted an extension of time
until August 15, 1996 to restructure, provided that proceeds from the
liquidation were used to pay down the bank line.
Accordingly, the principal use of cash during the period was to reduce secured
bank debt. In the six months ended March 31, 1996, approximately $4,100,000 was
paid toward reducing bank debt, $3,100,000 in the second quarter alone.
Although the Company had negotiated a workout agreement with its secured lender
providing the Company with some time to improve its working capital position,
uncertainty continued. The Company continued to push ahead with its staff and
cost reductions, sales of assets of liquidated subsidiaries and the
renegotiation and extension of other outstanding indebtedness and obligations.
Despite this however, outside sources of financing remained unavailable and
there continued to be no assurances that the company could successfully complete
the steps needed to continue operations.
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<PAGE>
PART II
Item 1. Legal Proceedings
In early 1995, two putative class action and derivative action
lawsuits (one by Bruce Daigle (who subsequently became a director of the
Company) and the other by Bruce Balch) were filed against the Company and James
Renaldo in the United States District Court for the Middle District of Florida,
Tampa Division. Both complaints alleged the Company violated federal securities
laws and Delaware law in connection with a proposed merger between the Company
and Exsorbet, Inc. which merger was subsequently abandoned and that various
publicly filed documents and press releases were misleading. In 1996, both cases
were dismissed.
In March 1995, PI, Inc., sued the Company and its former
president, James Renaldo, in the Untied States District Court for the Southern
District of New York for the Company's failure to register shares of restricted
stock issued to PI, Inc. in connection with a 1993 merger between the QPI
Consumer and PI, Inc.'s subsidiary PI Consumer Products Corporation. The
complaint was dismissed in December 1995 against the Company and Renaldo. In
1996, PI sued the Company on similar grounds in the United States District court
for the Middle District of Florida, Tampa Division. The action was settled in
August 1996, with the Company issuing PI a $500,000 long term 6% note, which is
convertible by PI into the Company's common stock at $.75 to $1.00 per share.
In March 1995, Howard S. Klein sued the Company in the United
States District Court, Eastern District of Pennsylvania for alleged lost profits
on Company stock he purchased from 1989-1993, plus actual losses incurred. On
October 3, 1996, the Court granted the Company summary judgment and dismissed
the case against the Company. The plaintiff has appealed to the United States
Court of Appeals for the Third Circuit. The appeal has been briefed and is
scheduled for argument in June 1997. The Company believes the plaintiff's claims
are meritless.
The SEC notified the Company of an investigation in 1994. In
November 1996, the SEC filed an administrative action against the Company (SEC
Case No. 3-9186), charging primarily that the Company (1) issued misleading
press releases in March 1994 concerning a proposed agreement between Disney and
QPI Consumer; (2) overstated the value of engineering drawings in financial
statements contained in periodic SEC reports; and (3) failed to file periodic
reports since the quarter ended June 30, 1995. The SEC and the Company settled
all charges against the Company, without payment of any money by the Company,
by a consent decree, entered April 1, 1997, whereby the Company neither admitted
nor denied the charges and agreed to the entry of a "cease and desist" order
that it not violate federal securities laws in the future.
During fiscal 1995, the Company moved out of its executive
offices in Tampa with a remaining lease term through June 2001 at approximately
$6,000 rent per month. The landlord sued the Company and obtained a judgment for
past and future rents. Such liability
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<PAGE>
could materially adversely effect the Company's financial condition.
During fiscal 1995, a creditor of QPI Consumer, the Brookwood
Company threatened to sue the Company for approximately $130,000 sold to QPI
Consumer. Brookwood subsequently sued the Company in state court in Tampa,
Florida, and trial is scheduled for May, 1997. While the Company believes its
defenses are valid, a loss of such litigation could have a material adverse
affect upon the Company's financial condition.
Various legal actions and proceedings are pending or are
threatened against the Company and its subsidiaries. These actions and
proceedings arise in the ordinary course of the Company's businesses. None of
the litigation matters currently pending against the Company, standing alone,
aside from the matters specifically discussed above, is deemed to be material by
management of the Company.
Item 3. Defaults Upon Senior Securities.
As of March 31, 1996, the Company was in default with respect
to, among other things, the financial covenants with respect to its bank
indebtedness. The aggregate amount of such indebtedness, all of which matured
upon default, was approximately $2.352 million.
ITEM 6 - EXHIBITS AND REPORTS OF FORM 8-K
a). Exhibits
2.1 - Forbearance and Collateral Liquidation Agreement Dated as of
March 15, 1996 (including related mutual release agreement)
4.1 - Promissory Note Dated August 31, 1996 issued to PI, Inc.
10.2 - Workout Agreement by and among the Company, The Provident
Bank et. al
27.1 - Financial Data Schedule
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<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Quality Products, Inc.
Registrant
Date: March 31, 1997 By: /s/ Bruce C. Weaver
Bruce C. Weaver
President (Principal Executive
Officer and Principal Financial
And Accounting Officer)
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<PAGE>
<PAGE>
FORBEARANCE AND COLLATERAL LIQUIDATION AGREEMENT
This Forbearance and Collateral Liquidation Agreement is entered into
as of the 15th day of March, 1996 by Technical Metals Company, a Michigan
corporation (the "Debtor"), The Provident Bank, an Ohio banking company (the
"Bank") and National Steel Corporation, a Delaware corporation ("NSC").
Recitals
A. As of January 12, 1996, (i) the Debtor was indebted to the Bank in
the approximate amount of $4.7 million, which debt was secured by liens on
substantially all of the Debtor's tangible and intangible personal property; and
(ii) the Debtor was indebted to NSC in the approximate amount of $3.3 million,
which debt was secured by liens on substantially all of the Debtor's tangible
and intangible personal property and by a mortgage on the Debtor's real
property.
B. On and after January 12, 1996, the Debtor was in default of its
repayment obligations to the Bank and to NSC.
C. After considering various options for the repayment of the debts due
the Bank and NSC, the Debtor determined that its property should be liquidated
in two stages: (i) its real property and its tangible personal property other
than inventory should be sold to The Mill Steel Co. ("Mill Steel") pursuant to
the Purchase Agreement between Mill Steel and the Debtor as of January 19, 1996
and as amended pursuant to the Addendum to Purchase Agreement dated March 15,
1996 (the "Mill Steel Purchase Agreement"); and (ii) its remaining personal
property should be reduced to money in an orderly fashion.
D. In consideration of the undertakings set forth below, the Bank and
NSC have agreed, subject to the conditions and limitations set forth below, to
forbear from exercising their respective
<PAGE>
rights in and to the Debtor's property while and so long as the Debtor
diligently pursues the closing of the sale of its tangible personal property and
real property to Mill Steel pursuant to the Mill Steel Purchase Agreement (the
"Mill Steel Sale") and the orderly reduction of its other property to money
(together with the Mill Steel Sale, the "Liquidation") as provided herein.
Agreement
1. Incorporation of Recitals. The above recitals are incorporated as
part of this Agreement.
2. Forbearance. The Bank and NSC agree to forbear from exercising their
rights in and to the Debtor's property for so long as:
a. the Debtor closes the sale of tangible personal property to Mill
Steel on or before March 30, 1996 and the sale of real property
to Mill Steel on or before May 10, 1996;
b. the Debtor otherwise diligently pursues the Liquidation;
c. the Debtor is not in default of this Agreement, and
d. no bankruptcy petition is filed by or against the Debtor.
3. Liquidation Expenses. Anticipated Liquidation expenses for the
period commencing January 16, 1996 (the "Liquidation Expenses") are set forth
in the liquidation budget attached as Exhibit A (the "Liquidation Budget"). The
Debtor agrees to conduct the Liquidation within the Liquidation Budget.
Liquidation proceeds shall not be used to pay Liquidation Expenses except on an
expenditure-by-expenditure basis approved in advance by both the Bank and NSC in
their sole discretion.
2
<PAGE>
4. Disposition of Liquidation Proceeds. The Debtor shall cause all
Liquidation proceeds to be remitted to the Bank upon receipt. Upon receipt,
the Bank shall disburse:
a. to NSC the first $191,189.52 of proceeds of accounts receivable
resulting from the Debtor's sale of steel delivered to the
Debtor by NSC from December 20, 1995 to January 10, 1996 (the
"NSC Priority Receivables", each of which is circled and
initialed by the parties on the January 12, 1996 Accounts
Receivable Aged Trial Balance, the "Aging", attached as Exhibit
B) less a share of the costs, if any, of collecting the NSC
Priority Receivables beyond costs of the type anticipated in the
Liquidation Budget (the "Extraordinary Collection Costs"), such
share to bear the same proportion to the Extraordinary Collection
Costs as the amount otherwise payable to NSC under this
subparagraph 4(a) bears to the sum of the NSC Priority
Receivables.
b. the balance of the Liquidation proceeds, including the balance of
the NSC Priority Receivables, as follows notwithstanding any
other agreement to the contrary:
(i) first, in satisfaction of Liquidation Expenses approved by
the Bank and NSC;
(ii) second, to the Bank until it receives $2.6 million under
this subparagraph;
(iii) third, to NSC until it receives $1.4 million under this
subparagraph; and
3
<PAGE>
(iv) fourth, to the Bank and NSC in the ratio of two-thirds to
one-third, respectively.
For purposes of this subparagraph 4(b), proceeds of the Liquidation shall
include proceeds of (i) with the exception of that part of the NSC Priority
Receivables paid to NSC pursuant to the preceding subparagraph, all of the
Debtor's accounts receivable listed on the Aging and any other account
receivable of the Debtor outstanding as of January 12, 1996 (the "Accounts
Receivable"); (ii) all raw materials, work-in-process and finished goods listed
on the January 17, 1996 Stock Status Report attached as Exhibit C or otherwise
in the possession or under the control of the Debtor on January 12, 1996 (the
"Inventory") and all receivables resulting from sale of the Inventory (the
"Inventory Receivables"); and (iii) all other property not sold in the Mill
Steel Sale.
5. Collection of Accounts Receivable and Sale of Inventory. The Debtor
shall collect the Accounts Receivable, sell the Inventory and collect the
Inventory Receivables in an orderly manner. Accounts Receivable and Inventory
Receivables shall be collected according to the terms of the underlying invoices
and shall not be discounted or compromised without prior written approval from
the Bank and NSC. Upon execution of this Agreement and weekly thereafter, the
Debtor shall furnish the Bank and NSC with a tabular report showing (i) with
respect to Accounts Receivable, the dollar amount of each invoice outstanding as
of January 12, 1996 and the payment(s) received against the invoice since that
date; (ii) with respect to Inventory, the quantity and cost of each distinct
category of Inventory as of January 17, 1996 and the quantity removed from the
Debtor's premises within each category since that date; and (iii) with respect
to Inventory Receivables, the date and dollar amount of each invoice and the
payment received.
