<PAGE>
'SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________to_________________________
Commission file number 0-18145
QUALITY PRODUCTS, INC.
(Name of small business issuer in its charter)
DELAWARE 75-2273221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
560 Dublin Avenue
Columbus, OH 43215
(Address of principal executive offices) (Zip Code)
(614) 228-0185
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Act:
COMMON STOCK, $.00001 PAR VALUE
(Title of Class)
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. Yes[ X ]No[ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenue for its most recent fiscal year was $6,340,142.
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of December 19, 1997, was $2,901,681 based on the average of
the bid and asked price of $1.375 as reported by the OTC electronic bulletin
board on such date.
As of September 30, 1997, there were 2,554,012 shares of Common Stock, $.00001
Par Value issued and outstanding.
1
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QUALITY PRODUCTS, INC.
FORM 10-KSB
PART I
Item 1. BUSINESS
GENERAL
Quality Products, Inc. (the "Company") is a Delaware corporation, originally
organized in 1988 under the name "Analytics Inc." The Company is a holding
company. The Company's sole operating subsidiary is QPI Multipress, Inc., an
Ohio corporation ("Multipress"), a manufacturer of hydraulic presses and
accessories. The Company also owns a non-operating subsidiary, American Liberty
Mining Corporation ("ALMC") which holds certain zinc mining claims. All of the
Company's other operating subsidiaries discontinued operations during the fiscal
year ended September 30, 1995, and such companies were liquidated. These
subsidiaries are Technical Metals Company ("TMC"), formerly a steel processor,
Q.P.I. Consumer Products Corporation ("Consumer Products"), formerly a
manufacturer of foam recreational products and Quality Toys, Inc. ("Toys")
formerly a manufacturer of toys.
During fiscal years 1992 through 1994, the Company acquired all of its operating
subsidiaries. These acquisitions resulted in revenue growth to more than $36
million in fiscal 1994. However, the Company incurred massive operating losses
from its operations (except at Multipress). For the year ended September 30,
1994, the Company's net loss was approximately $7.4 million. In March 1995, all
of the directors of the Company resigned and were replaced by Messrs. Tom Raabe,
and thereafter Micah Eldred, Bruce Daigle and Jonathon Reuben. Tom Raabe became
President and CEO. This new management group was faced with the task of
resolving the Company's cash flow crisis and defending numerous creditor and
stockholder lawsuits brought against the Company and former management, while
the Company's financial condition and results of operations at all subsidiaries
except Multipress remained unprofitable. The Company was also saddled with
economically unviable long term leases and contracts and new lawsuits related to
commitments and events which preceded the management change. The new management
tried to continue to operate TMC, Toys and Consumer Products, but was unable to
stem operating losses or reduce the Company's debt to Provident Bank, which had
grown to approximately $7 million during fiscal 1995. By the end of fiscal 1995,
Consumer Products was in bankruptcy and TMC and Toys were liquidating their
assets. For the year ended September 30, 1995, the Company's net loss was
approximately $18.5 million. Consumer Products' operations ceased and its assets
were liquidated in fiscal year 1996 under a Chapter 11 liquidating plan which
was approved by the United States Bankruptcy Court for the Middle District of
Florida (Tampa division).
In October 1995, Messrs. Daigle and Eldred resigned from the board of directors.
In November 1995, the Company hired a turnaround consultant, Bruce Weaver, to
attempt to reorganize the Company's operations around its remaining profitable
subsidiary, Multipress. In February 1996, Mr. Weaver became a director and
replaced Mr. Raabe as President and CEO. Mr. Raabe resigned as a director in
October 1996, leaving Mr. Weaver and Mr. Reuben as the sole directors. Since the
end of fiscal year 1995, the Company has closed down all subsidiaries'
operations except Multipress, liquidated its subsidiaries' other assets, repaid
most of its debt and settled and paid most of its other material obligations.
This resulted in a net loss of approximately $1.8 million in the year ended
September 30, 1996. However, in the year ended September 30, 1997, with its
inherited problems substantially resolved, the Company earned net income of
approximately $1 million.
2
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QPI MULTIPRESS, INC.
Multipress manufactures industrial hydraulic bench presses, floor presses
(together, referred to as "Multipresses" herein) and accessories used with
Multipresses. The Company is one of the leading producers of industrial
hydraulic "C" frame presses in the United States. Multipresses are used in a
variety of industries, including automotive, appliance, abrasive materials,
electrical and food compaction industries.
The current Multipress (R) line, which consists of 27 different standard models,
is adaptable to CIM (Computer Integrated Manufacturing), a combination of
hydraulic presses with robotics. Multipress has provided turnkey operations to a
number of Fortune 500 companies. Turnkey systems include a combination of any
number of peripheral automation devices used in conjunction with a Multipress.
At least half the machines Multipress ships are special or modified in some way
to suit customer requirements. In addition to standard C-Frame or Gap Frame
presses, 4 Post or 4 Column designs either with or without a moving plate can be
furnished up to 600 ton capacity. Many special designs and configurations have
been furnished in the 55 years Multipresses have been produced. These include
ultra high speed, special frames, variations in daylight, throat, bed size, dual
or triple units, located around a large dial table.
Multipress requires several different raw material components for its presses.
Multipress is not dependent on any one supplier for any of its key parts and
believes that its relationship with its suppliers is satisfactory.
Historically, the automotive, appliance, and electrical industries have provided
approximately 75% of sales revenues. Additionally, Multipresses have been
integrated with automated robot systems developed by unrelated companies and
used in assembly line systems. Multipress competes in its market with about a
half dozen other companies, none of which is overly dominant. Multipress
competes primarily based on its ability to customize its presses, the excellent
quality and longevity of its product and its excellent service.
Multipress markets its presses through an in house force consisting of three
sales agents and through more than 25 non-exclusive outside sales
representatives. Historically, Multipress' primary markets have been in the
Midwestern United States, principally Ohio, Michigan, Indiana and Illinois.
Multipress does not market directly abroad; however it has sold presses through
sales representatives to customers overseas.
The Company uses a wide variety of vendors for its raw materials and is not
dependent upon any particular suppliers. No one customer accounted for more than
10% of sales in fiscal 1997.
Multipress' backlog generally varies from quarter to quarter as customer
purchasing is not seasonal. Multipress backlog at September 30, 1997 was
approximately $1,200,000, which is consistent with Multipress' average backlog
of $800,000. The backlog is usually shipped within a few months from order and
rarely later than six months from the date ordered.
The Company and Multipress employed a total of 30 employees as of September 30,
1997, none of whom belonged to any union.
3
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ITEM 2. PROPERTY OF THE COMPANY
Location Description
----------- --------------
560 Dublin Avenue A year to year lease for approximately
Columbus, Ohio 43215-2388 50,000 square feet of manufacturing
and office space currently expiring
July, 1998, used by QPI Multipress
Inc., and since August 1996 also used
as the executive office of the Company.
The property is in good condition.
ITEM 3. LEGAL PROCEEDINGS
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 Consumer Products;
(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.
The Company is a defendant in a case in Porter Superior Court, in Indiana
captioned Jackson v. Multipress et.al. No. 64D02-9311-CT-2675. The plaintiff
alleges she injured her hand while using a Multipress machine. Due to a decision
made by the Company's management at the time the case began (prior to March
1995) not to seek insurance coverage, the Company could be responsible for the
entire amount of any judgment or settlement.
Various other 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 business and are routine litigation incidental to such
business. None of the litigation matters currently pending is deemed to be
material by management of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
4
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The following table shows the high and low bid prices for the Company's
Common Stock as reported by the NASD electronic bulletin board (BULLETIN BOARD
SYMBOL - "QPDC"), for the period commencing October 1, 1995 to September 30,
1997. Such prices reflect inter-dealer prices, may not represent actual
transactions and do not include retail markup, markdown or commissions.
1997 High Low
------ ------ ------
First Quarter - December 31, 1996 $ 5/16 $ 3/16
Second Quarter - March 31, 1997 5/16 5/32
Third Quarter - June 30, 1997 5/32 1/8
Fourth Quarter - September 30, 1997 1 1/16 5/32
1996 High Low
------ ------ ------
First Quarter - December 31, 1995 $ 5/16 $ 1/8
Second Quarter - March 31, 1996 3/16 1/4
Third Quarter - June 30, 1996 3/4 1/16
Fourth Quarter - September 30, 1996 7/16 1/8
(b) Approximate number of equity securities holders:
Approximate Number of
Record Holders (as of
Title of Class September 30, 1997)
---------------- ------------------------
Common Stock, $.00001 Par Value 300
(c) Dividends:
The Company paid no dividends in the years ending September 30, 1996 or 1997.
The Company does not anticipate paying dividends in the foreseeable future. The
Company is restricted from paying dividends under the terms of a Credit
Agreement dated November 25, 1997 with Eastlake Securities, Inc.
RECENT SALE OF UNREGISTERED SECURITIES
In the year ended September 30, 1997, the Company issued 25,000 shares of common
stock to a former employee as severance. Such issuance was deemed by management
to be exempt from registration in reliance upon Section 4(2) of the Securities
Act of 1933. As reported in the Company's Annual Report on From 10- KSB for the
year ended September 30, 1996, the Company issued 139,583 shares of common stock
in February 1996 as a bonus to each of its three directors at such time. Such
issuance was not registered under the Securities Act in reliance upon Section
4(2) thereof. In August 1996, the Company issued a $500,000 note to
5
<PAGE>
PI, Inc. to settle litigation. Such note is convertible into up to 666,666
shares of common stock. In August 1997, two affiliates of the Company acquired
the note from PI, Inc. and converted $100,000 principal into 133,332 shares. The
issuance of the note and shares of common stock upon its partial conversion were
not registered under the Securities Act of 1933 in reliance upon Section 4(2).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Net Sales for the year ended September 30, 1997 were $6,340,142 as compared to
$4,759,567 for the year ended September 30, 1996 an increase of $1,580,575 or
33%. The increase in sales is a result of the Company's steadily improving
financial condition, the addition of a new marketing executive, additional
advertising and marketing budgets and the general strong overall performance of
the machine tool industry.
Cost of sales were $3,968,208 or 63% of sales for the year ended September 30,
1997 as compared to $3,198,076 or 67% of sales for the year ended September 30,
1996. Resulting gross profit for the periods was $2,371,934 or 37% of sales for
the period ended September 30, 1997 and $1,561,491 or 33% of sales for the
corresponding period a year earlier. The increase in gross profit was due to the
increase in sales volume, reductions in the cost of materials as supplier
discounts became applicable as payment patterns improved and further
efficiencies in the plant and manufacturing methods.
Selling, general and administrative expenses ("SG&A") were $1,347,482 or 21% of
sales for the year ended September 30, 1997 as compared to $1,955,080 or 41% of
sales for the period ended September 30, 1996. These costs decreased on an
absolute and percentage basis due to the increase in sales, and overhead
reductions including the closing of offices, terminating leases and terminating
personnel. Additionally accounting fees declined year over year. Legal fees
remained high as the Company defended and settled all remaining significant
legal action and incurred its final remaining legal fees from its previous
secured lender. SG&A costs should increase slightly in fiscal 1998 in absolute
dollars as the Company incurs increases in overhead spending for marketing,
advertising and compensation to fuel further growth.