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<PAGE>
6. Lien Terminations. At the closing of the sale of tangible personal
property to Mill Steel, (i) the Bank shall cause to be executed and delivered to
Mill Steel a UCC-3 termination statement terminating its lien(s) on all tangible
personal property acquired from the Debtor by Mill Steel; and (ii) NSC shall
execute and deliver to Mill Steel a UCC-3 termination statement terminating its
lien(s) on all tangible personal property acquired from the Debtor by Mill
Steel. At the closing of the real property sale to Mill Steel, NSC shall execute
and deliver to Mill Steel a discharge of mortgage discharging its mortgage on
all real property acquired from the Debtor by Mill Steel.
7. Releases. At the closing of the real property sale to Mill Steel,
NSC and the Debtor shall execute and exchange Mutual Releases in the form
attached as Exhibit D.
8. Notices. Any party giving a notice under this Agreement shall give
the notice to both of the other parties by telecopy and first class mail as
follows:
a. If to the Debtor: Technical Metals Company
Attn: President
18800 Meginnity Avenue
Melvindale, MI 48122
Telecopy no. (313) 388-1880
With a copy to: Austin Hirschhorn, Esq.
251 East Merrill Street
Birmingham, MI 48008-61S0
Telecopy no. (810) 647-8596
b. If to the Bank: The Provident Bank
Attn: Michael Giulioli
One Columbus
10 West Broad Street
Columbus, OH 43215
Telecopy no. (614) 221-0875
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<PAGE>
With copy to: Robert G. Sanker, Esq.
Keating, Muething & Klekamp
1800 Provident Tower
Cincinnati, OH 45202
Telecopy no. (513) 579-6956
c. If to NSC: National Steel Corporation
Attn: Glenn G. Pulianas
4100 Edison Lakes Parkway
Mishawaka, IN 46545-3440
Telecopy no. (219) 273-7493
With a copy to: Peter A. Jackson, Esq.
Clark Hill, P.L.C.
1600 First Federal Building
Detroit, MI 48226-1962
Telecopy no. (313) 965-8548
9. Entire Agreement. This Agreement is the entire agreement between the
parties as to its subject matter and it supersedes all negotiations, preliminary
agreements and prior or contemporaneous statements and understandings. The
Debtor acknowledges that the Mill Steel Purchase Agreement's allocation of the
purchase price reflects considerations beyond value.
10. Amendments. No amendment of this Agreement shall be effective
unless made in writing and signed on behalf of all parties.
11. Waiver. No party shall be deemed to have waived any right under
this Agreement unless the waiver is in writing and signed by the party. Any such
waiver shall be effective only with respect to the specific matter and time to
which it refers.
12. Successors and Assigns. This Agreement is binding upon and inures
to the benefit of the parties, their successors and their assigns, but shall not
be assigned by any party without the prior
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<PAGE>
written consent of both of the other parties.
13. Governing Law. This Agreement shall be construed according to the
laws of the State of Michigan.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Forbearance and
Collateral Liquidation Agreement as of the date first written above.
NATIONAL STEEL CORPORATION
By: ___________________
Its:___________________
THE PROVIDENT BANK
By: ___________________
Its:___________________
TECHNICAL METALS COMPANY
By: ___________________
Its:___________________
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<PAGE>
MUTUAL RELEASE AGREEMENT
THIS AGREEMENT is made between TECHNICAL METALS COMPANY, a Michigan
Corporation (TMC), QUALITY PRODUCTS, INC., a Delaware Corporation (QPI), and
NATIONAL STEEL CORPORATION, a Delaware Corporation (NSC), with respect to the
following facts:
A. TMC, NSC, and THE PROVIDENT BANK, an Ohio Banking Company, have
entered into a Forbearance and Collateral Liquidation Agreement as of MARCH 16,
1996, (the "Forbearance Agreement") which provides for the orderly liquidation
of the assets of TMC.
B. As part of the consideration for the Forbearance and Collateral
Liquidation Agreement, NSC and TMC have agreed to exchange mutual releases upon
the closing of the sale of the real property owned by TMC and located at 18800
Meginnity, Melvindale, Michigan 48122, to THE MILL STEEL CO.
C. QPI and NSC executed a Guaranty dated MARCH 30, 1994, under which
QPI guaranteed payment to NSC for credit extended to TMC.
IN CONSIDERATION OF the following mutually agreed upon covenants, the
parties agree that:
1. TMC and QPI fully release and discharge NSC, its shareholders,
directors, officers, agents, successors, and assigns, from all claims that TMC
or QPI
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<PAGE>
has or may have against NSC, known or unknown, contingent or accrued.
2. NSC fully releases and discharges TMC, its shareholders, directors,
officers, agents, successors, assigns, and guarantors, including QPI, from all
claims that NSC has or may have against TMC, known or unknown, contingent or
accrued, including claims relating to the Guaranty dated MARCH 30, 1994;
provided, however, that if NSC disgorges any part of the funds received under
the Forbearance Agreement, then, to that extent, NSC'S claims against TMC and
QPI will be reinstated.
3. This Mutual Release Agreement is a compromise of disputed claims and
is made in good faith to settle the present dispute and avoid all future
disputes.
4. The agreement made by the parties is not to be construed as an
admission of any liability on the part of any of the parties released in this
Agreement.
5. Each of TMC, QPI and NSC stipulate that the officer executing this
Agreement on it behalf is properly and fully authorized to execute the
Agreement.
6. TMC, QPI and NSC have reviewed the terms of this Agreement with
their respective attorneys and understand and agree to the consequences of this
Agreement.
7. This Agreement contains the entire understanding of the parties and
there are no other promises or conditions other than those described in this
Agreement. This Agreement and all other documents to be signed in conjunction
with this Agreement shall be binding upon and shall benefit TMC, QPI and NSC,
and their respective shareholders, directors, officers, agents, successors and
assigns.
TECHNICAL METALS COMPANY, QUALITY PRODUCTS, INC.,
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<PAGE>
and TECHNICAL STEEL CORPORATION have signed this Mutual Release
Agreement effective April 26, 1996.
SIGNED IN THE PRESENCE OF:
(Sig of Jeanette F. Skladanowski) TECHNICAL METALS COMPANY,
Jeannette F. Skladanowski a Michigan Corporation
By: (Sig of Bruce Weaver)
Bruce Weaver
Its: President
QUALITY PRODUCTS, INC., a
Delaware Corporation
(Sig of Jeanette F. Skladanowski) By: (Sig of Bruce Weaver)
Jeanette F. Skladanowski Bruce Weaver
Its: President
NATIONAL STEEL
CORPORATION, a Delaware
Corporation
(Sig of Edward P. Krupa)
Edward P. Krupa By: (Sig of Glenn G. Pulianas)
Glenn G. Pulianas
Its: Manager
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<PAGE>
<PAGE>
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE (THE "NOTE SHARES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT"), AND NEITHER THIS NOTE NOR SUCH SHARES MAY BE SOLD, ENCUMBERED
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN
EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
QUALITY PRODUCTS, INC.
6% Convertible Note Due August 31, 2001
$ 500,000.00 Dublin, Ohio
August 31, 1996
Quality Products, Inc., a Delaware corporation (herein called the
"Company"), for value received, hereby promises to pay to PI, Inc., a Delaware
corporation with offices at P.O. Box S, 70 Airport Road, Hyannis, Massachusetts
02601 (the "Holder"), the principal sum of Five Hundred Thousand Dollars
($500,000.00) on August 30, 2001, at Hyannis, Massachusetts or such other
address as the Holder shall have specified by written notice to the Company (the
"Payment Address"), in such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debts, and, except as otherwise provided herein, to pay interest
(computed on the basis of a 365-day year, using the number of days actually
elapsed) at such Payment Address, in like coin or currency, on said principal
sum from the date hereof, quarterly on November 30, February 22, May 31 and
August 31 in each year, commencing as of the date hereof, at the rate of six
percent (6%) per annum. Interest shall be payable at the rate of twelve (12%)
percent on the entire unpaid principal amount of this Note from and after the
time such entire unpaid principal amount shall have become due and payable
(whether at maturity or by acceleration).
The entire unpaid principal amount of this Note, together with interest
thereon shall, at the option of the Holder, exercised by written notice to the
Company, forthwith be accelerated and become and be due and payable without
further notice if the Company fails to pay any principal or
<PAGE>
interest payable hereunder as and when same become due and payable and such
failure shall not have been cured within thirty (30) days after written notice
thereof to the Company by the Holder of this Note.
This Note is issued pursuant to a settlement agreement (the "Settlement
Agreement") dated as of the date hereof, by and between the Company and PI, Inc.
The Company agrees that from the date hereof through the earlier of (i)
conversion of this Note or (ii) August 30, 2001, it will not issue any
indebtedness senior to the indebtedness evidenced by this Note other than
indebtedness issued to a Financial Institution (as defined). The term "Financial
Institution" shall mean any bank as defined in Section 3(a)(2) of the Act, any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Act, or any insurance company as defined in Section 2(13) of
the Act.
ARTICLE 1
Redemption or Conversion of Note.
1.1 Mandatory Redemption of Note. This Note shall, without any action on the
part of the holder thereof, be redeemed by the Company and automatically
converted into fully paid and nonassessable shares of Common Stock at a
conversion rate of $1.00 per share, on the date set forth in the "Redemption
Notice" (as such term is defined below). The term "Redemption Notice" as used
herein means a notice signed by the principal executive or financial officer of
the Company, certifying that (a) the closing price per share of the Common
Stock, determined in accordance with Section 1.9(b) of this Note, for each of
the thirty (30) consecutive trading days ending not earlier than five days prior
to the date of such notice exceeds $2.00, subject to adjustment as provided
herein; and (b) that the Company has filed all periodic reports required to be
filed under the Securities Exchange Act of 1934; and further providing that,
unless converted earlier by the registered holder pursuant to Section 1.3, the
entire principal amount of the Note will be converted into common stock at $1.00
per share on the date specified in the Redemption Notice which is not less than
15 days after the date of the Redemption Notice. The Note shall be deemed to
have been redeemed, converted and satisfied on the date set forth in such
notice, regardless of whether the Note has been physically surrendered for
redemption. Notwithstanding anything to the contrary herein, the Company shall
not be obligated to deliver certificates representing such shares of Common
Stock until such Note has been physically surrendered to the Company.
1.2 Optional Redemption of Note by Company. The Company shall have the right,
but not the obligation, to redeem the unpaid principal amount of this Note and
convert it into fully paid and nonassessable shares of Common Stock of the
Company at a conversion rate of $.75 per share. This option may be exercised by
delivery of an "Optional Redemption Notice" which, as used herein, means a
notice signed by the principal executive or financial officer of the Company
certifying that (a) the closing price per share of Common Stock determined in
accordance with Section 1.9(b) of this Note for each of the thirty (30)
consecutive trading days ending not earlier than five days prior to the date of
such notice, exceeds $1.50 per share, subject to adjustment as provided herein;
and (b)
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<PAGE>
that the Company has filed all periodic reports required to be filed under the
Securities Exchange Act of 1934; and further providing that, unless converted
earlier by the registered holder pursuant to Section 1.3, the entire principal
amount of the Note will be converted into common stock at $.75 per share on the
date set forth in the Optional Redemption Notice which is not less than 15 days
after the date of the Optional Redemption Notice. The Note shall be deemed to
have been redeemed, converted and satisfied on the date set forth in such
notice, regardless of whether the Note has been surrendered for conversion.
However, the Company shall not be obligated to deliver certificates representing
such shares of Common Stock until such Note has been physically surrendered to
the Company.
1.3 Optional Conversion at Holder's Request. Subject to and upon compliance with
the provisions of this Section 1.3, the registered holder of this Note shall
have the right, at its option, at any time prior to 5:00 P.M., New York City
time on August 31, 2001, to convert the unpaid principal amount of this Note
into fully paid and nonassessable shares of Common Stock of the Company.
(a) In order to exercise the conversion privilege, the Holder
of this Note to be converted in whole or in part shall surrender the
Note at the address of the Company, and together with the notice
annexed hereto as Exhibit A. The number of shares of Common Stock
issuable upon conversion shall be determined by dividing the amount of
principal being converted by the conversion price in effect at such
time. Such Holder shall thereupon be deemed the holder of the shares of
Common Stock so issued and the principal amount of the Note shall be
deemed to have been paid in full.
(b) As promptly as practicable after the surrender of such
Note and the receipt of such notice, the Company shall issue and shall
deliver at such office to such holder, or on his written order, a
certificate or certificates for the number of full shares issuable upon
the conversion of such Note or portion thereof in accordance with the
provisions of this Section 1.3.
(c) Each conversion shall be deemed to have been effected on
the date on which such Note shall have been surrendered and such notice
shall have been received by the Company, as aforesaid, and the person
in whose name any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented
thereby; provided, however, that any such surrender on any date when
the stock transfer books of the Company shall be closed shall
constitute the person in whose name the certificates are to be issued
as the record holder thereof for all purposes on the next succeeding
day on which such stock transfer books are open, but such conversion
shall be at the conversion price in effect on the date upon which such
Note shall have been surrendered.
(d) Conversion Price. The conversion price shall be the
Current Market Price as of the date the Note is surrendered for
conversion, determined in accordance with Section 1.9 of this
Agreement; provided, however, that the conversion price may not be less
than
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<PAGE>
$.75 per share nor more than $1.00 per share, subject to adjustment as
provided herein. Notwithstanding the foregoing, the number of shares of
Common Stock issuable upon conversion will not be less than 12.5% of
the Company's Common Stock, on a fully diluted basis, and after giving
effect to such conversion. The term fully diluted basis as used in this
Section shall mean the number of shares of Common Stock which would be
outstanding after giving effect to the exercise and/or conversion of
all rights, warrants and options to acquire Company Common Stock
(collectively, the "Rights"), other than those Rights whose exercise
price or conversion price is equal to or greater than the conversion
price then in effect.
1.4 No Cash Payments in Lieu of Fractional Shares. No fractional shares of stock
or scrip representing fractional shares shall be issued upon conversion of
Notes.
1.5 Taxes on Shares Issued. The issue of stock certificates on conversion of
this Note shall be made without charge to the Holder for any issue, stamp or
other similar tax in respect of the issue thereof. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of stock in any name other than that
of the holder of the Note converted, and the Company shall not be required to
issue or deliver any such stock certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the reasonable satisfaction of the
Company that such tax has been paid or that no such tax is payable.
1.6 Reservation of Shares; Shares to be Fully Paid, Compliance with Governmental
Requirements; Listing of Common Stock.
(a) The Company shall provide, free from preemptive rights,
out of its authorized but unissued shares, or out of shares held in its
treasury, sufficient shares to provide for the conversion of this Note.
(b) Before taking any action which would cause an adjustment
reducing the conversion price below the then par value, if any, of the
shares of Common Stock issuable upon conversion of this Note, the
Company will take all corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally
issue shares of such Common Stock at such adjusted conversion price.
(c) The Company covenants that all shares of Common Stock
which may be issued upon conversion of this Note will upon issue be
fully paid and nonassessable by the Company and free from all taxes,
liens and charges with respect to the issue thereof.
(d) The Company further covenants that in the event that the
Common Stock shall be listed on any registered stock exchange or any
other national securities exchange (which term shall include the Nasdaq
and the Nasdaq National Market) the Company will, if permitted by the
rules of such exchange, list and keep listed and for sale so long as
the
4
<PAGE>
Common Stock shall be so listed on such exchange, upon official notice
of issuance, all Common Stock issuable upon conversion of this Note.
1.7 Reclassification, Reorganization or Merger. In case of any reclassification,
capital reorganization or other change of outstanding shares of Common Stock of
the Company, or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock or the class issuable upon conversion of this Note) or in case
of any sale, lease or conveyance to another corporation of the property of the
Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the holder of this
Note shall have the right thereafter by converting this Note, to purchase the
kind and amount of shares of stock and other securities and property receivable
upon such reclassification, capital reorganization and other change,
consolidation, merger, sale or conveyance by the Holder of the number of shares
of Common Stock which might have been acquired upon conversion of this Note
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. Any such provision shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Note. The foregoing provisions of this Section 1.7 shall similarly
apply to successive reclassifications, capital reorganizations and changes of
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
1.8 Payment of Interest on Conversion. The Company shall not, upon conversion of
this Note, be required to pay any interest accrued thereon from the day
immediately following the immediately preceding interest payment date through
the date of conversion; provided, however, that the Company shall pay all unpaid
interest accrued through and including the immediately preceding interest
payment date.
1.9 Current Market Price.
(a) For the purpose of any computation under this Article 1,
the current market price (the "Current Market Price") per share of
Common Stock at any date shall be deemed to be the average of the daily
closing prices for the thirty (30) consecutive trading days commencing
forty-five (45) trading days before the day in question.
(b) The closing price for each day shall be (A) the average of
the closing bid and asked quotations of the Common Stock on NASDAQ
(which term shall include the Nasdaq Bulletin Board) or any other
automated quotation system or (B) if the Common Stock shall be listed
or admitted for trading on the New York or American Stock Exchange or
any successor exchange, the last sale price, or if no sale occurred on
such date, the average of the closing bid and asked prices of the
Common Stock on such exchange, or (C) if the Common Stock shall not be
included in any automated quotation system or listed on any such
exchange, the average of the closing bid and asked quotation for Common
Stock as reported by The Wall Street Journal, or if not reported
therein, by the National Quotation Bureau Incorporated (or other
recognized quotation service) if at least two (2) securities dealers
have
5
<PAGE>
inserted both bid and asked quotations for Common Stock on at least
five (5) of the ten (10) preceding trading days. If none of the
conditions set forth above is met, the closing price of Common Stock on
any day or the average of such closing prices for any period shall be
the fair market value of Common Stock as determined by appraisal by an
NASD member broker-dealer firm selected by the Board of Directors of
the Company.
1.10 Adjustment of Conversion Price. In case the Company shall on any one or
more occasions after the date hereof (1) pay a dividend or make a distribution
in shares of its capital stock (whether shares of Common Stock or of capital
stock of any other class) to all holders of its Common Stock, (2) subdivide its
outstanding Common Stock, or (3) combine its outstanding Common Stock into a
smaller number of shares, the conversion price in effect immediately prior
thereto shall be adjusted so that the Holder of the Note thereafter surrendered
for conversion shall be entitled to receive the number of shares of capital
stock of the Company which he would have owned or have been entitled to receive
after the happening of any of the events described above had such Note been
converted immediately prior to the happening of such event. Any adjustment made
pursuant to this Section 1.10 shall become effective immediately after the
record date in the case of a dividend or distribution or the effective date in
the case of a subdivision or combination. If, as a result of an adjustment made
pursuant to this Section 1.10, the Holder of the Note thereafter surrendered for
conversion shall become entitled to receive shares of two (2) or more classes of
capital stock of the Company, the Board of Directors (whose determination shall
be conclusive and shall be described in a written statement delivered to the
Holder of the Note at his Payment Address) shall determine the allocation of the
adjusted conversion price between or among shares of such classes of capital
stock.
ARTICLE 2
Registration under the Securities Act of 1933.
2.1 Piggyback Registration Rights. For the eight year period commencing the date
hereof, the Company shall advise the Holder of the Note or the Note Shares by
written notice at least two weeks prior to the filing of any registration
statement under the Act (other than a registration statement on Form S-4, Form
S-8 or subsequent similar forms) covering securities of the Company and will
upon the request of such holder, include in any such registration statement such
information as may be required to permit a public offering of the Note Shares;
provided, however, that if the registration statement relates to a public
offering by the Company of its securities and the managing underwriters advise
the Holder that the inclusion in the offering of securities being sold by the
Holder would adversely affect the ability of the Company to complete the public
offering (and other selling stockholders, if any, are similarly advised), then
the number of Note Shares to be registered by the Holder shall be reduced pro
rata to the extent necessary to reduce the amount of securities to be included
in the offering to the amount recommended by the managing underwriters. The
Holder hereby further agrees not to make any sales of the securities so included
for a period of one hundred eighty (180) days from the effective date of such
registration statement. The Company shall keep such registration statement
current for a period of up to six (6) months from the conclusion of such one
hundred eighty (180) day period; provided, however, that the Company shall not
be required
6
<PAGE>
to keep the registration statement effective beyond the date after which the
registration statement must be amended to include updated audited financial
statements. The Company shall supply prospectuses, qualify the Note Shares for
sale in such states as the Holder reasonably requests and furnish
indemnification in the manner as set forth in of this Article 2. Such holder
shall furnish information and indemnification in the manner set forth in of this
Article 2.
2.2 Demand Registration Rights. If the Holder of the Note Shares shall give
notice to the Company at any time during the five year period commencing three
years from the date hereof to the effect that such holder contemplates the
transfer of all of his Note Shares under such circumstances that a public
offering distribution (within the meaning of the Act) of the Note Shares will be
involved, then the Company shall, within sixty (60) days after receipt of such
notice, file a registration statement pursuant to the Act, to the end that the
Note Shares may be sold under said Act as promptly as practicable thereafter;
provided that such holder shall furnish the Company with appropriate information
(relating to the intentions of such holder) in connection therewith as the
Company shall reasonably request in writing. The Company shall keep such
registration statement current for such time, not to exceed six (6) months, as
the Holder of the Note Shares may request. Notwithstanding the foregoing, the
filing of the registration statement contemplated by this Section 2.2 may be
delayed for a period not exceeding six (6) months if the Board of Directors of
the Company determines that such delay is in the Company's best interests. The
rights granted pursuant to this Section 2.2 may only be exercised (i) on one
occasion; and (ii) subsequent to the acquisition of the Note Shares upon
conversion of the Note.
2.3 Other Provisions Pertaining to Registration Rights. The following provision
of this Article 2 shall also be applicable:
(a) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Article 2 hereof;
provided, however, that any Holder whose Note Shares are included in
such registration statement pursuant to this Article 2 shall, however,
bear the fees of his own counsel and accountants and any transfer taxes
or underwriting discounts or commissions applicable to the Note Shares
sold by him pursuant thereto.