Interest expense for the year ended September 30, 1997 was $155,221 as compared
to $444,727 for the year ended September 30, 1996. The decrease is due to the
reduction in the principal amount of bank indebtedness during the corresponding
periods from $6,792,420 at the start of fiscal 1996 down to $1,468,320 at the
end of fiscal 1996 to $1,180,000 at the end of fiscal 1997. In August 1997, the
holders of the Company's $500,000 6% note due 2001 (the "2001 Note") converted
$100,000 of such note into shares of common stock. In November 1997, the Company
sold $1,500,000 of 6% debt plus warrants in a private placement through Eastlake
Securities, Inc. The proceeds of such placement were used to pay in full the
Company's bank debt and all other interest bearing debt except the remaining
$400,000 due under the 2001 Note. As a result, the Company now has total secured
debt of $1,900,000 at 6% interest. The Company projects total interest expense,
assuming no other additional indebtedness, of approximately $115,000 in fiscal
1998. Additionally, as a result of repaying the Company's previous secured
lender, the Company is free to utilize its cash on hand in interest bearing and
short term investment accounts. This will result in a further net reduction of
interest expense.
Litigation settlement and judgment expenses decreased dramatically from
$1,007,475 during the period ended September 30, 1996 to $0 for the period ended
September 30, 1997. The decrease is due to the fact that substantially all
litigation expense was accrued during the year ended September 30, 1996.
At September 30, 1997, the Company had a working capital deficiency of $459,977
as compared to a deficiency of $1,453,344 at September 30, 1996. The decrease is
due primarily to the net income for the year.
6
<PAGE>
FINANCING
On November 25, 1997, the Company completed a $1,530,000 financing with Eastlake
Securities, Inc., a New York investment banking firm. The financing consisted of
30 units, each unit consisting of a $50,000 beneficial interest in $1,500,000
principal amount 6% secured note, a Series A Warrant to purchase 10,000 common
shares at $1.00 per share and a Series B Warrant to purchase 15,000 common
shares at $2.00 per share. The Note is due December 29, 2000 and is issued
jointly by the Company and QPI Multipress, Inc. to Eastlake Securities as agent
for the unit holders pursuant to a Credit Agreement between the Company and
Eastlake Securities. The Series A Warrants may be exercised at any time until
September 30, 1999, and the Series B Warrants may be exercised during the period
October 1, 1999 to September 30, 2001.
The Note is to be repaid quarterly, starting December 31, 1997, by principal
payments in the amount $50,000 each December, March, June and September together
with any accrued interest. The entire unpaid principal balance and accrued
interest are due December 30, 2000. The Company may prepay the loan at any time
without penalty as long as accrued interest up to the point of prepayment is
paid also.
The Company paid Eastlake a placement agent fee of $75,000 and issued to
Eastlake Series A Warrants to purchase 30,000 shares of common stock and Series
B Warrants to purchase 45,000 shares of common stock. The placement agent also
has a three year right of first refusal on future financings of the Company.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements annexed hereto and Item 6 above.
7
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QUALITY PRODUCTS, INC.
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet, F-2-F-3
September 30, 1997
Consolidated Statements of Operations F-4
for the Years Ended September 30, 1997 and 1996
Consolidated Statements of Stockholders' Deficit F-5
for the Years Ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows F-6-F-7
for the Years Ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements F8-F-9-F-10-F-11
F-12-F-13-F-14
- ----------------------------------------------------------------------------
8
<PAGE>
_______________________________________________________________________________
Farber
& Hass
Certified Public Accountants 741 South A Street Telephone:(805)385-3077
Oxnard, California Facsimile:(805)385-3076
93030
____________________________________________________________________________
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Quality Products, Inc.:
We have audited the accompanying consolidated balance sheet of Quality Products,
Inc. (the "Company") as of September 30, 1997 and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
ended September 30, 1997 and 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of the Company at
September 30, 1997 and the results of its operations and its cash flows for the
years ended September 30, 1997 and 1996 in conformity with generally accepted
accounting principles.
/s/ Farber and Hass
--------------------
November 21, 1997
Except for Note 15,
as to which the date is
December 31, 1997.
F-1
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
CURRENT ASSETS:
Cash $ 406,624
Restricted cash 42,236
Trade accounts receivable, less allowance 702,595
for doubtful accounts of $11,867
Inventories 808,317
Other current assets 18,151
-----------
Total current assets 1,977,923
------------
PROPERTY AND EQUIPMENT 844,852
Less accumulated depreciation (808,877)
------------
Property and equipment, net 35,975
------------
OTHER ASSETS 9,395
$ 2,023,293
============
(Continued)
F-2
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET - Continued
SEPTEMBER 30, 1997
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank line of credit $ 1,180,000
Accounts payable 370,057
Accrued expenses 462,802
Customer deposits 262,041
Note payable 135,000
Income taxes payable 28,000
------------
Total current liabilities 2,437,900
------------
NON-CURRENT LIABILITIES
Note payable, non-current 200,000
Note payable, related party, non-current 200,000
------------
Total non-current liabilities 400,000
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, convertible, voting, par
value $.00001; 10,000,000 shares authorized;
22 shares issued and outstanding
Common stock, $.00001 par value; 20,000,000 25
shares authorized; 2,554,012 shares
issued and outstanding; 1,033,333 shares
reserved
Additional paid-in capital 30,023,284
Accumulated deficit (25,811,944)
Less: Treasury stock, 176,775 shares at cost (5,025,972)
------------
Total stockholders' deficit (814,607)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,023,293
============
See notes to consolidated financial statements.
- -----------------------------------------------------------------
F-3
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
---- ----
NET SALES $6,340,142 $4,759,567
COST OF GOODS SOLD 3,968,208 3,198,076
---------- ----------
GROSS PROFIT 2,371,934 1,561,491
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,347,482 1,955,080
---------- ----------
INCOME (LOSS) FROM OPERATIONS 1,024,452 (393,589)
---------- ----------
OTHER INCOME (EXPENSE):
Gain on sale of assets held for sale 92,934
Interest expense (155,221) (444,727)
Interest income 1,420
Litigation settlement expense (711,206)
Litigation judgement expense (296,269)
Gain on settlement of litigation 116,044
Other expense (36,066)
Total other income (expense) 19,111 (1,452,202)
---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,043,563 (1,845,791)
INCOME TAXES 33,887
NET INCOME (LOSS) $1,009,676 $(1,845,791)
========== ===========
EARNINGS PER SHARE PRIMARY AND
FULLY DILUTED $ .29 $( .84)
========== =============
WEIGHTED AVERAGE COMMON SHARES 3,474,152 2,186,305
========== =============
See notes to consolidated financial statements.
- --------------------------------------------------
F-4
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SERIES B ADDITIONAL TOTAL
PREFERRED COMMON STOCK PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK DEFICIT
------ ------ ------ ------ ------- ------- ----- -------
BALANCES,
SEPT. 30, 1995 25 $ -0- 1,976,931 $20 $29,897,664 $(24,975,829) $(5,025,972) $ (104,117)
STOCK ISSUANCE:
Officer Severance
Agreement 139,583 1 6,978 6,979
Officer bonus 279,166 3 13,955 13,958
NET LOSS (1,845,791) (1,845,791)
____ _____ ________ ___ __________ __________ ___________ _____________
BALANCES,
SEPT. 30, 1996 25 -0- 2,395,680 24 29,918,597 (26,821,620) (5,025,972) (1,928,971)
STOCK ISSUANCE:
Preferred Stock
adjustment (3)
Employee Severance
Agreement 25,000 4,688 4,688
Convertible Note
Conversion 133,332 1 99,999 100,000
NET INCOME 1,009,676 1,009,676
___ ____ _______ ___ __________ _________ ___________ __________
BALANCES,
SEPT. 30, 1997 22 $ -0- 2,554,012 $25 $30,023,284 $(25,811,944) $(5,025,972) $ (814,607)
== ====== ========= === =========== ============= ============ ===========
F-5
</TABLE>
See notes to consolidated financial statements.
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $1,009,676 $(1,845,791)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation 15,449 21,323
Loss on disposition of fixed assets 10,323
Note payable, litigation settlement 502,500
Stock compensation 4,688 20,937
Changes in operating assets and liabilities:
Restricted cash 99,657 1,239
Accounts receivable (50,365) (163,914)
Receivable from liquidation of
discontinued subsidiaries 6,101,449
Inventories (214,810) 188,971
Other assets (12,930) (6,716)
Accounts payable and accrued expenses (490,292) 353,882
Customer deposits 262,041
Income taxes 28,000
Net cash provided by operating --------
activities 651,114 5,184,203
-------- ------------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Capital expenditures (24,551) (20,872)
-------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank line of credit (288,033) (4,991,185)
Debt issuance 135,000
Payments on short-term debt (75,000) (258,202)
--------- -----------
Net cash used in financing
activities (228,033) (5,249,387)
--------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 398,530 (86,056)
CASH, BEGINNING OF YEAR 8,094 94,150
CASH, EQUIVALENTS, END OF YEAR $ 406,624 $ 8,094
========== ============
(Continued)
F-6
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 155,221 $ 444,727
Cash paid for taxes $ 5,887 $ -0-
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
In the year ended September 30, 1997, the Company issued 133,332 shares of
common stock to related parties in connection with the conversion of a $100,000
note payable.
In the year ended September 30, 1997, the Company issued 25,000 shares of common
stock to a former employee in connection with a severance agreement.
In the year ended September 30, 1996, the Company issued 139,583 shares of
common stock in connection with the settlement of certain litigation with a
former officer and director; and issued 279,166 shares of common stock as
bonuses to an officer and a director of the Company.
See notes to consolidated financial statements.
F-7
<PAGE>
QUALITY PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description - Quality Products, Inc. (the "Company") is a
holding company. During the year ended September 30, 1995, the Company
discontinued operations of and liquidated several subsidiaries,
Technical Metals Company (discontinued September 1995), Quality Toys,
Inc. (discontinued November 1994) and Q.P.I. Consumer Products
Corporation (discontinued September 1995). The divestitures were
consummated in the year ended September 30, 1996. At September 30,
1997, the Company's only operating subsidiary was QPI Multipress Inc.,
a manufacturer of industrial presses. The Company also owns a
non-operating subsidiary, American Liberty Mining Corporation, which
holds certain zinc mining claims.
Principles of Consolidation - The consolidated financial statements
include the financial statements of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
Pervasiveness of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories - Inventories are stated at the lower of cost (using the
first-in, first-out method) or market.
Property and Equipment - Property and equipment are stated at cost.
Property and equipment under capital leases are stated at the present
value of minimum future lease payments at the inception of the lease.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Property and
equipment held under capital leases and leasehold improvements are
amortized on a straight-line basis over the shorter of the lease term
or estimated useful life of the asset.
F-8
<PAGE>
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), which
is an asset and liability method of accounting that requires the
recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between tax bases and
financial reporting bases of accounting.
Earnings per Share - Earnings or loss per common share is computed on
the weighted average number of common shares outstanding each year. The
treasury stock method was utilized to calculate the number of stock
options and warrants to be added to the weighted average shares
outstanding. Common stock equivalents that would have an antidilutive
effect on loss per share are excluded.
2. RESTRICTED CASH
A Certificate of deposit in the amount of $42,236 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.
3. INVENTORIES
Inventories at September 30, 1997 consist of:
Raw materials and supplies $481,188
Work-in-process 188,821
Finished goods 142,126
Reserve for obsolescence (3,818)
--------
Total $808,317
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1997 consist of:
Leasehold improvement $ 11,449
Machinery and equipment 599,265
Furniture and fixtures 234,138
---------
Less accumulated depreciation (808,877)
Property and equipment, net $ 35,975
=========
The estimated useful lives used to depreciate property and equipment
are as follows:
Leasehold improvements Lease term
Machinery and equipment 3 - 15 years
Furniture and fixtures 3 - 15 years
F-9
<PAGE>
5. LEASES
At September 30, 1997, the Company was obligated under several
noncancellable operating leases, primarily for facilities and
equipment, that expire over the next two years. These leases generally
contain renewal options for periods ranging from one to five years and
require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for all operating leases was $108,318 in 1997
and $103,867 in 1996.
Future minimum lease payments under noncancellable operating leases
(with initial or remaining lease terms in excess of one year) as of
September 30, 1997, are:
Year ending September 30:
1998 $100,090
1999 13,500
2000 4,560
2001 760
--------
TOTAL $118,910
========
6. BANK LINE OF CREDIT
The line of credit with a bank is due on demand plus interest at 1%
above the bank's prime rate of interest. The note was due on August
1996 and no advances are available under the line of credit. As
discussed in Note 15, the line of credit was paid in full in November
1997.
7. NOTES PAYABLE
In August 1996, the Company entered into a note payable in the amount
of $500,000 with a shareholder in connection with the settlement of
certain litigation. The note is convertible, upon demand, into 500,000
to 666,666 shares of common stock of the Company at a price of $0.75 to
$1.00 per share. The Company is required to make quarterly interest
only payments at 6% per annum. The agreement contains certain
acceleration clauses. The principal amount of the note and unpaid
interest are payable in full in August 2001.
In August 1997, the note was purchased by two individuals (including an
officer of the Company) who immediately converted $100,000 ($50,000
each) into 133,332 common shares (66,666 each). The remaining notes
totaling $400,000, convertible at $0.75 per share and bearing interest
at 6%, remain outstanding at September 30, 1997.
F-10
<PAGE>
8. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at September 30, 1997 and 1996 are
substantially composed of the Company's net operating loss
carryforwards, for which the Company has made a full valuation
allowance.
The valuation allowance decreased and increased approximately
$(987,000) and $(553,000) in the years ended September 30, 1997 and
1996, respectively, representing primarily net income and net operating
losses incurred in those years. In assessing the realizability of
deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment.
At September 30, 1997 and 1996, the Company had net operating loss
carryforwards for Federal income tax purposes of approximately
$28,571,000 and $29,558,000, respectively, which are available to
offset future Federal taxable income, if any, through 2010.
The tax provision for the year ended September 30, 1997 is composed of
the Company's city income taxes.
9. STOCKHOLDERS' EQUITY
Series B Preferred Stock
The Series B Preferred Stock shares are voting (1.25 votes per share)
and may be converted into common shares of the Company on the basis of
1.25 shares of common stock for each one share of Series B Preferred
Stock, taking into consideration all previous stock splits.
F-11
<PAGE>
10. STOCK OPTIONS
In March 1993, the shareholders approved a non-qualified stock option plan
under which options were granted to employees at not less than the fair
market value on the date of grant. Options granted under the plan are
generally exercisable at any time within three years of the date of grant.
Options are granted at the discretion of the Board of Directors.
Option Price
Shares per Share
Outstanding at
September 30, 1995 2,500 $7.00
Cancelled (2,500) $7.00
Granted during the year 525,000 $0.10
--------
Outstanding at
September 30, 1996 525,000 $0.10
Cancelled (175,000) $0.10
Granted during the year -0- $1.00
Outstanding at
September 30, 1997 350,000 $0.10 - $1.00
========
In August 1997, the Company's board of directors, subject to
shareholders approval, created an incentive stock option plan under
which options were granted to employees at not less than the fair
market value on the date of grant. Options granted under the plan are
generally exercisable two to three years after the date of grant and
expire in September 2000. Options are granted at the discretion of the
Board of Directors.
Option Price
Shares per Share
Outstanding at
September 30, 1996 -0- N.A.
Cancelled -0- N.A.
Granted during the year 150,000 $1.00
--------
Outstanding at
September 30, 1997 150,000 $1.00
========
F-12
<PAGE>
11. TREASURY STOCK
During 1994, the Board of Directors authorized the acquisition of up to
250,000 shares of the Company's common stock. Through September 30,
1994, a total of 176,775 shares of common stock were acquired. No
shares have been reacquired since September 1994.
12. EMPLOYEE RETIREMENT PLAN
The Company maintains a 401(K) Plan for the benefit of all full-time
employees. Employees may make voluntary contributions to the Plan. Plan
expenses incurred by the Company totaled approximately $7,200 and
$7,000 during 1997 and 1996, respectively.
13. RELATED PARTY TRANSACTIONS
In the year ended September 30, 1997, a shareholder, who is also a
Company officer purchased $250,000 of the $500,000 note payable (see
Note 7). The shareholder immediately exercised a conversion option in
the note to convert $50,000 of the note into 66,666 shares of the
Company's common stock. The shareholder is a partner of a law firm that
served as the Company's outside general counsel. The law firm received
payments of $116,429 and $78,637 for the years ended September 30, 1997
and 1996, respectively, for legal services rendered to the Company.
In the year ended September 30, 1997, a Company director provided
business and taxation consulting to the Company for an annual
compensation of $30,000.
14. COMMITMENTS AND CONTINGENCIES
In November 1993, the Company and its Multipress subsidiary were sued
in Indiana Superior Court by an employee of a company that had
purchased one of the Company's presses from a 3rd party. The plaintiff
seeks unspecified monetary damages for a personal injury that occurred
in her employer's facility. Although the Company's subsidiary carries
full product liability insurance, the Company's former management did
not notify the insurance carrier within the prescribed time period.
Accordingly, this claim is not covered by insurance. Based upon
consultation with the Company's counsel, the Company does not believe
that the litigation will have a material adverse affect on the
consolidated financial position, results of operations or cash flows of
the Company and no provision for any loss has been recorded in the
financial statements.
F-13
<PAGE>
15. SUBSEQUENT EVENTS (Unaudited)
Subsequent to September 30, 1997, the Company initiated and consummated
a private placement offering of 30 units of Company debentures in the
amount of $1,530,000. Each unit represents: a) a $50,000 interest in a
6% $1,500,000 note payable, b) a warrant to purchase 10,000 shares of
the Company's common stock at $1 per share during the period November
1, 1997 through September 30, 1999, and c) a warrant to purchase 15,000
shares of the Company's common stock at $2 per share during the period
October 1, 1999 through September 30, 2001. The Company incurred
expenses of approximately $150,000 in connection with this offering.
The Company utilized the proceeds of the offering to repay the bank
line of credit, a $135,000 note payable and expenses associated with
the offering.
In November 1997, 21 of the Preferred B shares were converted into 42
common shares of the Company, leaving 1 Preferred B share outstanding.
In October 1997, 350,000 stock options held by officers of the Company
priced at $0.10 were repriced at $1.00 in exchange for the payment of
$75,000 to each of the two option holders and the grant of an
additional 50,000 options at $2.00.
In December 1997, the Company's President and Chief Financial Officer
agreed to return to the Company $37,500 and $27,576, respectively, of
their 1997 management bonuses.
F-14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the years ended September 30, 1997 and September 30, 1996, there were no
disagreements on accounting and financial disclosure practices.
The company has previously reported: (a) pursuant to a Current Report on Form
8-K (the "Current Report") dated August 8, 1996 the termination of its
relationship with KPMG Peat Marwick LLP; (b) pursuant to a Current Report dated
August 8, 1996, the retention of Farber & Hass as the Company's auditors.
9
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors and Executive Officers
The names, principal occupation, and age of all Directors and officers of the
Company at September 30, 1997 are listed below:
Name Age Position Director Since
- ------ ----- ---------- ------------------
Bruce Weaver 37 President and Director February 1996
Jonathon Reuben 41 CFO and Director June 1995
Richard W. Cohen 43 Secretary
Mr. Weaver became a consultant to the Company in November 1995, and in February
1996, he became president and a director. For more than the past five years, Mr.
Weaver has been self-employed as an accountant in Canada and consultant to
financially troubled companies in the United States and Canada.
Mr. Reuben became a director in June 1995 and Chief Financial Officer of the
Company in August 1997. For more than the past five years, Mr. Reuben has been
self-employed as a certified public accountant in the Los Angeles, California
area.
Mr. Cohen became Secretary in August 1997. For more than the past five years,
Mr. Cohen has been a practicing lawyer in New York and a member of the New York
City law firm of Robinson Brog Leinwand Greene Genovese & Gluck P.C., the
Company's primary legal counsel.
In September 1995, while Mr. Reuben was a director of the Company, a proceeding
under Chapter 11 of the United States Bankruptcy Code was initiated in the
United States Bankruptcy Court for the Middle District of Florida, Tampa
Division, with respect to the Company's subsidiary, QPI Consumer Products
Corporation ("Consumer Products"), a Florida corporation, ultimately resulting
in the liquidation of the assets of such subsidiary. After the Consumer Products
bankruptcy proceeding had commenced, Mr. Weaver joined the Company in November
1995 and served as an officer and director of Consumer Products during the
Chapter 11 proceeding beginning in February 1996.
Significant Employees Age Position
- --------------------------- ----- ----------
Theodore P. Schwartz 60 President of Multipress
William Harrison, Jr. 64 Vice President of Operations of Multipress
Mr. Schwartz became president of Multipress on December 15, 1997 pursuant to a
five-year contract. Mr. Schwartz has been involved in the hydraulic press
business for the past 37 years. Mr. Schwartz was an officer of Multipress, Inc.
until 1990. For more than the past five years, Mr. Schwartz was an officer and
director of PH Group, Inc., a manufacturer and marketer of hydraulic presses.
10
<PAGE>
Mr. Harrison joined Multipress as plant manager in September 1993. Since October
1993, Mr. Harrison has also been vice president of operations at Multipress and
its principal operating officer. For more than two years prior to September
1993, Mr. Harrison was manufacturing manager for Horton Emergency Vehicles, a
manufacturer of emergency and rescue vehicles.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows the compensation of each executive officer and
significant employee during the fiscal years ended September 30, 1995, 1996 and
1997.