(b) The Company shall indemnify and hold harmless each such
holder and each underwriter, within the meaning of the Act, who may
purchase from or sell for any such holder any Note Shares from and
against any and any losses, claims, damages and liabilities caused by
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement for any post-effective
amendment thereto or any registration statement under the Act or any
prospectus included therein required to be filed or furnished by reason
of this Article 2 or any application or other filing under any state
securities law caused by any omission or alleged omissions to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading to which such holder or any
such underwriter or any of them may become subject under the Act, the
Securities Exchange Act of 1934, as amended, or other Federal or state
statutory law or regulation, at common law or otherwise, except insofar
as such losses, claims, damages or
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<PAGE>
liabilities are caused by any such untrue statement or alleged untrue
statement or omission or alleged omission based upon information
furnished or required to be furnished to the Company by any such holder
or underwriter expressly for use therein, which indemnification shall
include each person, if any, who controls any such underwriter within
the meaning of such Act; provided, however, that any such holder or
underwriter shall at the same time indemnify the Company, its
directors, each officer signing the related registration statement,
each person, if any, who controls the Company within the meaning of
such Act and each other holder, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement or any prospectus required to be filed or
furnished by reason of this Article 2 or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
insofar as such losses, claims, damages or liabilities are caused by
any untrue statement or alleged untrue statement or omission is based
upon information furnished to the Company by any such holder or
underwriter expressly for use therein.
(c) Notwithstanding anything to the contrary herein, the
Holder shall not be entitled to register the Note Shares pursuant to
Section 2.1 or 2.2 hereof if at such time, the Holder is then able, in
the opinion of counsel for the Company, to sell such securities
pursuant to Rule 144 under the Act, without regard to the volume
limitations contained therein.
ARTICLE 3
Miscellaneous
3.1 Notices. Notice shall be given to the Company by certified mail, return
receipt requested. Notices to the Company shall be addressed to Quality
Products, Inc., 560 Dublin Avenue, Columbus, Ohio 43215, Attention: Bruce
Weaver, President, or such other address as the Company may, from time to time
advise the Holder. Notices to the Holder shall be addressed to their respective
Payment Addresses and shall be given by certified mail, return receipt
requested. Notices shall be deemed given on the date mailed.
3.2 Governing Law. This Note shall be governed by the laws of the State of
Delaware applicable to agreements executed and to be performed wholly within
such state.
8
<PAGE>
3.3 Waiver of Trial by Jury. In any legal proceeding to enforce payment of this
Note, the Company waives trial by jury and counterclaims, if any.
QUALITY PRODUCTS, INC.
By:_____________________
Bruce Weaver,
President
9
<PAGE>
Exhibit A
NOTICE OF CONVERSION
[To be Signed Only Upon Conversion
of Part or All of Notes]
QUALITY PRODUCTS, INC.
The undersigned, the holder of the foregoing Note, hereby
surrenders such Note for conversion into shares of Common Stock of QUALITY
PRODUCTS, INC. to the extent of Five Hundred Thousand Dollars $500,000 unpaid
principal amount due on such Note, and requests that the certificates for such
shares be issued in the name of, and delivered to, whose address is.
DATED:
(Signature)
(Signature must conform in all respects to name
of holder as specified on the face of the Note.)
10
<PAGE>
EXHIBIT 10.2
WORKOUT AGREEMENT
THIS WORKOUT AGREEMENT, dated September ____, 1996, among The Provident
Bank ("Bank"), and Quality Products, Inc., a Delaware corporation ("Parent"),
American Liberty Mining Corp., a Nevada corporation ("American Liberty"),
Quality Toys, Inc., a Nevada corporation ("Quality Toys"), QPI Multipress Inc.,
an Ohio corporation ("Multipress") and Technical Metals Company, a Michigan
corporation ("Technical Metals"), (collectively referred to herein as
"Borrowers").
WITNESSETH:
WHEREAS, Bank, Borrowers and Q.P.I. Consumer Products Corporation
("Consumer Products") entered into a Loan and Security Agreement dated April 26,
1994, which agreement was amended by a First Amendment to Loan and Security
Agreement dated March 3, 1995 and by a Second Amendment to Loan and Security
Agreement dated March 15, 1995 (collectively referred to herein as the "Loan
Agreement"); and
WHEREAS, Consumer Products filed a bankruptcy petition commencing a
Chapter 11 case pending in the Bankruptcy Court for the Middle District of
Florida, Tampa Division ("Bankruptcy Court"), known as In Re Q.P.I. Consumer
Products Corp., Case No. 95-8633-8C1 ("Bankruptcy Case") which filing
constitutes a default under the Loan Agreement; and
WHEREAS, on December 15, 1995, Bank and Borrowers entered into an
Agreement ("December Agreement") modifying the terms of the Loan Agreement with
respect to the Borrowers during the pendency of the Bankruptcy Case; and
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WHEREAS, the Borrowers are in default under the terms of the Loan
Agreement and the December Agreement; and
WHEREAS, Technical Metals has ceased operations and liquidated its
assets in an orderly manner pursuant to an agreement by and among Technical
Metals, National Steel Corporation and Bank, which governs the manner of
liquidation of its assets; and
WHEREAS, Parent, Multipress, Quality Toys and American Liberty have
requested certain concessions from Bank in order to allow them an opportunity to
restructure or reorganize without the necessity of a bankruptcy filing; and
WHEREAS, Bank is willing to modify the terms of the Loan Agreement and
the December Agreement as set forth herein;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which the parties hereby acknowledge, the parties agree as
follows:
1. Definitions. Capitalized terms not assigned definitions herein shall
have the meaning ascribed to them in the Loan Agreement, as modified by the
December Agreement. In addition, all terms defined in the Uniform Commercial
Code as adopted in Ohio shall have the meanings given therein unless otherwise
defined herein.
2. Obligations. For purposes of this Agreement, the term "Obligations"
shall mean, without limitation, all Loans (as defined in the December Agreement)
and all other debts, obligations, or liabilities of every kind and description
of all Borrowers to Bank, whether owed directly to Bank or assigned by Parent to
Bank, including Borrowers' obligations under this Workout Agreement, the Loan
Agreement and the December Agreement, including but not limited to the
<PAGE>
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guaranty of the Consumer Products Obligations contained therein, now due or to
become due, direct or indirect, absolute or contingent, presently existing or
hereafter arising, joint or several, secured or unsecured, whether for payment
or performance, regardless of how the same arise or by what instrument,
agreement or book account they may be evidenced, or whether evidenced by any
instrument, agreement or book account, including, without limitation, all loans
(including any loan by renewal or extension), all overdrafts, all guarantees,
all bankers acceptances, all agreements, all letters of credit issued by Bank
for Borrowers and the applications relating thereto, all indebtedness of
Borrowers to Bank, all undertakings to take or refrain from taking any action
and all indebtedness, liabilities and obligations owing from Borrowers to
others, including Parent, which Bank has obtained or may obtain by purchase,
negotiation, discount, assignment or otherwise. Obligations shall also include
all interest and other charges chargeable to the Borrowers or due from the
Borrowers to the Bank from time to time and all costs and expenses referred to
in the December Agreement and herein.
3. Interest and Fees.
3.1 As of the date of this Agreement, all of Borrowers'
Obligations to Bank shall bear interest at a rate equal to the Prime Rate plus
three percent (3%) per annum, computed on the basis of a year of 360 days for
the actual number of days elapsed until repaid. On the first day of each month
commencing on October 1, 1996, Borrowers shall pay to Bank monthly interest
payments in the amount of the Prime Rate plus one percent (1%) on the
outstanding balance of the Obligations. Interest accrued but not paid pursuant
to this Section ("Deferred Interest") shall be deferred until October 31, 1996.
If no Acceleration Event has occurred and all Obligations to Bank
<PAGE>
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have been paid in full by October 31, 1996, the Deferred Interest shall be
waived by Bank. Upon the occurrence of an Acceleration Event or upon October 31,
1996, whichever occurs first, interest shall accrue at a rate of four (4)
percentage points greater than the stated rate. "Prime Rate" as used herein is
that annual percentage rate of interest which is established by Bank from time
to time as its prime rate, whether or not such rate is publicly announced, and
which provides a base to which loan rates may be referenced; it is not
necessarily the lowest lending rate of Bank.
3.2 Monthly service charges payable under Section 13 of the
December Agreement and Section 12 of this Agreement and accruing after the date
of this Agreement shall be deferred until October 31, 1996. If no Acceleration
Event has occurred and all Obligations to Bank have been paid in full on or
before October 31, 1996, the deferred service charges shall be waived by Bank.
4. Forbearance. Bank agrees to forbear from demanding full payment of
all Obligations due from Borrowers until October 31, 1996 ("Forbearance
Period"), provided that (a) Technical Metals continues to comply with the terms
of the Forbearance and Collateral Liquidation Agreement among Technical Metals,
Bank and National Steel Corporation ("Technical Metals Agreement"), (b)
Borrowers diligently pursue financing or other sources of capital to allow
Borrowers to pay all Obligations to Bank in full and (c) an Acceleration Event
has not occurred. Notwithstanding anything contained herein to the contrary, all
Obligations of Borrowers to Bank shall be due and payable no later than October
31, 1996.
5. Outstanding Loans and Short Term Advance.
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- 5 -
5.1 The parties acknowledge that as of the date of this
Agreement Borrowers are indebted to Bank under the Loan Agreement and the
December Agreement in the amount of $1,427,032.68, and that none of Borrowers'
Obligations are subject to any defenses, offsets, or counterclaims as to Bank or
Parent. Bank shall have no obligation to make any loans or advances to Borrowers
during the Forbearance Period. All proceeds of the liquidation of Technical
Metals and Consumer Products net of expenses approved by Bank and all amounts
approved and ordered paid by the Bankruptcy Court ("Liquidation Proceeds") shall
be applied to the Obligations in permanent reduction of those Obligations. Bank
shall have no obligation to readvance the Liquidation Proceeds to any Borrower.
Proceeds from the collection of Borrowers' assets other than the Liquidation
Proceeds shall be held by Bank in a cash collateral account ("Cash Collateral
Account"). Borrowers shall be permitted to use funds in the Cash Collateral
Account to pay Borrowers' ordinary operating expenses.
5.2 Subject to the terms of this Agreement, Bank agrees to
lend to Borrowers the amount of $50,000 ("Short Term Advance"). This Short Term
Advance shall bear interest at the rate of the Prime Rate plus one percent (1%)
and shall be due and payable on October 31, 1996. Borrowers shall execute a
promissory note in a form satisfactory to Bank to evidence the Short Term
Advance.
6. Allocation of Liability.
6.1 Notwithstanding anything herein to the contrary, the
Obligations of each Borrower (other than Parent) to Provident under the Loan
Agreement, the December Agreement, this Agreement and all documents executed in
connection therewith and herewith shall be limited
<PAGE>
- 6 -
to the Maximum Credit Liability (as defined below) for each Borrower as
determined at the earlier of the date of commencement of a case under Title 11
of the United States Code (or any successor provision) in which such Borrower is
a debtor or the date enforcement is sought under such agreements; provided,
however, that each Borrower shall be jointly and severally liable for all
advances, charges, costs and expenses, including reasonable attorneys' fees
incurred or paid by Bank in exercising any right, power or remedy conferred by
this Agreement or any enforcement thereof.