<TABLE>
<CAPTION>
Summary Compensation Table
<S> <C> <C> <C> <C> <C> <C> <C>
Name and Year Salary Bonus Restricted Securities All Other Other
- -------- ---- ------ ----- Stock Underlying Compen- Annual
Principal Position Award(s) Options/ sation ($) Compensation
- ------------------ ($) SARs (#)
----------- ---------- ---------- ------------
Bruce Weaver - 1997 $ 72,000 $75,935(1) 100,000 14,038(2)
President (since 1996 $ 50,250 $ 4,000 $6,979(3) 175,000 -
February 1996) 1995 - - -
Jonathon Reuben - 1997 $ 30,000 $27,576(1) -
Secretary/Treasurer 1996 $ 21,923 $ 1,000 $6,979(3) 175,000 -
Chief Financial Officer 1995 - - -
William Harrison, Jr. - 1997 $103,176 $39,967 35,000 -
Vice President of 1996 $ 80,696 $20,000 -
Multipress 1995 $ 57,376 - -
Thomas P. Raabe - 1997 - - 53,680(4) $50,000 (4)
Chairman and CEO 1996 $ 65,571 (4) - $6,979 (1) 175,000 -
from March 1995 until 1995 $ 60,775 - -
February 1996
</TABLE>
(1) In fiscal 1997, the directors were paid these amounts as cash bonuses
pursuant to a Multipress employee bonus plan and discretionary director bonuses.
In December 1997, Mr. Weaver agreed to repay $37,500 of such bonus compensation
and Mr. Reuben agreed to repay his $27,576 bonus.
(2) Represents base salary compensation foregone by Mr. Weaver in fiscal 1996.
(3) Represents stock bonuses of 139,583 shares of common stock to each of Mr.
Weaver, Mr. Reuben and Mr. Raabe in February 1996.
(4) Mr. Raabe, who lives in Colorado, was provided with use of a Company-leased
apartment in Tampa, Florida costing $7,800 in fiscal 1995 and $6,000 in fiscal
1996 and the use of a Company-leased vehicle in Tampa until his termination as
an officer in February 1996. The cost of these items is not included in the
above table. In October 1996, Mr. Raabe became a consultant to the Company for a
three year term. However, in August 1997, the Company satisfied all of its
obligations to Mr. Raabe by paying Mr. Raabe a lump sum of $50,000 in
consideration for Mr. Raabe's release of all of the Company's future consulting
11
<PAGE>
fee obligations and Mr.Raabe's surrender for cancellation of options to purchase
175,000 shares of common stock for $.10 per share. Also includes $3,680 of
insurance premium reimbursement paid to Mr. Raabe in fiscal 1997.
Mr. Weaver has an employment contract with the Company to serve as president for
the period October 1, 1997 through September 30, 2000. Mr. Weaver's salary is
$84,000 annually, plus a bonus equal to 5% of the Company's annual audited net
income to the extent it exceeds $750,000 in any fiscal year. Mr. Weaver, a
Canadian citizen, is not required to reside or work in or near Columbus, Ohio
where the Company's operations are located.
Mr. Reuben has a three year employment contract with the Company to serve as
chief financial officer for the period October 1, 1997 through September 30,
2000. Mr. Reuben's salary is $30,000 annually. Mr. Reuben is engaged full-time
in his accounting practice in Los Angeles and is not required to devote any
specific amount of time to the Company's affairs.
Theodore P. Schwartz has an employment contract with Multipress to serve as its
president for the period December 15, 1997 through December 31, 2002. Mr.
Schwartz receives a base salary of $120,000 plus benefits and an annual bonus
based upon Multipress' gross margins to the extent they exceed $2,000,000 in any
fiscal year.
The following table shows the stock options granted to each executive officer
during the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
% of Total Options/ Granted Exercise or
Name # Options Granted to Employees in Fiscal Year Base Price (#/sh) Expiration
- ---- ----------------- --------------------------- ----------------- ----------
Bruce Weaver 100,000 66.7% $1.00 2000
William Harrison 35,000 23.3% $1.00 1999
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 17, 1997
regarding the ownership of each class of the Company's equity securities,
beneficially owned by each director, each executive officer, all executive
officers and directors of the Company as a group and beneficial owners of more
than 5% of any class of securities.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount of
Title of Class Name and Address Nature of Ownership Percent of Class (1)
- -------------- ---------------- ------------------- --------------------
Common Bruce Weaver (3) 170,783 (1) 6.7%
Common Jonathon Reuben (3) 139,583 (2) 5.5%
Common Thomas Raabe 139,583 5.5%
7641 Estate Circle
Niwot, Colorado 80503
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount of
Title of Class Name and Address Nature of Ownership Percent of Class (1)
- -------------- ---------------- ------------------- --------------------
Common Richard W. Cohen 333,332 (4) 11.5%
1345 Ave. of Americas
New York, N.Y. 10105
Common Murray Koppelman 333,332 (4) 11.5%
575 Lexington Avenue
New York, N.Y. 10022
Common Theodore P. Schwartz (3) 5,000 (5) *
Common Directors and Officers as a 643,703 22.8%
Group (3 persons)
</TABLE>
* Less than 1%
(1) Does not include options to purchase 325,000 shares of common stock, because
such options are not exercisable until 1999.
(2) Does not include options to purchase 225,000 shares of common stock, because
such options are not exercisable until 1999.
(3) The business address for each of such persons is c/o QPI Multipress, Inc.,
560 Dublin Avenue, Columbus, Ohio 43215-2388.
(4) For each of Mr. Cohen and Mr. Koppelman, such number of shares represents
66,666 owned by each and 266,666 shares issuable to each upon conversion of
their respective 2001 Notes, each in the principal amount of $200,000 with a
conversion price of $.75 per share.
(5) Includes 4,375 shares of common stock which Mr. Schwartz owns as a joint
tenant with an unrelated person and as to which he disclaims a pecuniary
ownership interest in 50% of such shares. Does not include options to purchase
50,000 shares of common stock, because such options are not exercisable until
1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1996, the Company terminated the employment of Thomas Raabe, the
former Chairman and CEO, but he remained a director. Mr. Raabe resigned as a
director in October 1996 and rendered consulting services to the Company on a
limited as-requested basis through August 1999. During such period, Mr. Raabe
received compensation of $50,000 plus reimbursement of $3,680 for health
insurance benefits. In August 1997, the Company paid Mr. Raabe $50,000 in
consideration for the termination of the Company's obligations under his
consultancy and the termination of options to purchase up to 175,000 shares of
common stock at $.10 per share exercisable April 15, 1999 - December 31, 1999.
Mr. Raabe is obligated to give a voting proxy on his remaining shares to
Jonathon Reuben.
In July, 1995, the Company provided a loan to Mr. Raabe in the amount of
$20,000. During February 1996, $1,250 was repaid and subsequently the balance
was forgiven as part of the settlement of claims between the Company and Mr.
Raabe in October 1996.
Effective October 1, 1997, Mr. Weaver and Mr. Reuben each agreed to increase the
exercise price of their respective options to purchase 175,000 shares, granted
in February 1996, from $.10 per share to $1.00 per share. In consideration the
Company agreed to pay Mr. Weaver and Mr. Reuben $75,000 each in 1998 and issued
to
13
<PAGE>
them new options to purchase 50,000 shares each at $2.00 per share during the
period September 15, 1999 through June 30, 2000.
Section 16(a) Beneficial Ownership Reporting Compliance
Mr. Cohen and Mr. Koppelman each failed on one occasion to timely file reports
relating to one transaction required by Section 16(a) ("Section 16(a)") of the
Securities Exchange Acts of 1934, as amended.
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized:
Quality Products, Inc.
By: /s/Bruce Weaver Date: January 8, 1998
------------------------------------------
Bruce Weaver, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated:
/s/Bruce Weaver Date: January 8, 1998
----------------------------------------------
Bruce Weaver
Director and Principal Executive Officer
/s/Jonathon Reuben Date: January 8, 1998
---------------------------------------------
Jonathon Reuben
Director and Principal Financial and
Accounting Officer
No annual report or proxy materials were sent to security holders with respect
to any annual or other meeting of security holders during fiscal year 1997 or
subsequent thereto.
15
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation of the Company
3.2 Amended and Restated By-Laws of the Company
4.2 Promissory Note dated August 29, 1997 issued to Murray Koppelman
4.3 Promissory Note dated August 29, 1997 issued to Richard W. Cohen
4.4 Promissory Note dated November 25, 1997 issued to Eastlake
Securities, Inc.
4.5 Form of Series A Warrant
4.6 Form of Series B Warrant
10.3 Employment Agreement between the Company and Bruce Weaver
10.4 Employment Agreement between the Company and Jonathon Reuben
effective October 1, 1997
10.5 Employment Agreement between Multipress and Theodore P. Schwartz
effective December 15, 1997
10.6 1997 Stock Option Plan
10.7 Credit Agreement dated November 25, 1997 among the Company,
Multipress and Eastlake Securities, Inc.
10.8 Security Agreement dated November 25, 1997 among the Company,
Multipress and Eastlake Securities, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
QUALITY PRODUCTS, INC.
Quality Products, Inc., a corporation organized and existing under the
General Corporation Law of Delaware, originally incorporated as "Analytics Inc."
on April 19, 1988, hereby restates its Certificate of Incorporation pursuant to
ss.245 of the General Corporation Law of Delaware:
FIRST: The name of the corporation is "Quality Products, Inc."
SECOND: The address of the corporation's registered office in the
State of Delaware is 3 Christina Centre, 201 N. Walnut Street, Wilmington, New
Castle County, Delaware, 19801. The name of the corporation's registered agent
at that address is The Company Corporation.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporation's may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is Thirty Million (30,000,000). Twenty Million
(20,000,000) of which shall be common stock, and Ten Million (10,00,000) of
which shall be preferred stock. The par value of each such share of stock shall
be $.00001.
FIFTH: To the extent permitted by law, the corporation may purchase or
otherwise acquire shares of any class issued by it for such consideration and
upon such terms and conditions as may be authorized by the corporation's board
of directors, in its discretion, from time to time.
SIXTH:The power to make, alter, or repeal the bylaws of the corporation
is conferred upon and shall be vested in the corporation's board of directors.
SEVENTH: The corporation's board of directors shall have the power to
issue the authorized preferred stock of the corporation at such time or times
and in and for such amounts deemed appropriate by the board of directors.
EIGHTH: To the extent permitted by the General Corporation Law of
Delaware as the same exists or may hereafter be amended, a director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of his fiduciary duty as a
director. The corporation shall indemnify any person who was or is a party or is
threatened
<PAGE>
to be made a party to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal administrative, or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director or officer of the corporation, against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit, or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
NINTH: Each stockholder of the corporation shall be entitled to as many
votes as shall equal the number of votes which such stockholder would be
entitled to cast for the election of directors with respect to such
stockholder's shares of stock multiplied by the number of directors to be
elected by such stockholder, and that such stockholder may cast all of such
votes for a single director or, may distribute them among the number to be voted
for, or for any two or more of them as such stockholder sees fit.
The undersigned president and secretary of the corporation certify this
___ day of March, 1994 that the foregoing Restated Certificate of Incorporation
was duly adopted by the corporation pursuant to ss.242 of the General
Corporation Law of Delaware.