6.2 Each Borrower agrees that in the event of (i) the
dissolution or insolvency of any Borrower, other than Technical Metals or
Quality Toys, (ii) the inability of any Borrower, other than Technical Metals or
Quality Toys, to pay its debts as they become due, (iii) an assignment by any
Borrower for the benefit of its creditors other than Technical Metals or Quality
Toys, or (iv) the institution of any bankruptcy or other proceeding by or
against any Borrower alleging that such Borrower is insolvent or unable to pay
its debts as they become due, the other Borrowers shall pay the Obligations
promptly upon demand. Each Borrower agrees that upon the filing by or against
any other Borrower of any proceeding under any present or future provision of
the United States Bankruptcy Code, or any other similar federal or state
statute, other Borrowers shall have no right to contribution, indemnification,
or any recourse whatsoever against the bankrupt Borrower for any liability
incurred by the other Borrowers under the terms of this Agreement or the Loan
Agreement. Each Borrower agrees that this provision shall continue to be
effective or be reinstated, as the case may be, if at any time any payment, or
any part thereof, of principal, interest or any other amount with respect to the
Obligations is rescinded or must otherwise be restored by Agent or the Banks
upon the bankruptcy or reorganization of any Borrower, any other Person or
otherwise.
<PAGE>
- 7 -
Each Borrower further agrees that, to the extent that any
Borrower makes a payment to Bank, which payment or payments or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or otherwise required to be repaid to another Borrower, its estate,
trustee, receiver or any other party, including without limitation, under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such payment or repayment, the Obligation or part thereof which has
been paid, reduced or satisfied by such amount shall be reinstated and continued
in full force and effect as of the date such initial payment, reduction or
satisfaction occurred.
6.3 For purposes of this Agreement the following terms
shall have the following definitions:
(a) "Maximum Credit Liability" for any Borrower,
other than Parent, shall mean, as of any date of determination thereof,
the sum of (i) with respect to each Loan, the proceeds of which are
used to make or the issuance of which constitutes a Valuable Transfer
to such Borrower, the amount of such Loan plus (ii) with respect to
each Loan, the proceeds of which are not used to make or the issuance
of which does not constitute a Valuable Transfer to such Borrower, the
lesser of (A) the outstanding amount of such Loan as of such date or
(B) the greater of (I) ninety-five percent (95%) of the Subsidiary Net
Worth at the time of such Loan, or (II) ninety-five percent (95%) of
the Subsidiary Net Worth of such Borrower at the earliest of (x) such
date, (y) the date of the commencement of a case under Title 11 of the
United States Code (or any successor provision) in which such Borrower
is a debtor, or (z) the date enforcement hereunder is sought.
<PAGE>
- 8 -
(b) "Subsidiary Net Worth" of any Borrower, other
than Parent, shall mean, as of any date of determination thereof, the
excess of (i) the amount of the "present fair saleable value" of the
assets of such Borrower as of the date of such determination, over (ii)
the amount of all "liabilities of such Borrower, contingent or
otherwise," as of the date of such determination, as such quoted terms
are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors.
(c) "Valuable Transfers" shall mean, in respect of
any Borrower, (i) all loans, advances or capital contributions made to
or for the benefit of such Borrower with the proceeds of Loans, (ii)
all debt securities or other obligations of such Borrower acquired by
such Borrower or retired by such Borrower with proceeds of, (iii) the
fair market value of all property acquired with the proceeds of Loans,
and transferred, absolutely and not as collateral, to such Borrower,
and (iv) all equity securities of such Borrower acquired by such
Borrower with proceeds of Loans.
7. Grant of Security Interest. To secure the payment and performance
of all of the Obligations, as herein defined, the Borrowers (other than Parent)
hereby grant to Parent a continuing security interest in and assign to Parent
all of Borrowers' respective Collateral (as that term is defined in the Loan
Agreement). Parent hereby grants to Bank a continuing security interest in all
of Parent's Collateral and assigns to Bank the Restated Notes and the security
interests granted to Parent by the Borrowers hereunder. These continuing
security interests are not in substitution for or novation of the grant of
security interests granted in connection with the Loan Agreement and the
December Agreement, which security interests are specifically ratified,
confirmed and preserved.
<PAGE>
- 9 -
8. Representations and Warranties. Each Borrower hereby represents
and warrants to the Bank that:
8.1 Organization and Authority. (a) Each Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the State of its incorporation and has the corporate power and authority to
conduct its business as now conducted and as proposed to be conducted while this
Agreement is in effect; (b) the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby and thereby are within the
corporate authority of each Borrower and has been duly authorized by all proper
and necessary corporate action; (c) the execution and delivery of this Agreement
and the performance of the transactions contemplated hereby and thereby will not
violate or contravene any provisions of law or the articles of incorporation or
bylaws of any Borrower, or result in a breach or default in respect of the terms
of any other agreement to which the Borrower is a party or by which it is bound,
which breach or default would result in the creation, imposition or enforcement
of any lien against any of the Collateral, or would have a material adverse
affect on the conduct of the Borrowers' business as it is now being conducted
and proposed to be conducted while this Agreement is in effect, or would
otherwise impair the value of the security interest granted to the Parent and
assigned to the Bank hereunder; and (d) each Borrower is duly qualified as a
foreign corporation and is in good standing and duly authorized to do business
in every jurisdiction where the nature of its properties or the conduct of its
business requires such qualification and authorization.
8.2 Binding Effect of Documents. This Agreement is the legal
and binding obligation of each Borrower enforceable in accordance with its
terms.
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- 10 -
8.3 Government Consent. The execution and delivery of
this Agreement and the performance of the transactions contemplated hereby and
thereby do not require any approval or consent of any governmental agency or
authority, or of any other party.
8.4 No Other Liabilities. Except to the extent listed on
Schedule 8.4 hereto or reflected in the Borrowers' financial statements for the
year or other period ending September 30, 1995, which have been provided to
Bank, no Borrower, as of the date of this Agreement, knows or has reasonable
grounds to know of any basis for the assertion against it of any liabilities or
obligations of any nature, direct or indirect, accrued, absolute or contingent,
including, without limitation, liabilities for taxes then due or to become due
whether incurred in respect of or measured by the income of such Borrower for
any period prior to the date of this Agreement or arising out of transactions
entered into, or any state of facts existing prior thereto.
8.5 Taxes. Each Borrower has filed all federal, state, local
and other tax returns and reports required to be filed by it, except for those
listed on Schedule 8.5 hereto, and such returns and reports are true and
correct. Each Borrower has paid all taxes, assessments and other governmental
charges lawfully levied or imposed on or against it or its properties, other
than those presently payable without penalty or interest.
8.6 No Litigation. Except as listed on Schedule 8.6 hereto,
there is no litigation or proceeding or governmental investigation pending or,
to the knowledge of any Borrower, threatened against or relating to Borrowers,
their properties or business which is not reflected in the financial statements
described in Section 8.4 hereof.
<PAGE>
- 11 -
8.7 Compliance with Laws. Borrowers are not, to their
respective knowledge, in violation of or default under any statute, regulation,
license, permit, order, writ, injunction or decree of any government,
governmental department, commission, board, bureau, agency, instrumentality or
court, which violation or default would have a material adverse effect on the
business, properties or condition, financial or otherwise, of any Borrower.
8.8 Location of Collateral. Each Borrower maintains a place of
business and owns collateral only at the address set forth in Schedule 8.9
attached hereto and maintains its books of account and records, including all
records concerning Collateral, only at the foregoing addresses. The Parent
maintains its chief executive office at Suite 201, 1718 East Seventh Street,
Tampa, Florida 33605 and each Subsidiary maintains its Chief Executive Office at
the locations set forth in Schedule 8.9 attached hereto.
8.9 Title to Collateral. With respect to the Collateral, at
the time the Collateral becomes subject to the Bank's or Parent's security
interest, the Borrower is and at all times will be the sole owner of and have
good and marketable title to the Collateral, free from all liens, encumbrances
and security interests in favor of any person other than the Bank or Parent
except Permitted Liens (as defined in the Loan Agreement) and that certain
security interest granted to National Steel Corp. by Technical Metals Company
that is subject to a Subordination Agreement dated August 21, 1995 in favor of
Bank (the "National Steel Lien"), and has full right and power to grant the Bank
a security interest therein. All information furnished to Bank concerning the
Collateral is and will be complete, accurate and correct in all material
respects when furnished.
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Without limiting the foregoing, Parent further represents and warrants to Bank
that it holds title to all assets used in the operation of the QPI Multipress
business.
8.10 Rights of Borrower to Accounts. As to each and every
Account (a) it is a bona fide existing obligation, valid and enforceable against
the respective Debtor for a sum certain for sales of goods shipped or delivered,
or goods leased, or services rendered in the ordinary course of business; (b)
all supporting documents, instruments, chattel paper and other evidence of
indebtedness, if any, delivered to the Bank are complete and correct and valid
and enforceable in accordance with their terms, and all signatures and
endorsements that appear thereon are genuine, and all signatories and endorsers
have full capacity to contract; (c) the Debtor is liable for and will make
payment of the amount expressed in such Account according to its terms; (d) it
will be subject to no discount, allowance or special terms of payment without
the prior approval of the Bank; (e) it is subject to no dispute, defense or
offset, real or claimed; (f) it is not subject to any prohibition or limitation
upon assignment; (f) the Borrower has full right and power to grant the Bank a
security interest therein and the security interest granted in such Account to
the Bank in this Agreement, when perfected, will be a valid first security
interest which will inure to the benefit of the Bank without further action. The
warranties set out herein shall be deemed to have been made with respect to each
and every Account now owned or hereafter acquired by each Borrower.
8.11 Rights of Borrower in Inventory. The Inventory (a) is and
will be of good and merchantable quality, free from defects and (b) none of the
inventory is or will be stored with a bailee without the prior written consent
of Bank.
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- 13 -
8.12 Accuracy of Representations. No representation or
warranty by or with respect to Borrowers contained herein or in any certificate
or other document furnished by Borrowers pursuant hereto or contained in the
Loan Agreement or December Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary to make such representation or
warranty not misleading in light of the circumstances under which it was made.
8.13 Patents and Trademarks. Attached hereto as Schedule 8.13
is a complete and accurate list of all trademarks, patents and patent
applications owned, held or used by Borrowers.
8.14 Representations as Inducement to Bank. The foregoing
representations and warranties are made by Borrowers with the knowledge and
intention that the Bank will rely thereon, and shall survive the execution and
delivery of this Agreement.
9. Affirmative Covenants. Each Borrower covenants and agrees that
until all of the Obligations have been paid in full, unless the Bank shall
otherwise consent in writing:
9.1 Refinancing. Borrowers shall diligently pursue financing
or other sources of capital that will allow Borrowers to repay all of Borrowers'
Obligations to Bank in full. Borrowers shall on the last of each month provide a
written report to the Bank disclosing all financial institutions to whom
Borrowers submitted an application or applications for such refinancing other
sources of capital during the previous month.
9.2 Continuing Obligations. Borrowers hereby ratify and
confirm and shall continue to comply with all terms and provisions of the Loan
Agreement, the December Agreement
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and all documents executed in connection therewith except to the extent that
those terms and provisions are directly amended or modified by this Agreement.
9.3 Ongoing Liquidations. Borrowers shall cooperate in the
orderly liquidation of Consumer Products and Technical Metals and shall take
such acts and execute and deliver such documents as may reasonably be requested
by Bank to facilitate the liquidation of the assets of those entities.
9.4 Books and Records. Borrowers shall maintain complete and
accurate books of account and records pertaining to the Collateral and the
operations of the Borrower, and all such books of account and records shall be
kept and maintained at the location specified in Section 8.9. The Borrowers
shall not move such books of account and records or change its respective chief
executive office without giving the Bank at least 30 days prior written notice.
Prior to moving any of such books of account and records or changing the
location of its respective chief executive office, the Borrowers shall execute
and deliver to the Bank financing statements satisfactory to the Bank. All such
books of account and records and all financial statements and reports furnished
to the Bank shall be maintained and prepared in accordance with generally
accepted accounting principles applied on a basis consistent with prior periods.
9.5 Access to Information. Borrowers shall grant the Bank, or
its representatives, full and complete access to the Collateral and to all books
of account, records, correspondence and other papers relating to the Collateral
during normal business hours and the right to inspect, examine, verify and make
abstracts from the copies of such books of account, records,
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correspondence and other papers, and to investigate such other records,
activities and business of the Borrowers as they may deem necessary or
appropriate at the time.
9.6 Evidence of Accounts. Borrowers shall, upon the creation
of Accounts, or from time to time as the Bank may require, deliver to the Bank
schedules of all outstanding Accounts. Such schedules shall be in form
satisfactory to the Bank and shall show the age of such Accounts in intervals of
not more than 30 days, and contain such other information and be accompanied by
such supporting documents as the Bank may from time to time request. Each
Borrower shall also deliver to the Bank copies of Debtor's invoices, evidences
of shipment or delivery and such other schedules and information as the Bank may
reasonably request. The items to be provided under this Section are to be
prepared and delivered to the Bank from time to time solely for its convenience
in maintaining records of the Collateral and the failure of any Borrower to give
any of such items to the Bank shall not affect, terminate, modify or otherwise
limit the Bank's security interest granted herein.
9.7 Financial Information. Borrowers shall deliver to the Bank
such periodic financial information as Bank may require, including without
limitation (a) not more than 20 days after the end of each month, financial
statements for the immediately preceding month, including a balance sheet and
profit and loss statement prepared in accordance with generally accepted
accounting principles, and (b) not more than 90 days after the date of this
Agreement, or within such further time as the Bank may permit, consolidated and
consolidating financial statements for Borrowers for the fiscal year ended
September 30, 1995, including a balance sheet and related profit
<PAGE>
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and loss statement, prepared in accordance with generally accepted accounting
principles by independent certified public accountants acceptable to the Bank.
9.8 Records of Advances. Borrowers shall maintain an
accurate record of loan advances to and payments from each Borrower.
9.9 Other Information. Borrowers shall furnish to the
Bank such other financial and business information and reports in form and
substance satisfactory to the Bank as and when the Bank may from time to time
request.
9.10 Maintenance of Existence and Licenses. While this
Agreement remains in effect and until the Obligations have been paid in full,
each Borrower shall (a) maintain its corporate existence in good standing; (b)
make no change in the nature or character of its business or engage in any
business in which it was not engaged on the date of this Agreement; (c) maintain
and keep in full force and effect all licenses and permits necessary to the
proper conduct of its business and (d) at the request of the Bank, qualify as a
foreign corporation and obtain all requisite licenses and permits in each state
(other than the state of its incorporation) where the Borrower does business.
9.11 Maintenance and Insurance of Properties. Borrowers shall
maintain and keep all of their respective properties, real and personal, in good
working order, condition and repair and insure and keep insured all such
properties at all times against loss of damage by fire, theft, and such other
risks and hazards as are customarily insured against by corporations in similar
circumstances, or as the Bank may specify from time to time, with insurers and
in amounts acceptable to the Bank. If Borrowers fail to do so, the Bank may
obtain such insurance and charge the cost thereof to the Borrowers' account and
add it to the Obligations. Borrowers agree that, if any
<PAGE>
- 17 -
loss should occur, the proceeds of all such insurance policies may be applied to
the payment of all or any part of the Obligations, as the Bank may direct. Bank
shall be named loss payee on such insurance policies to the extent that such
policies insure the Collateral. All policies shall provide for at least 30 days
prior written notice of cancellation to the Bank. Borrowers shall deliver at
least annually to Bank, or sooner if requested by Bank, certificates of
insurance evidencing Borrowers' compliance herewith. Bank or Bank's designated
agent is hereby irrevocably constituted and appointed Borrowers'
attorney-in-fact to (either in the name of Borrowers or in the name of Bank)
make adjustments of all insurance losses, sign all applications, releases and
other papers necessary for the collection of any such loss, make settlements and
endorse and collect all instruments payable to Borrowers or issued in connection
therewith.
9.12 Liability Insurance. At all times, Borrowers shall
maintain in full force and effect such liability insurance with respect to its
activities and business interruption and other insurance as may be reasonably
required by Bank, such insurance to be provided by insurer(s) acceptable to
Bank, and if requested by Bank, such insurance shall name Bank as an additional
insured. Borrowers shall deliver at least annually to Bank, or sooner if
requested by Bank, certificates of insurance evidencing Borrowers' compliance
herewith.
9.13 Notice of Certain Events. Borrowers shall give prompt
notice in writing to the Bank of any Acceleration Event hereunder, or of any
condition which, with the passage of time or the giving of notice or both, would
give rise to an Acceleration Event, and of any development, financial or
otherwise, which would materially adversely affect its business, properties or
affairs or
<PAGE>
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the ability of any Borrower to perform its obligations under this Agreement, the
Loan Agreement or the December Agreement.
9.14 Payment of Taxes. Borrowers shall pay all taxes,
assessments or governmental charges lawfully levied or imposed on or against its
respective properties prior to the date when such taxes, assessments or charges
shall become delinquent, unless the Borrower shall contest the validity thereof
in good faith and shall post any bond or other security required by applicable
law or by the Bank against the payment thereof.
9.15 Dealings in Inventory. With respect to the Inventory,
Borrowers shall (a) sell or dispose of the Inventory only to buyers in the
ordinary course of business, (b) immediately notify the Bank of any change in
location of any of the Inventory and, prior to any such change, execute and
deliver to the Bank such financing statements satisfactory to the Bank as the
Bank may request and (c) report, in form satisfactory to the Bank and with such
frequency as determined by the Bank, such information as the Bank may request
regarding the Inventory.
9.16 Claims Against Borrower. Immediately upon learning
thereof, Borrowers shall report to the Bank any reclamation, return or
repossession of goods, any claim or dispute asserted by any debtor or other
obligor in which the amount in dispute exceeds $10,000, and any other matters
affecting the value and enforceability or collectibility of any of the
Collateral. In addition, the Borrower shall, at its sole cost and expense
(including attorneys' fees), settle any and all such claims and disputes and
indemnify and protect the Bank against any liability, loss or expense arising
therefrom or out of any such reclamation, return or repossession of goods,
provided, however, if the Bank shall so elect, it shall have the right at all
times to settle, compromise, adjust
<PAGE>
- 19 -
or litigate all claims or disputes directly with the Debtor or other obligor
upon such terms and conditions as it deems advisable and charge all costs and
expenses thereof (including attorneys' fees) to the Borrowers' account and add
them to the Obligations.
9.17 Defense of Collateral. Borrowers shall defend the
Collateral against all claims and demands of all persons at any time claiming
the same or any interest therein and pay all costs and expenses (including
attorneys' fees) incurred in connection with such defense.
9.18 Financing Statements. At the request of the Bank,
Borrowers shall execute and deliver such financing statements, documents and
instruments, and perform all other acts as the Bank deems necessary or
desirable, to carry out and perform the intent and purpose of this Agreement,
and pay, upon demand, all expenses (including attorneys' fees) incurred by the
Bank in connection therewith. A photocopy of this Agreement shall be sufficient
as a financing statement and may be filed in any appropriate office in lieu
thereof.
9.19 Financial Covenants. That operating division of
Parent doing business as QPI Multipress ("Division") shall maintain the
following financial covenants:
(a) The ratio of Current Assets to Current
Liabilities of not less than 3.3 to 1.0.
(b) A level of Net Working Capital not less than
$900,000.00.
(c) A Total Equity of not less than $875,000.00.
The following terms shall have the following meanings when used herein.
"Current Assets" and "Current Liabilities" shall mean, at any
time, all assets or liabilities respectively, that should, in accordance with
GAAP (Generally Accepted Accounting
<PAGE>
- 20 -
Principles), be classified as current assets or current liabilities,
respectively, on the balance sheet of the Division.
"Liabilities" shall mean all indebtedness, obligations and
other liabilities of the Division, whether matured or unmatured, liquidated or
unliquidated, direct or contingent or joint or several, that should, in
accordance with GAAP, be classified as liabilities on the balance sheet of the
Division.
"Net Working Capital" shall mean, at any time, the amount by
which Current Assets exceed Current Liabilities.
"Total Equity" shall be at any time, the amount reflected as
Total Equity on the financial statement of the Division submitted to the Bank as
required herein (prepared on a basis consistent with the attached financial
statement for the Division dated as of September 30, 1995) and adjusted by
subtracting the sum of (i) any surplus resulting from any write-up of assets,
(ii) goodwill, including any amounts, however designated on a consolidated
balance sheet of the Division representing the excess of the purchase price paid
for assets or stock acquired over the value assigned thereto on the books of the
Division, (iii) patents, trademarks, trade names and copyrights, (iv) deferred
expenses and (v) any other amount in respect of an intangible that should be
classified as an asset on a balance sheet of the Division in accordance with
GAAP.
9.20 Maintenance of Bank Accounts. Borrowers shall maintain
all of its respective depository accounts with Bank, including without
limitation, all demand deposit, lock box, time deposit, concentration and zero
balance accounts, but excluding such other accounts at such other banks as Bank
may permit in its sole discretion.
<PAGE>
- 21 -
10. Negative Covenants. Each Borrower covenants and agrees that
until the Obligations have been paid in full, unless the Bank shall consent in
advance in writing, it shall not and shall not permit any subsidiary to:
10.1 Sale of Assets or Merger. Discontinue its business or
liquidate, sell, transfer, assign or otherwise dispose of a material part of its
assets or of the Collateral, by sale, merger, consolidation or otherwise,
provided, however, that it may sell in the ordinary course of business and for a
full consideration in money or money's worth, any product, merchandise or
service produced, marketed or furnished by it. In no event, however, shall any
Borrower make any transfer of an interest in property or incur any obligation if
the Borrower:
(a) made such transfer or incurred such obligation
with actual intent to hinder, delay, or defraud any person or entity to
which the Borrower was or became, on or after the date that such
transfer was made or such obligation was incurred, indebted; or
(b) received less than a reasonably equivalent
value in exchange for such transfer or obligation; and
(i) was insolvent on the date that
such transfer was made or such obligation was incurred, or
became insolvent as a result of such transfer or obligation;
(ii) was engaged in business or a
transaction, or was about to engage in business or a
transaction, for which any property remaining with the
Borrower was an unreasonably small capital; or
<PAGE>
- 22 -
(iii) intended to incur, or believed
that the Borrower would incur, indebtedness that would be
beyond the Borrowers' ability to pay such indebtedness as it
matured.