/s/ James S. Renaldo
------------------------------------
James S. Renaldo, President
/s/ Daniel J. Sullivan
-----------------------------------
Daniel J. Sullivan, Secretary
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
QUALITY PRODUCTS, INC.
Adopted: July 1, 1994
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 General 2
ss.1.1 General Offices 2
ss.1.2 Registered Office 2
ss.1.3 Registered Agent 2
ARTICLE 2 Meetings of Stockholders 2
ss.2.1 Annual Meeting 2
ss.2.2 Special Meetings 3
ss.2.3 Place of Meetings 3
ss.2.4 Notice of Meetings 3
ss.2.5 Waiver of Notice 3
ss.2.6 Quorum 4
ss.2.7 Organization 4
ss.2.8 Order of Business 4
ss.2.9 Voting 4
ss.2.10 Proxies 5
ss.2.11 Inspectors of Elections 5
ss.2.13 List of Stockholders at Meeting 5
ss.2.14 Written Consent of Stockholders
in Lieu of Meeting 6
ss.2.15 Cumulative Voting 6
ss.2.16 Pre-emptive Rights 6
ARTICLE 3 Board of Directors 7
ss.3.1 General Powers of Board 7
ss.3.2 Number of Directors 7
ss.3.3 Compensation and Expenses 7
ss.3.4 Election of Directors 7
ss.3.5 Resignations 7
ss.3.6 Removal of Directors 7
ss.3.7 Vacancies 7
ss.3.8 Organization of Meeting 8
ss.3.9 Place of Meetings 8
ss.3.10 Regular Meetings 8
ss.3.11 Special Meetings 8
ss.3.12 Notices of Meetings 8
ss.3.13 Notice of Adjournment of Meeting 9
<PAGE>
ss.3.14 Quorum and Manner of Acting 9
ss.3.15 Order of Business 9
ss.3.16 Written Consent of Directors in Lieu of Meeting 9
ss.3.17 Executive and Other Committees 10
ARTICLE 4 Officers 10
ss.4.1 Number and Titles 10
ss.4.2 Election, Terms of Office,
Qualifications, and Compensation 11
ss.4.3 Additional Officers, Agents, Etc. 11
ss.4.4 Removal 11
ss.4.5 Resignations 11
ss.4.6 Vacancies 11
ARTICLE 5 Duties of Officers 12
ss.5.1 Chairman of the Board 12
ss.5.2 President 12
ss.5.3 Chief Executive Officer 12
ss.5.4 Vice Presidents 12
ss.5.5 Secretary 13
ss.5.6 Treasurer 13
ARTICLE 6 Shares of Stock and Their Transfer 13
ss.6.1 Certificates for Shares of Stock 13
ss.6.2 Transfer of Shares of Stock 14
ss.6.3 Regulations 14
ss.6.4 Lost Destroyed or Stolen Certificates 14
ARTICLE 7 Indemnification and Insurance 14
ss.7.1 Indemnification in Nonderivative Actions 14
ss.7.2 Indemnification in Derivative Actions 15
ss.7.3 Indemnification as Matter of Rights 15
ss.7.4 Determination of Conduct 15
ss.7.5 Advance Payment of Expenses 15
ss.7.6 Nonexclusivity 15
ss.7.7 Liability Insurance 16
ss.7.8 Consolidations or Mergers 16
ss.7.9 Meaning of Certain Terms 16
ss.7.10 Successors 16
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ARTICLE 8 Miscellaneous 17
ss.8.1 Examination of Books by Stockholders 17
ss.8.2 Seal 17
ss.8.3 Fiscal Year 17
ss.8.4 Amendment of By-Laws 17
ss.8.5 Inconsistent Provisions 18
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AMENDED AND RESTATED BY-LAWS
OF
QUALITY PRODUCTS, INC.
ARTICLE 1.
General
1.1 General Offices. Unless otherwise determined by resolution of the
Board of Directors, the principal place of business of the Corporation shall be
located in the City of Tampa, County of Hillsborough, State of Florida. The
Corporation may have such other offices, either within or without the State of
Florida, as the Board of Directors may determine or as the affairs of the
Corporation may require from time to time.
1.2 Registered Office. The Corporation shall have and continuously
maintain in the State of Delaware a registered office, which may be, but need
not be, the same as the principal place of business. The address of the
registered office may be changed from time to time by the Board of Directors.
The present registered office of the Corporation is 725 Market Street,
Wilmington, Delaware.
1.3 Registered Agent. The Corporation shall have and continuously
maintain in the State of Delaware a registered agent, which agent may be either
an individual resident of the State of Delaware whose business office is
identical with the Corporation's registered office, or a domestic corporation,
or a corporation authorized to transact business in the State of Delaware which
has a business office identical with the Corporation's registered office. The
registered agent may be changed from time to time by the Board of Directors. The
present registered agent of the Corporation is The Company Corporation.
ARTICLE 2.
Meetings of Stockholders
2.1 Annual Meeting. The annual meeting of the stockholders, for the
purpose of election, directors and transacting such other business as may come
before the meeting, shall be held on such date and at such time during the first
six months of each fiscal year of the Corporation as may be fixed by the board
of directors and stated in the notice of the meeting. The annual meeting shall
not be on a date declared a legal holiday by the State of Delaware.
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2.2 Special Meetings. A special meeting of the stockholders may be called
by the chairman of the board, the president, a majority of the directors acting
with or without a meeting, or the holders of shares of stock entitling them to
exercise at least 50% of the voting power of the Corporation entitled to be
voted at the meeting. Upon delivery to the chairman, president, or secretary of
a request in writing for a special meeting of the stockholders by any persons
entitled to call such meeting, the officer to whom the request is delivered
shall give notice to the stockholders of such meeting. Any such request shall
specify the purposes and the date and hour for such meeting. The date shall be
at least 10 and not more than 60 days after delivery of the request. If such
officer does not call the meeting within five days after any such request, the
persons making the request may call the meeting by giving notice as provided
in ss.2.4 or by causing it to be given by their designated representative.
Only business specified in the notice of the meeting shall be considered
at any special meeting.
2.3 Place of Meetings. All meetings of stockholders shall be held at
such place or places, within or without the State of Delaware, as may be fixed
by the board of directors or, if not so fixed, as shall be specified in the
notice of the meeting. If no designation is made, the place of meeting shall be
the principal place of business of the corporation in the state of Florida.
2.4 Notice of Meetings. Every stockholder shall furnish the secretary
of the Corporation with an address at which notices of meetings and all other
corporate notices may be served on or mailed to each such stockholder. Except as
otherwise expressly required by law, unless waived, written notice of each
stockholders' meeting, whether annual or special, shall be given not less than
10 nor more than 60 days before the date specified for the meeting, by the
chairman of the board, president, or secretary or, in case of their refusal or
failure to do so, by the person or persons entitled to call such meeting. Such
notice shall be given to each stockholder entitled to notice of the meeting, by
personally delivering a written or printed notice or by mailing the notice in a
postage-prepaid envelope addressed to each stockholder at the address furnished
as above provided, or, if a stockholder has not furnished such address, at the
post office address of such stockholder last known to the sender. If mailed, the
notice is deemed to be given when deposited in the United States mail in the
manner set forth above, except when expressly required by law, no publication of
any notice of a stockholders' meeting shall be required. If shares of stock are
transferred after notice has been given, notice need not be given to the
transferee. A record date may be fixed for determining the stockholders entitled
to notice of any meeting of stockholders, in accordance with the provisions of
ss.2.12. Every notice of a stockholders' meeting shall state the date, place,
and hour of the meeting, and in the case of a special meeting, shall state
briefly the purpose or purposes of the meeting as may be specified by the person
or persons requesting or calling the meeting. Notice of the adjournment of a
meeting need not be given if the time and place to which it is adjourned are
fixed and announced at the meeting and the adjournment is for not more than 30
days, if the adjournment is for more than 30 days, or if after the meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.5 Waiver of Notice. Any stockholder, either before or after any
meeting, may waive any notice required by law, the amended and restated
certificate of incorporation, or these
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Amended and Restated By-Laws. Waivers must be in writing and filed with or
entered upon the records of the meeting. Notice of a meeting will be deemed to
have been waived by any stockholder who attends the meeting, either in person or
by proxy, and who does not, before or at the commencement of the meeting,
protest the lack of proper notice.
2.6 Quorum. The holders of shares of stock entitling them to exercise a
majority of the voting power of the Corporation entitled to vote at a meeting,
present in person or by proxy, shall constitute a quorum for the transaction of
business, except when a greater number is required by law, the amended and
restated certificate of incorporation, or these Amended and Restated By-Laws. In
the absence of a quorum at any meeting, or at any adjournment of the meeting,
the holders of shares of stock entitling them to exercise a majority of the
voting power of the stockholders present, either in person or by proxy, and,
entitled to vote may adjourn the meeting from time to time. At any adjourned
meeting at which a quorum is present, any business may be transacted which might
have been transacted at the meeting as originally called.
2.7 Organization. At each stockholders' meeting the chairman of the
board, or, in his absence, the president, or, in the absence of both of them, a
chairman chosen by the holders of shares of stock entitling them to exercise a
majority of the voting power of the stockholders present, either in person or by
proxy, shall act as chairman, and the secretary of the Corporation, or, in his
absence, any assistant secretary, or, in the absence of all of them, any person
whom the chairman of the meeting appoints, shall act as secretary of the
meeting.
2.8 Order of Business. The order of business at each meeting of the
stockholders shall be fixed by the chairman of the meeting at the beginning of
the meeting, but may be changed by the vote of the holders of shares of stock
entitling them to exercise a majority of the voting power of the stockholders
present in person or by proxy and entitled to vote.
2.9 Voting. Unless otherwise provided by law or the amended and
restated certificate of incorporation, each holder of a share or shares of stock
or the class or classes entitled to vote shall be entitled to one vote, either
in person or by proxy, for each such shares of stock registered in his name on
the books of the Corporation. As provided in ss.2.12, a record date for
determination which stockholders are entitled to vote at any meeting may be
fixed. Shares of its own stock belonging to the Corporation shall not be voted
directly or indirectly, provided that the Corporation may vote shares of stock
held by it in a fiduciary capacity, including without limitation its own stock.
Persons whose shares of stock are pledged shall be entitled to vote, unless in
the transfer by the pledgor on the Corporation's books such pledgor has
expressly empowered the pledgee to vote such shares of stock, in which case
either the pledgee, or its proxy, may represent and vote such shares of stock.
Upon a demand by the holders of shares of stock entitling them to exercise a
majority of the voting power of the stockholders present, either in person or by
proxy, at any meeting and entitled to vote, any vote shall be by written ballot.
Each written ballot shall be signed by the stockholder or his proxy and shall
state the number of shares of stock voted by him. Otherwise, votes shall be made
orally or by a show of hands.
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2.10 Proxies. Any stockholder who is entitled to attend or vote at a
stockholders' meeting or to express consent or dissent to corporate action in
writing without a meeting, may be represented at such meeting or vote thereat or
execute consents or dissents and exercise any of his other rights by a proxy or
proxies appointed in a manner permitted by ss. 212 of the Delaware General
Corporation Law, or any similar statute which may hereafter be enacted. Except
as otherwise specifically provided in these Amended and Restated By-Laws,
actions taken by proxy shall be governed by the provisions of ss. 212 of the
Delaware General Corporation Law, or any similar statute which may hereafter be
enacted.
2.11 Inspectors of Elections. Inspectors of elections shall be
appointed and act as provided in ss. 231 of the Delaware General Corporation
Law, or any similar statute which may hereafter be enacted.
2.12 Record Date. The board of directors may fix a record date for any
lawful purpose, including without limitation the determination of stockholders
entitled to: (a) notice of or to vote at any meeting of stockholders or any
adjournment thereof; (b) consent to corporate action in writing without a
meeting; (c) receive payment of any dividend or other distribution or allotment
or any rights; or (d) exercise any rights in respect of any change, conversion,
or exchange of stock. Such record date shall not precede the date upon which the
resolution fixing the record date is adopted. A record date established under
subsection (a) shall not be more than 60 nor less than 10 days before such
meeting. If no such record date is established, then the record date for such
purposes shall be deemed to be at the close of business on the date preceding
the date upon which notice is given. A record date established under subsection
(b) shall not be more than 10 days after the date upon which the resolution
fixing the record date is adopted. If no such record date is established, then
the record date for such purposes, provided that no prior action of the board of
directors is otherwise required by law, shall be the first date upon which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation. If prior action of the board of directors is
required and no record date is established, then the record date for such
purposes shall be the date upon which the board of directors adopts the
resolution taking such prior action. A record date established under subsection
(c) or (d), or for any other lawful action, shall not be more than 60 days prior
to such action. If no such record date is established, then the record date for
such purposes shall be the date upon which the board of directors adopts the
resolution relating to such action.
2.13 List of Stockholders at Meeting. The officer having charge of the
Corporation's stock ledger shall prepare and make, or cause to be prepared and
made, at least 10 days before every meeting of the stockholders, a complete list
of the stockholders entitled to vote at such meeting. Such list shall be
arranged in alphabetical order showing the address of each stockholder and the
number of shares of stock registered in the name of each stockholders. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, at the principal place of business of the corporation. The
list shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is
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present.
2.14 Written Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided by law or the amended and restated certificate of
incorporation, any action required to or which may be taken at any annual or
special meeting, without prior notice, and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of shares of stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares of stock entitled to vote thereon where present and voted.
All consents shall be delivered to the Corporation by delivery to its registered
office in the State of Delaware, or the Corporation's principal place of
business, or an officer or agent of the Corporation having custody of the book
or books in which proceedings of meetings of the stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested, provided that no consent
or consents delivered by certified or registered mail shall be deemed delivered
until such consent or consents are actually received at the registered office.
All consents properly delivered shall be deemed to be recorded when so
delivered. No written consent shall be effective to take the corporate action
referred to in such consent unless, within 60 days of the earliest dated consent
delivered to the Corporation, written consents signed by the holders of a
sufficient number of shares of stock to take such corporate action are so
delivered. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consents shall be given to those stockholders who
have not consented in writing.
2.15 Cumulative Voting. Cumulative voting is expressly prohibited.
2.16 Pre-emptive Rights. No holder of any stock of the Corporation
shall be entitled as a matter of right to purchase or subscribe for any part of
any stock of the Corporation authorized by the Articles of Incorporation or of
any additional stock of any class to be issued by reason of any increase of the
authorized stock of the Corporation, or of any bonds, certificates of
indebtedness, debentures, warrants, options or other securities convertible into
any class of stock of the Corporation, but any stock authorized by the Articles
of Incorporation or any such additional authorized issue of any stock or
securities convertible into any stock may be issued and disposed of by the Board
of Directors to such persons, firms, corporations or associations for such
consideration and upon such terms and in such manner as the Board of Directors
may in its discretion determine without offering any thereof on the same terms
or on any terms to the Shareholder then of record or to any class of
Shareholders, provided only that such issuance may not be inconsistent with any
provision of law or with any of the provisions of the Articles of Incorporation.
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ARTICLE 3.
Board of Directors
3.1 General Powers of Board. The business and affairs of the
Corporation shall be managed by or under the direction of the board of
directors, except as otherwise provided by laws of the State of Delaware, the
amended and restated certificate of incorporation or these Amended and Restated
By-Laws.
3.2 Number of Directors. The number of directors of the Corporation
shall not be less than one nor more than nine. The number of directors shall, at
the date of adoption of these Amended and Restated By-Laws, initially be fixed
at four, and hereafter, such number of directors may be fixed or changed (a) at
any annual meeting of the stockholders, or at any special meeting of the
stockholders called for that purpose, by the affirmative vote of the holders of
shares of stock entitling them to exercise at least one-half of the voting power
of the Corporation on such proposal, or (b) by a resolution duly adopted by at
least one-half of the voting power of the Corporation then in office, provided
that no decrease in the number of directors shall have the effect of shortening
the term of any incumbent director. Directors need not be stockholders.
3.3 Compensation and Expenses. The directors shall be entitled to such
compensation, on a monthly or annual basis, or on the basis of meetings
attended, or on both bases, as the board of directors may from time to time
determine and establish. No director shall be precluded from serving the
Corporation as an officer or in any other capacity, or from receiving
compensation for so serving. Directors may be reimbursed for their reasonable
expenses of traveling to and from meetings of the board, provided that such
reimbursement is authorized by the board of directors. Such reimbursement may be
authorized by the board by either a general resolution specifying the general
type and nature of expenses to be reimbursed or by resolution setting forth
specific expenses to be reimbursed.
3.4 Election of Directors. At each meeting of the stockholders for the
election of directors at which a quorum is present, directors shall be elected
by a plurality of the votes of the holders of shares of stock present in person
or represented by proxy at the meeting and entitled to vote on the election of
directors.
3.5 Resignations. Any director may resign by giving written notice to
the chairman of the board, the president, or the secretary of the Corporation.
Such resignation shall take effect at the time specified therein and unless
otherwise specified, the acceptance of a resignation shall not be necessary to
make it effective.
3.6 Removal of Directors. Any director or the entire board of directors
of the Corporation may be removed, with or without cause, by the holders of
two-thirds of the shares of stock then entitled to vote at an election of
directors. Directors may be removed for cause, by a majority of the Board of
Directors.
3.7 Vacancies. Vacancies on the board of directors caused by the death,
resignation, removal, or other cause and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although
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less than a quorum, or by a sole remaining director. Each director so chosen
shall hold office until the next election of the directors for which such
director was chosen and until a successor is duly elected and qualified. If, at
the time of filling any vacancy or any newly-created directorship, the directors
then in office shall constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least 10% of the
total number of shares of stock at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly-created directorships, or to replace the directors chosen by
the directors then in office, which election shall be governed by the provision
of ss. 211 of The Delaware General Corporation Law as far as possible.
3.8 Organization of Meeting. At each meeting of the board of directors,
the chairman of the board, or, in his absence, the president, or, in his
absence, a chairman chosen by a majority of the directors present, shall act as
chairman. The secretary of the Corporation, or, if the secretary shall not be
present, any person whom the chairman of the meeting shall appoint, shall act as
secretary of the meeting.
3.9 Place of Meetings. Meetings of the board shall be held at such
place or places, within or without the State of Delaware, as may from time to
time be fixed by the board of directors or as shall be specified or fixed in the
notice of the meeting.
3.10 Regular Meetings. Regular meetings of the board of directors shall
be held at such times and places, within or without the State of Delaware, as
the board of directors may, by resolution or by-law, from time to time,
determine. The secretary of the Corporation shall give notice of each such
resolution or by-law to any director who was not present at the time same was
adopted, but no further notice of such regular meeting need be given.
3.11 Special Meetings.Special meetings of the board of directors shall
be held whenever called by the chairman of the board, or by the president, or by
any two directors.
3.12 Notices of Meetings. Every director shall furnish the secretary of
the Corporation with an address at which notices of meetings and all other
corporate notices may be served on or mailed to such director. Unless waived
before, at, or after the meeting as hereinafter provided, and except as provided
in ss.3.10, notice of each board meeting shall be given by the chairman of the
board, the president, the secretary, an assistant secretary, or the persons
calling such meeting, to each director in any of the following ways:
(a) By orally informing such director of the meeting in person or by
telephone not later than two days before the date of the meeting.
(b) By delivering written notice to such directors not later than two
days before the date of the meeting.
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(c) By mailing written notice to such director, or by sending notice to
such directors by facsimile telecommunication, telegram, cablegram, or
radiogram, postage or other costs prepaid, addressed to such director
at the address furnished by such director to the secretary of the
Corporation, or to such other address as the person sending the notice
shall know to be correct or, in the case of a facsimile
telecommunication, to the telephone number furnished by the director to
the Corporation for such purpose or to the facsimile telephone number
at which the director is known to be present. Such notice shall be
posted or dispatched a sufficient length of time before the meeting so
that in the ordinary course of the mail or the transmission of
facsimiles, telegrams, cablegrams, or radiograms, delivery would
normally be made to such director not later than two days before the
date of the meeting.
Unless otherwise required by the amended and restated certificate of
incorporation, the laws of the State of Delaware, or these Amended and Restated
By-Laws; the notice of any meeting need not specify the purpose or purposes of
the meeting. Notice of any meeting of the board may be waived by any director,
either before, at, or after the meeting, in writing, or by facsimile
telecommunication, telegram, cablegram, or radiogram. In addition, notice of a
meeting will be deemed to have been waived by any director who attends the
meeting and who does not, before or at the commencement of the meeting, protest
the lack of proper notice.
3.13 Notice of Adjournment of Meeting. Notice of adjournment of a
meeting need not be given if the time and place to which it is adjourned are
fixed and announced at the meeting.
3.14 Quorum and Manner of Acting. A majority of the total number of
directors fixed or established pursuant to ss. 3.9 as of the time of any meeting
of the board of directors must be present at such meeting in order to constitute
a quorum for the transaction of business, provided that meetings of the
directors may include participation by directors through any conference
telephone or similar communications equipment if all directors participating can
hear each other, and such participation in a meeting shall constitute presence
at such meeting. Unless otherwise required by the amended and restated
certificate of incorporation, the laws of the State of Delaware, or these
Amended and Restated By-Laws, the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the board of
directors. In the absence of a quorum, a majority of those present may adjourn a
meeting from time to time until a quorum is present. Notice of an adjourned
meeting need not be given.
3.15 Order of Business. The order of business at meetings of the board
shall be such as the chairman of the meeting may prescribe or follow, subject,
however, to his being overruled with respect thereto by a majority of the
members of the board present.
3.16 Written Consent of Directors in Lieu of Meeting. Any action
required or permitted to be taken at any meeting of the board of directors or
any committee of the board may be taken without a meeting if all members of the
board or committee, as the case may be, consent to such action in writing, and
the writing or writings are filed with the minutes of proceedings of
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the board or committee.