10.2 Liens and Encumbrances. Sell, assign, pledge, grant
or suffer to exist a security interest, lien, mortgage or other encumbrance on
any of the Collateral to any person other than the Bank, or permit any lien,
encumbrance or security interest to attach to any of the Collateral, except
Permitted Liens and purchase money security interests not exceeding $100,000 in
the aggregate.
10.3 Contingent Liabilities. Endorse, guarantee or become
surety for the obligations of any person, firm or corporation, except that the
Borrowers may endorse checks and negotiable instruments for collection or
deposit in the ordinary course of business.
10.4 Loans. Make any loans to an Affiliate (as defined
in the Loan Agreement) or any other Borrower.
10.5 Change in Management or Business. Change its management
or make any material change in any of its business objectives, purposes and
operations which might in any way adversely affect the repayment of the Loans.
10.6 Change in Ownership. Permit to occur a change in record
or beneficial ownership of the voting stock of any Borrower which Bank, in its
sole discretion, deems material with respect to the control of such Borrower.
10.7 Transaction with Affiliates. Enter into, or be a
party to, any transaction with any of Borrowers' Affiliates, except in the
ordinary course of business, pursuant to the reasonable
<PAGE>
- 23 -
requirements of Borrowers' business, and upon fair and reasonable terms which
are fully disclosed to Bank and are no less favorable to such Borrower than such
Borrower could obtain in a comparable arm's length transaction with a person not
an Affiliate of such Borrower.
10.8 Indebtedness. Directly or indirectly create, incur,
assume, guaranty or be or remain liable with respect to any indebtedness, except
for (a) indebtedness incurred in the ordinary course of Borrowers' business, (b)
the Obligations, (c) any existing indebtedness disclosed in the financial
statements referenced in Section 8.4 hereof, and (d) any other indebtedness to
which Bank has consented in writing.
11. Collection of Collateral and Notice of Assignment.
11.1 Collections on Collateral. All collections on the
Collateral shall be directed to a lockbox at Bank and shall not be commingled
with the Borrowers' other funds or be deposited in any bank account of the
Borrowers (except for the Cash Collateral Account), or used in any manner except
to pay the Obligations or for such other purposes as expressly permitted
hereunder. All collections on the Collateral (other than the proceeds of the
liquidation of Technical Metals and Q.P.I. Consumer, which shall be immediately
applied to the balance of Borrowers' Obligations) shall be deposited in the Cash
Collateral Account of the appropriate Borrower maintained at Bank for that
purpose, over which the Bank alone shall have the sole power of withdrawal. In
no event shall Bank be obligated to advance to Borrowers any amounts in excess
of the collected balance in the Cash Collateral Account. Borrowers shall be
entitled to use the funds in the Cash Collateral Account in Borrowers' ordinary
course of business. The crediting of items deposited in the Cash Collateral
Account to the reduction of the Obligations shall be conditioned upon final
payment of the item and
<PAGE>
- 24 -
if any item is not so paid, the amount of any credit given for it may be charged
to the Obligations or to any other deposit account of such Borrower, whether or
not the item is returned.
11.2 Notice of Assignment. The Bank shall have the right at
any time to notify Debtors of its security interest in the Accounts and to
require payments to be made directly to the Bank. Upon request of the Bank at
any time, Borrowers will so notify the account debtors and will indicate on all
billings to the account debtors that the Accounts are payable to the Bank. To
facilitate direct collection, the Borrowers hereby appoint the Bank and any
officer or employee of the Bank, as the Bank may from time to time designate, as
attorney-in-fact for the Borrowers to (a) receive, open and dispose of all mail
addressed to the Borrowers and take therefrom any payments on or proceeds of
Accounts; (b) take over the Borrowers' post office boxes or make other
arrangements, in which the Borrowers shall cooperate, to receive the Borrowers'
mail, including notifying the post office authorities to change the address for
delivery of mail addressed to the Borrowers to such address as the Bank shall
designate; (c) endorse the name of the Borrowers in favor of the Bank upon any
and all checks, drafts, money orders, notes, acceptances or other evidences or
payment or Collateral that may come into the Bank's possession; (d) sign and
endorse the name of the Borrowers on any invoice or bill of lading relating to
any of the Accounts, on verifications of Accounts sent to any debtor, to drafts
against debtors, to assignments of Accounts and to notices to Debtors; and (e)
do all acts and things necessary to carry out this Agreement, including signing
the name of the Borrowers on any instruments required by law in connection with
the transactions contemplated hereby and on financing statements as permitted by
the Uniform Commercial Code. The Borrowers hereby ratify and approve all acts of
such attorneys-in-fact, and neither the Bank nor any other such
<PAGE>
- 25 -
attorney-in-fact shall be liable for any acts of commission or omission, or for
any error of judgment or mistake of fact or law. This power, being coupled with
an interest, is irrevocable so long as any of the Obligations remain
unsatisfied.
11.3 Enforcement of Accounts. The Bank shall not, under any
circumstances, be liable for any error or omission or delay of any kind
occurring in the settlement, collection or payment of any Accounts or any
instruments received in payment thereof or for any damage resulting therefrom.
The Bank may, without notice to or consent from the Borrowers, sue upon or
otherwise collect, extend the time of payment of, or compromise or settle for
cash, credit or otherwise upon any terms, any of the Accounts or any securities,
instruments or insurance applicable thereto and/or release the obligator
thereon. The Bank is authorized to accept the return of the goods represented by
any of the Accounts, without notice to or consent by the Borrowers, or without
discharging or any way affecting the Obligations hereunder.
11.4 Returned or Rejected Goods. Upon receipt of any returned
or rejected goods Borrowers shall immediately issue and deliver a credit memo to
the Bank with respect thereto, or, at the Bank's election, Borrowers shall set
aside such goods, mark them in the Bank's name and hold them in trust for the
Bank at Borrowers' expense, and, upon request, shall pay the Bank the sales
price thereof. If the Bank shall request Borrowers to pay the sales price of
such goods and Borrowers fail to forthwith pay the sales price to the Bank, the
Bank may take possession of such goods and sell or cause the goods to be sold,
at public or private sale, at such prices, to such purchasers and upon such
terms as the Bank deems advisable. Borrowers shall remain liable to the
<PAGE>
- 26 -
Bank for any deficiency and shall pay the costs and expenses of such sale,
including reasonable attorneys' fees.
11.5 Limitation of Bank's Liability. The Bank shall not be
liable for or prejudiced by any loss, depreciation or other damage to Accounts
or other Collateral unless caused by the Bank's willful and malicious act, and
the Bank shall have no duty to take any action to preserve or collect any
Account or other Collateral.
11.6 Verification of Accounts. The Bank may confirm and verify
all Accounts in any reasonable manner at any time. Bank shall have no obligation
to disclose or discuss with Borrowers the names or identities of any customers
from whom the Bank obtains or requests information as to Accounts. Borrowers
agree to cooperate with Bank in the confirmation and verification of any
Accounts, or reconciling any discrepancy between those amounts verified by the
Bank and information provided to the Bank by the Borrower.
12. Service Charges. In addition to the principal and interest on the
Loans and the reimbursement of expenses to Bank pursuant to this Agreement,
Borrowers shall pay to the Bank a monthly service charge for the services
provided by Bank in connection with this Agreement in the amount of $10,000,
which service charge may be increased or decreased in the sole discretion of
Bank upon 30 days prior written notice to Borrowers.
13. One General Obligation: Cross Collateral. All loans and advances
by Bank to Borrowers under this Agreement and under all other agreements
constitute one loan, and all indebtedness and obligations of Borrowers to Bank
under this and under all other agreements, present and future, constitute one
general obligation secured by the Collateral and security held and
<PAGE>
- 27 -
to be held by Bank hereunder and by virtue of all other assignments and security
agreements between Borrowers and Bank now and hereafter existing. It is
expressly understood and agreed that all of the rights of Bank contained in this
Agreement shall likewise apply insofar as applicable to any modification of or
supplement to this Agreement and to any other agreements, present and future,
between Bank and Borrowers.
14. Acceleration. The following shall constitute Acceleration Events,
it being agreed that time is of the essence hereof: (a) failure of the Borrowers
to pay when due or within five (5) days of the date on which it is due any of
the Obligations, including without limitation the interest payments required
under Section 3 hereof; (b) failure of the Borrowers to observe or perform any
covenant contained in this Agreement or in any other agreement between the
Borrowers and the Bank including, without limitation, the Technical Metals
Agreement; (c) any representation or warranty at any time made by the Borrowers
to the Bank orally or in this Agreement or in any other agreement between the
Borrowers and the Bank, or in any document or instrument delivered to the Bank
pursuant to this Agreement or any such other agreement is, or becomes, untrue or
misleading in any material respect; (d) Borrowers shall default under or breach,
and not cure such default or breach within any applicable cure periods, any
material obligation for the payment of borrowed money or for the payment of rent
under any lease agreement covering real or personal property; (e) any
acceleration of any material obligation of any Borrower for the payment of
borrowed money or for the payment of rent under any lease agreement covering
real or personal property; (f) failure of the Borrowers or any guarantor, after
request by the Bank, to furnish within five (5) days of such request financial
information or to permit the inspection of their books of account and records;
(g)
<PAGE>
- 28 -
suspension by the Borrowers or of the operation of their present business, or
the calling any meeting of all or any of their creditors or committing any act
of bankruptcy, or the filing by or against any Borrower of any petition under
any provision of the United States Bankruptcy Code, as amended, or the entry of
any judgment or filing of any lien against any Borrower in an amount exceeding
$30,000; (h) there shall occur any material adverse change in any Borrowers'
condition or affairs (financial or otherwise) or in that of any endorser,
guarantor of surety for any of the Obligations; and (i) any uninsured loss,
theft, damage, destruction or encumbrance of any of the Collateral or any levy,
seizure or attachment thereof.
15. Bank's Rights and Remedies of Bank. Upon the occurrence of an
Acceleration Event, Bank may declare all Obligations of the Borrowers to Bank
immediately due and payable, without presentment, notice, protest or demand of
any kind for the payment of all or any part of the Obligations, and exercise all
of its rights and remedies against Borrowers and any Collateral provided herein,
in any other agreement between Borrowers and Bank, at law or in equity and
exercise all rights granted to a secured party under the Ohio Uniform Commercial
Code or otherwise. Without limiting the foregoing, Bank may take possession of
the Collateral, or any part thereof, and Borrowers hereby grant Bank authority
to enter upon any premises on which the Collateral may be situated, and remove
the Collateral from such premises or use such premises, together with the
materials, supplies, books and records of Borrowers, to maintain possession
and/or the condition of the Collateral and to prepare the Collateral for sale.