3.17 Executive and Other Committees. The board of directors may, by
resolution passed by a majority of the whole board, designate an executive
committee and any other committee or committees of directors each to consist of
one or more directors of the Corporation. Any such committee, to the extent
provided in the resolution of the board of directors shall have and may exercise
all the powers and authority of the board of directors in the management of the
business end 'affairs of the Corporation, other than that of filling vacancies
in the board of directors or in any committee of directors; provided that no
such committee shall have any power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease, or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these Amended and Restated By-Laws. Unless the directors' resolution
establishing a committee expressly provides, no committee shall have the power
or authority to declare a dividend, to authorize the issuance of shares of
stock, or to adopt a certificate of ownership and merger. Each committee shall
serve at the pleasure of the directors, shall act only in the intervals between
meetings of the board of directors, and shall be subject to the control and
direction of the board of directors. The directors may adopt or authorize the
committees to adopt provisions with respect to the government of any such
committee or committees which are not inconsistent with applicable law, the
amended and restated certificate of incorporation or these Amended and Restated
By-Laws. An act or authorization of any act by any such committee within the
authority properly delegated to it by the directors shall be as effective for
all purposes as the act or authorization of the directors. Any right, power, or
authority conferred in these Amended and Restated By-Laws to the "directors" or
to the "board of directors" shall also be deemed conferred upon each committee
or committees of directors to which any such right, power, or authority is
delegated (expressly, or by general delegation, or by necessary implication) by
the board of directors.
ARTICLE 4.
Officers
4.1 Number and Titles. The officers of the Corporation shall be a
chairman of the board, if elected, a chief executive officer, a president, one
or more vice presidents, if elected, a secretary, one or more assistant
secretaries, if elected, a treasurer, and one or more assistant treasurers, if
elected. If there is more than one vice president, the board may, in its
discretion, establish designations for the vice presidencies so as to
distinguish among them as to their functions or their order, or both. Any two or
more offices may be held by the same person, but no officer shall execute,
acknowledge, or verify any instrument in more than one capacity if such
instrument is required by law, the amended and restated certificate of
incorporation, or these Amended and Restated By-Laws to be executed,
acknowledged, or verified by two or more officers.
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4.2 Election, Terms of Office, Qualifications, and Compensation. The
officers shall be elected by the board of directors. Each officer shall be
elected for an indeterminate term and shall hold office during the pleasure of
the board of directors. The board of directors may hold annual elections of
officers; in that event, each such officer shall hold office until a successor
is elected and qualified or until such officer's earlier resignation or removal.
The chairman of the board, if one is elected, shall be a director, but no other
officer need be a director. The other qualifications of all officers shall be
such as the board of directors may establish from time to time. The board of
directors or a committee appointed by it shall fix the compensation, if any, of
each officer; provided, however, that subject to the right of the board of
directors to modify or rescind such action, the chief executive officer of the
Corporation may fix the compensation of all officers subordinate to him.
4.3 Additional Officers, Agents, Etc. In addition to the officers
designated in ss.4.1, the Corporation may have such other officers, agents, and
committees as the board of directors may deem necessary and may appoint, each of
whom or each member of which shall hold office for such period, have such
authority, and perform such duties as may be provided in these Amended and
Restated By-Laws or as may be determined by the board from time to time. The
board of directors may delegate to any, officer or committee the power to
appoint any subordinate officer, agents, or committees. In the absence of any
officer, or for any other reason the board of directors may deem sufficient, the
board of directors may delegate, for a designated period, the powers and duties,
or any of them, of such officer to any other officer, or to any director.
4.4 Removal. Any officer may be removed, either with or without cause,
at any time, by the board of directors at any meeting, the notices (or waivers
of notices) of which shall have specified that such removal action was to be
considered. Any officer appointed by an officer or committee to which the board
shall have delegated the power of appointment may be removed, either with or
without cause, by the committee or superior officer (including successors) who
made the appointment, or by any committee or officer upon whom such power of
removal may be conferred by the board of directors. In addition, subject to the
right of the board of directors to modify or rescind such action, the chief
executive officer of the Corporation shall have the authority to remove officers
of the Corporation who are subordinate to him.
4.5 Resignations. Any officer may resign at any time by giving written
notice to the board of directors, the chairman of the board, the chief executive
officer, the president, or the secretary. Any such resignation shall take effect
at the time specified in such notice and, unless otherwise specified, the
acceptance of such resignation shall not be necessary to make it effective.
4.6 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification, or otherwise, shall be filled in the manner
prescribed for regular appointments or elections to such office.
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ARTICLE 5.
Duties of Officers
5.1 Chairman of the Board. The chairman of the board, if one is
elected, shall preside at all meetings of the stockholders and of the board of
directors and shall have such other powers and duties as may be prescribed by
the board of directors.
5.2 President. The president shall, subject to the powers of the board
of directors and the chief executive officer (provided he is not the chief
executive officer), exercise supervision over the business of the Corporation
and over its several officers, agents, and employees and shall see that all
orders and resolutions of the board of directors and the chief executive officer
(provided he is not the chief executive officer) are carried into effect. The
president shall have authority to execute bonds, mortgages, notes, agreements,
deeds, certificates for shares, and other instruments requiring the president's
signature on behalf of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the Corporation. The president shall have such other
powers and perform such other duties as the board of directors, the chief
executive office (provided he is not the chief executive officer), or these
Amended and Restated By-Laws may, from time to time, prescribe.
5.3 Chief Executive Officer. The board of directors shall designate the
chairman of the board or the president as chief executive officer. The chief
executive officer shall have, subject to the powers of the board of directors,
charge of the overall general direction of the business and affairs of the
Corporation, control of the general policies relating to all aspects of the
Corporation's business operations, and the power to fix the compensation of and
remove subordinate officers as provided in ss.ss. 4.2 and 4.4, respectively. The
chief executive officer may appoint and discharge agents and employees and
perform such other duties as are incident to such office. The chief executive
officer shall have such other powers and perform such other duties as may be
prescribed by the board of directors or as may be provided in these Amended and
Restated By-Laws. In the absence or disability of the officer designated as
chief executive officer, the other aforementioned officer (chairman of the board
or president) shall perform any and all duties of the chief executive officer.
5.4 Vice Presidents. The vice presidents, if they are elected, shall
have such powers and duties as may from time to time be assigned to them by the
board of directors, the chief executive officer, or the president. At the
request of the president, or in the case of his absence or disability, the vice
president designated by the president or, in the absence of such designation,
the vice president designated by the board of directors or the chief executive
officer, shall perform all the duties of the president, and, when so action,
shall have all the powers of the president. The authority of vice presidents to
execute bonds, mortgages, notes, agreements, deeds, certificates for shares, and
other instruments shall be coordinate with and subject to the authority of the
president.
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5.5 Secretary. The secretary shall keep minutes of all the proceeding
of the Stockholders and board of directors and shall make proper record of the
same, which shall be attested by him;shall have authority to execute and deliver
certificates as to any of such proceedings and any other records of the
Corporation; shall have authority to sign all certificates for shares and all
deeds, mortgages, bonds, agreements, notes and other instruments to be executed
by the Corporation which require his signature; shall give notice of meetings of
stockholders and directors; shall produce on request at each meeting of
stockholders a certified list of stockholders arranged in alphabetical order in
accordance with ss.2.13; shall keep such books and records as may be required by
law or by the board of directors; and, in general, shall perform all duties
incident to the officer of secretary and such other duties as may from time to
time be assigned to him by the board of directors, the chief executive officer,
or the president.
5.6 Treasurer. The treasurer shall have general supervision of all
finances; he shall receive and have in charge all money, bills, notes, deeds,
leases, mortgages, and similar property belonging to the Corporation and shall
do vith the same as may from time to time be required by the board of directors.
He shall cause to be kept adequate and correct accounts of the business
transactions of the Corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, stated capital, and shares of stock,
together with such other accounts as may be required, and upon the expiration of
his term of office shall turn over to his successor or to the board of directors
all property, books, papers, and money of the Corporation in his hands; and
shall have such other powers and duties as may from time to time be assigned to
him by the board of directors, the chief executive officer, or the president.
ARTICLE 6.
Shares of Stock and Their Transfer
6.1 Certificates for Shares of Stock. Every owner of one or more shares
of stock in the Corporation shall be entitled to a certificate or certificates,
which shall be in such form as may be approved by the board of directors,
certifying the nunber and class of shares of stock in the Corporation, owned by
him. The certificates for the respective classes of such shares of stock shall
be numbered in the order in which they are issued and shall be signed in the
name of the Corporation by any two of the following: the chairman of the board
or the president, and by the secretary, an assistant secretary, the treasurer,
or assistant treasurer. All or any of the signatures on a certificate may be
facsimile. Even though any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
issued, the certificate may be issued by the Corporation with the same effect as
if such person was still such officer, transfer agent, or registrar at the date
of issue. A record shall be kept of the name of the owner or owners of the
shares of stock represented by each such certificate and the number of shares of
stock represented thereby, the date thereof, and in case of cancellation, the
date of cancellation. Every certificate surrendered to the Corporation for
exchange or transfer shall be canceled and no new certificate or certificates
shall be issued in exchange for any existing certificates until such existing
certificates shall have been so canceled, except in cases provided for in
ss.6.4.
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6.2 Transfer of Shares of Stock. Any certificate for shares of stock of
the Corporation shall be transferable in person or by attorney upon the
surrender of the certificate to the Corporation or any transfer agent for the
Corporation (for the class of shares represented by the certificate surrendered)
properly endorsed for its transfer agent may require as to the genuineness and
effectiveness of each necessary endorsement. The person in whose name any shares
stand on the books of the Corporation shall, to the fullest extent permitted by
law, be conclusively deemed to be unqualified owner and holder of the shares and
entitled to exercise all rights of ownership, for all purposes relating to the
Corporation. Neither the Corporation nor any transfer agent of the Corporation
shall be required to recognize any equitable interest in, or any claim to, any
such share on the part of any other person, whether disclosed on the certificate
or any other way, nor shall they be required to see to the performance of any
trust or other obligation.
6.3 Regulations. The board of directors may make such rules and
regulations as it may deem expedient or advisable, not inconsistent with these
Amended and Restated By-Laws concerning the issue, transfer, and registration of
certificates for shares of stock. It may appoint one or more transfer agents or
one or more registrars, or both, and may require all certificates for shares to
bear the signature of either or both.
6.4 Lost Destroyed or Stolen Certificates. A new certificate or
certificates may be issued in place of any certificate theretofore issued by the
Corporation which is alleged to have been lost, destroyed, or wrongfully taken
upon: (a) the execution and delivery to the Corporation by the person claiming
the certificate to have been lost, destroyed, or wrongfully taken of an
affidavit of that fact in form satisfactory to the Corporation, specifying
whether or not the certificate was endorsed at the time of such alleged loss,
destruction or taking, and (b) the receipt by the Corporation of a surety bond,
indemnity agreement, or any other assurances satisfactory to the Corporation and
to all transfer agents and registrars of the class of shares of stock
represented by the certificate against any and all losses, damages, costs,
expenses, liabilities, or claims to which they or any of them may be subjected
by reason of the issue and delivery of such new certificate or certificates or
with respect to the original certificate.