Borrowers shall, upon demand by Bank, assemble the Collateral and make it
available at a place designated by Bank which is reasonably convenient to Bank
and Borrowers. Borrowers shall not attempt to delay, obstruct or
<PAGE>
- 29 -
frustrate the Bank's exercise of its rights and remedies, nor raise any defense
in any legal proceeding commenced by Bank to avail itself of such remedies, if
necessary. Unless the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, Bank will give
Borrowers reasonable notice of the time and place of any public sale thereof or
of the time after which any private sales or other intended disposition thereof
is to be made. The requirement of reasonable notice shall be met if such notice
is mailed, postage prepaid, to the address of the Borrowers as set forth herein
at least five (5) days prior to the time of such sale or disposition.
15.1 Application of Proceeds. The Bank shall have the right to
apply the proceeds of any disposition of the Collateral to the payment of the
Obligations in such order of application as the Bank may, in its sole
discretion, elect. The Bank shall have no obligation to marshall any assets in
favor of the Borrowers or any other party.
15.2 Remedies Cumulative. The rights, options and remedies of
the Bank shall be cumulative and no failure or delay by the Bank in exercising
any right, option or remedy shall be deemed a waiver thereof or of any other
right, option or remedy, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy hereunder. Bank shall not be deemed
to have waived any of the Bank's rights hereunder or under any other agreement,
instrument or paper signed by Borrowers unless such waiver be in writing and
signed by the Bank. Nothing in this Agreement shall be deemed to restrict any of
Bank's rights to seek, in a bankruptcy court or any other court of competent
jurisdiction, any relief that Bank may deem appropriate in the event that a
voluntary or involuntary bankruptcy petition is filed by or against Debtor.
<PAGE>
- 30 -
16. Release of All Claims. Borrowers hereby jointly and severally, for
themselves, their respective heirs, executors, administrators, legal
representatives, successors and assigns: (a) acknowledge that no Borrower has
any Claims (as herein defined) against Bank; (b) for good and valuable
consideration, receipt of which is hereby acknowledged, release and forever
discharge Bank and its employees, officers, directors, agents, accountants,
attorneys and parent companies, and all direct and indirect subsidiaries and
affiliates of such parent companies and all employees, officers, directors,
agents, accountants and attorneys of such parent companies, subsidiaries and
affiliates, and the heirs, executors, administrators, successors and assigns of
all of the foregoing, jointly and severally (collectively, the "Bank Parties"),
of and from the following (collectively, the "Claims"): any and all actions,
causes of action, suits, debts, accounts, obligations, defenses, offsets,
counterclaims, damages, judgments, claims, demands and liabilities of any kind
or character whatsoever, known or unknown, suspected or unsuspected, in contract
or in tort, in law or in equity, including, without limitation, fraud, duress,
mistake, usury, tortious interference, negligence, and other matters of any kind
whatsoever, of Borrowers had, have, may have or may in the future have against
any one or more of the Bank Parties arising out of, for or by reason of or
resulting from or in any way relating to, in whole or in part, directly or
indirectly, any past or present act, omission, matter, cause or thing
whatsoever, including, without limitation, this Agreement, the Loan Agreement,
the December Agreement, any Note, security document, other document, matter or
thing relating thereto or to the Loans generally, any other past or present
financing or banking transactions between Bank and the Borrowers; (c) agree not
to commence, aid, cause, permit, join in, prosecute or participate in any suit
or other proceeding in a position adverse to any of the Bank Parties, which
<PAGE>
- 31 -
suit or proceeding arises from or relates to, in whole or in part, any of the
Claims; (d) acknowledge that nothing contained herein is to be construed as an
admission that any Claims exist or as an admission of liability of any of the
Bank Parties; and (e) agree that Bank hereby is forever discharged from any and
all duties or obligations under or relating in any way to the Loan Agreement,
the December Agreement, or related documents.
17. Miscellaneous
17.1 Governing Law; Jurisdiction and Venue. The provisions of
this Agreement shall be governed by and interpreted in accordance with the laws
of the State of Ohio. The Bank and Borrower hereby designate all courts of
record sitting in Cincinnati, Ohio, both state and federal, as forums where any
action, suit or proceeding in respect of or arising out of this Agreement or the
transactions contemplated by this Agreement may be prosecuted as to all parties,
their successors and assigns, and by the foregoing designation the Bank and
Borrowers consent to the jurisdiction and venue of such courts.
17.2 MUTUAL WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED
INDUCEMENT FOR THE BANK TO EXTEND CREDIT TO BORROWERS AND FOR BORROWERS TO
BORROW FROM BANK, AND AFTER HAVING THE OPPORTUNITY TO CONSULT COUNSEL, EACH
BORROWER HEREBY EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR
PROCEEDING RELATING TO THIS AGREEMENT OR ARISING IN ANY WAY FROM THE
OBLIGATIONS.
<PAGE>
- 32 -
17.3 Other Waivers. The Borrowers waive notice of nonpayment,
demand, notice of demand, presentment, protest and notice of protest with
respect to the Obligations, or notice of acceptance hereof, notice of Loans
made, credit extended, Collateral received or delivered, or any other action
taken in reliance hereon, and all other demands and notices of any description,
except such as are expressly provided for herein.
17.4 Collection Costs. All costs and expenses incurred by the
Bank to obtain, enforce or preserve the security interests granted by this
Agreement and to collect the Obligations, including, without limitation,
stationery and postage, telephone and telegraph, secretarial and clerical
expenses, all costs incurred and amounts paid directly or indirectly by the Bank
in connection with the Bankruptcy Case, including all amounts paid or costs
incurred in connection with the confirmation and execution of Consumer Product's
plan of reorganization, the fees or salaries of any collection agents utilized,
all costs to maintain and preserve the Collateral and all attorneys' fees and
legal expenses incurred in obtaining or enforcing payment of any of the
Obligations or foreclosing the Bank's security interest in any of the
Collateral, whether through judicial proceedings or otherwise, or in enforcing
or protecting its rights and interests under this Agreement or under any other
instrument or document delivered pursuant hereto, or in protecting the rights of
any holder or holders with respect thereto, or in defending or prosecuting any
actions or proceedings arising out of or relating to the Bank's transactions
with the Borrowers, shall be paid by the Borrowers to the Bank, upon demand, or,
at the Bank's election, charged to the appropriate Borrowers' account and added
to the Obligations, and the Bank may take judgment against the Borrowers for all
such costs, expense and fees in addition to all other amounts due from the
Borrowers hereunder.
<PAGE>
- 33 -
17.5 Expenses. Borrowers shall reimburse the Bank for all
out-of-pocket costs and expenses incurred by the Bank in connection with the
preparation of this Agreement and the making of the Loans hereunder, including
the reasonable fees and expenses of the Bank's counsel, and for all UCC search,
filing, recording and other costs connected with the perfection of the Bank's
security interest in the Collateral.
17.6 Notices. All notices, requests, directions, demands,
waivers and other communications provided for herein shall be in writing and
shall be deemed to have been given or made when delivered personally, by
telecopy, or sent by registered or certified mail, postage prepaid and return
receipt requested, addressed to Borrowers or the Bank, as the case may be, at
their respective addresses set forth below. Notices of changes of address shall
be given in the same manner.
If to Bank: The Provident Bank
Attention: Michael Giulioli
Suite 200
10 West Broad Street
Columbus, OH 43215
If to Borrowers: Quality Products, Inc.
Suite 201
1718 East Seventh Avenue
Tampa, FL 33605
17.7 Severability. Any provision of this Agreement which is
prohibited and unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
<PAGE>
- 34 -
17.8 Entire Agreement, Modification, Benefit. This Agreement,
taken together with the Loan Agreement and the December Agreement, shall
constitute the entire agreement of the parties with respect to the matters dealt
with herein and no provision of this Agreement, including the provisions of this
Section, may be modified, deleted or amended in any manner except by agreement
in writing executed by the parties. All terms of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, provided, however, that Borrowers shall not
assign or transfer their rights hereunder.
17.9 Construction. All references in this Agreement to the
single number and neuter gender shall be deemed to mean and include the plural
number and all genders, and vice versa, unless the context shall otherwise
require.
17.10 Headings. The underlined headings contained herein
are for convenience only and shall not affect the interpretation of this
Agreement.
17.11 Counterparts. This Agreement may be executed in
more than one counterpart, each of which shall be deemed an original.
17.12 Nonliability of Bank. The relationship between the
Borrower and the Bank shall be solely that of borrower and lender. The Bank
shall not have any fiduciary responsibilities to the Borrowers. The Bank
undertakes no responsibility to the Borrowers to review or inform the Borrowers
of any matter in connection with any phase of the Borrowers' business or
operations.
17.13 Warrant of Attorney. The Borrowers authorize any
attorney at law, including an attorney engaged by the Bank, to appear in any
court of record in the State of Ohio or any other State or Territory of the
United States, after the occurrence of an Event of Default
<PAGE>
- 35 -
hereunder and waive the issuance and service of process and confess judgment
against the Borrowers or any one of them in favor of the Bank, for the amount of
the Obligations then appearing due, together with costs of suit and, thereupon,
to release all errors and waive all rights of appeal and stay of execution, but
no such judgment or judgments against any one of the Borrowers shall be a bar to
a subsequent judgment or judgments against any one or more than one of such
persons against whom judgment has not been obtained hereon. The Borrowers hereby
expressly waive any conflict of interest that the Bank's attorney may have in
confessing such judgment against Borrowers and expressly consent to the
confessing attorney receiving a legal fee from the holder for confessing such
judgment against Borrowers. This warrant of attorney to confess judgment is a
joint and several warrant of attorney. The foregoing warrant of attorney shall
survive any judgment; and if any judgment be vacated for any reason, the Bank
nevertheless may thereafter use the foregoing warrant of attorney to obtain an
additional judgment or judgments against the Borrowers or any one or more of
them.
18. Effect on Loan Agreement and December Agreement. Except as
specifically modified hereby as between the parties hereto, the terms of the
Loan Agreement and the December Agreement shall remain in full force and effect.
Nothing contained herein shall have any effect upon Consumer Products' rights or
obligations under the Loan Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT
<PAGE>
- 36 -
JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF
A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS
PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE.
QUALITY PRODUCTS, INC. QPI MULTIPRESS CORP.
BY: BY:
_________________________ ___________________________
Title: Title:
_______________________ ________________________
QUALITY TOYS, INC. TECHNICAL METALS COMPANY
BY: BY:
_________________________ ___________________________
Title: Title:
______________________ ________________________
WITNESSES: AMERICAN LIBERTY MINING
CORPORATION
________________________________
Secretary or Assistant Secretary BY:
____________________________
Title:
________________________
THE PROVIDENT BANK
BY:
___________________________
Title:
________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 458,239
<SECURITIES> 144,728
<RECEIVABLES> 636,170
<ALLOWANCES> (35,000)
<INVENTORY> 809,647
<CURRENT-ASSETS> 2,561,123
<PP&E> 854,103
<DEPRECIATION> 807,868
<TOTAL-ASSETS> 2,607,358
<CURRENT-LIABILITIES> 3,405,814
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 29,918,597
<TOTAL-LIABILITY-AND-EQUITY> 2,607,358
<SALES> 2,408,085
<TOTAL-REVENUES> 2,408,085
<CGS> 1,651,138
<TOTAL-COSTS> 923,021
<OTHER-EXPENSES> 1,049,202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401,102
<INCOME-PRETAX> (1,215,276)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,215,276)
<DISCONTINUED> 0
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