ARTICLE 7.
Indemnification and Insurance
7.1 Indemnification in Nonderivative Actions. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party,
to any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, other than an action by or in
the right of the Corporation by reason of the fact that he is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses, including attorneys' fees, judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be
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in or not opposed to the best interests of the Corporation, and with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not. of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
7.2 Indemnification in Derivative Actions. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, or other
enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to be indemnified, for such
expenses as the Court of Chancery or such other court shall deem proper.
7.3 Indemnification as Matter of Rights. To the extent that a director,
officer, employee, or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit, or proceeding referred to in ss.7.1
and ss.7.9, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection therewith.
7.4 Determination of Conduct. Any indemnification under ss.7.1 and
ss.7.2, unless ordered by a court, shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in ss.7.1 and ss.7.2. Such
determination shall be made (a) by the board of directors by a majority vote of
a quorum consisting of directors of the Corporation who were not parties to such
action, suit, or proceeding, or (b) if such quorum is not obtainable, or even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (c) by the stockholders.
7.5 Advance Payment of Expenses. Expenses, including attorneys' fees,
incurred by an officer or director in defending any civil, criminal,
administrative, or investigative action, suit, or proceeding may be paid by the
Corporation in advance of the final deposition of such action,
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suit, or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article 7. Such expenses, including attorneys' fees, incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
7.6 Nonexclusivity. The indemnification and advancement of expenses
provided by or granted pursuant to this Article 7 shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
7.7 Liability Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article 7 and
ss.145 of the Delaware General Corporate Law.
7.8 Consolidations or Mergers. For purposes of this Article 7,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, or agents, so that any person who is or was a
director, officer, employee, or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise shall stand in the same position under this Article 6
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
7.9 Meaning of Certain Terms. For purposes of this Article 7,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee,
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article 7.
7.10 Successors. The indemnification and advancement of expenses
provided by or granted pursuant to this Article 7 shall, unless otherwise
provided when authorized or ratified,
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continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such person.
ARTICLE 8.
Miscellaneous
8.1 Examination of Books by Stockholders. Any stockholder, who shall
have been a holder of record of shares for at least six (6) months immediately
preceding demand, or shall be the holder of record of at least five (5%) percent
of all of the outstanding shares of the corporation, in person or by attorney or
other agent, shall, upon written demand under oath stating the purpose thereof,
have the right during the usual hours for business to inspect for any proper
purpose the Corporation's stock ledger, a list of its stockholders, and its
other books and records, and to make copies or extracts therefrom. A proper
purpose shall mean any purpose reasonably related to such person's interest as a
stockholder. In every instance where an attorney or other agent shall be the
person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing which authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand under
oath shall be directed to the Corporation at its registered office in the State
of Delaware or at its principal place of business.
8.2 Seal. The board of directors may adopt and alter a corporate seal
and use the same or a facsimile thereof, but failure to affix the corporate
seal, if any, shall not affect the validity of any instrument.
8.3 Fiscal Year. The fiscal year of the Corporation shall be fixed
and may be changed from time to time by the board of directors.
8.4 Amendment of By-Laws. These Amended and Restated By-Laws may be
amended or repealed and new by-laws adopted at any meeting of the board of
directors; provided that notwithstanding anything in these Amended and Restated
By-Laws to the contrary, the provisions set forth in this section, Article 7,
and ss.3.9 and ss.3.6 may not be amended or repealed in any respect, except as
follows: (a) by the affirmative vote of the holders of shares of stock entitling
them to exercise a majority of the voting power on such proposal, if such
proposal was previously approved by at least two-thirds of the directors; or (b)
by the affirmative vote of the holders of shares of stock entitling them to
exercise at least one half of the voting power on such proposal. If an amendment
or new by-laws are adopted without a meeting of the stockholders, the secretary
shall mail a copy of the amendment or new by-laws to each stockholder who would
have been entitled to vote on the proposal but who did not participate in the
adoption of the amendment or new by-laws.
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8.5 Inconsistent Provisions. In the event that any provision of these
Amended and Restated By-Laws is or becomes inconsistent with any provision of
the certificate of incorporation, the Delaware General Corporation Law, or any
other applicable law, the provision of these Amended and Restated By-Laws shall
not be given any effect to the extent of such inconsistency, but shall otherwise
be given full force and effect.
I, the undersigned, being the Secretary of Quality Products, Inc., do hereby
certify the foregoing to be the Amended and Restated By-Laws of said
corporation, as adopted at a special meeting of the Board of Directors held on
this 1st day of July 31, 1994.
------------------------------------
Daniel J. Sullivan, Secretary
18
Exhibit 4.2
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
$ 200,000.00 Columbus, Ohio
August 29, 1997
Quality Products, Inc., a Delaware corporation (herein called the
"Company"), for value received, hereby promises to pay to Murray Koppelman, with
an address at 575 Lexington Avenue, New York, New York (the "Holder"), the
principal sum of Two Hundred Thousand Dollars ($200,000.00) on August 30, 2001,
at 575 Lexington Avenue, New York, New York 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).
<PAGE>
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 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.
ARTICLE 1
Redemption or Conversion of Note.
1.1 Optional Conversion at Holder's Request. Subject to and upon
compliance with the provisions of this Section 1.1, 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, 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 deeme
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 1.1.
(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.
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1.2 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.
1.3 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.
1.4 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 Common Stock
shall be so listed on such exchange, upon official
notice of issuance, all Common Stock issuable upon
conversion of this Note.
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1.5 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 1.5 shall similarly apply to successive reclassifications,
capital reorganizations and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
1.6 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.
1.7 Conversion Price. The conversion price is $.75 per share, subject to
adjustment as provided in section 1.8 herein.
1.8 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) split or 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 1.8 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 split,
subdivision or combination. If, as a result of an adjustment made
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<PAGE>
pursuant to this Section 1.8, the Holder of the Note thereafter
surrendered for conversion shall become entitled to receive shares o
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 five year period commencing the
date hereof, the Company shall advise the Holder of the Note or the
Note Shares by written notice at least thirty (30) days 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 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 then 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 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 two year period commencing
October 1, 1998 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
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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 riting. 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, amages and liabilitie
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 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 th
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
6
<PAGE>
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.
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: President, or such other
address as the Company may, from time to time advise the
Holder. Notices to the Holder shall be addressed to its
respective Payment Address 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.
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 C. Weaver
____________________
Bruce C. Weaver,
President
7
<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 __________________ Dollars $_______
unpaid principal amount due on such Note, and requests that the certificates for
such shares be issued in the name(s) of , and delivered to
, whose address(es) is(are)
.
DATED:
____________________________________
(Signature)
(Signature must conform in all respects to
name of holder as specified on the face of the
Note.)
8
Exhibit 4.3
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
$ 200,000.00 Columbus, Ohio
August 29, 1997
Quality Products, Inc., a Delaware corporation (herein called the
"Company"), for value received, hereby promises to pay to Richard W. Cohen, with
an address at 1345 Avenue of the Americas, 31st Floor, New York, New York
10105-0143 (the "Holder"), the principal sum of Two Hundred Thousand Dollars
($200,000.00) on August 30, 2001, at 575 Lexington Avenue, New York, New York 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).
<PAGE>
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 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.
ARTICLE 1
Redemption or Conversion of Note.
1.1 Optional Conversion at Holder's Request. Subject to and upon compliance with
the provisions of this Section 1.1, 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, 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 1.1.
(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.
2
<PAGE>
1.2 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.
1.3 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.
1.4 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 Common Stock shall be so listed on such
exchange, upon official notice of issuance, all Common Stock issuable upon
conversion of this Note.
1.5 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
3
<PAGE>
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 1.5 shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
1.6 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.
1.7 Conversion Price. The conversion price is $.75 per share, subject to
adjustment as provided in section 1.8 herein.
1.8 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) split or 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 1.8 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 split, subdivision or combination. If, as a result of an adjustment made
pursuant to this Section 1.8, 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.
4
<PAGE>
ARTICLE 2
Registration under the Securities Act of 1933.
2.1 Piggyback Registration Rights. For the five year period commencing the date
hereof, the Company shall advise the Holder of the Note or the Note Shares by
written notice at least thirty (30) days 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 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 two year period commencing October
1, 1998 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.
5
<PAGE>
2.3 Other Provisions Pertaining to Registration Rights. The following provision
of this Article 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 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.
6
<PAGE>
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: President,
or such other address as the Company may, from time to time advise the Holder.
Notices to the Holder shall be addressed to its respective Payment Address 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.
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:/s/Bruce C. Weaver
------------------------
Bruce C. Weaver,
President
7
<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 __________________ Dollars $_______
unpaid principal amount due on such Note, and requests that the certificates for
such shares be issued in the name(s) of , and delivered to
, whose address(es) is(are)
.
DATED:
____________________________________
(Signature)
(Signature must conform in all respects to name
of holder as specified on the face of the
Note.)
8
Exhibit 4.4
NOTE
$1,500,000.00 November 25, 1997
FOR VALUE RECEIVED, the undersigned, QUALITY PRODUCTS, INC. a Delaware
corporation and QPI MULTIPRESS, INC., an Ohio corporation (collectively
"Borrower"), with offices at 560 Dublin Avenue, Columbus, Ohio 43215-2388,
hereby jointly and severally promise to pay to the order of EASTLAKE SECURITIES,
INC., a New York corporation ("Agent"), at its office at 575 Lexington Avenue,
New York, New York 10022-6102 (or such other place as Agent may direct from time
to time), in lawful money of the United States and in immediately available
funds, the principal amount of one million, five hundred thousand dollars
($1,500,000.00) advanced to Borrower under that certain Credit Agreement of even
date herewith (the "Credit Agreement"), together with interest of six percent
(6%) per annum thereon computed daily on the basis of a 360 day year, in
accordance with the Credit Agreement.
Borrower shall pay installments of fifty thousand dollars ($50,000)
principal together with accrued interest on the last Business Day (as defined in
the Credit Agreement) of each December, March, June and September, commencing
December 31, 1997. All payments made shall be applied first to accrued interest
and only thereafter to reduction of the principal balance then outstanding. The
unpaid balance of this Note (assuming no prior acceleration) shall be due and
payable in full, together with accrued interest thereon, on December 29, 2000.
If any amount is not paid in full on the date due hereunder, all
amounts due hereunder shall accelerate and become immediately due and payable
and all such unpaid amount shall bear default interest, from such date until the
date of actual payment (and before as well as after judgment) at the per annum
rate of twelve percent (12%), computed daily on the basis of a 360 day year.
This Note is the "Note" referred to in the Credit Agreement. This Note
is secured by the Collateral described in the Security Agreement and the Loan
Documents referred to in the Credit Agreement. Reference is hereby made to the
Credit Agreement and the Loan Documents for rights and obligations of payment
and prepayment, events of default, and the right of Agent to accelerate the
maturity hereof upon the occurrence of such events.
Borrower, for itself, its successors and assigns, hereby waives
diligence, presentment, protest, and demand and notice of protest, demand,
dishonor, and nonpayment of this Note.
Borrower agrees to pay all collection expenses, court costs, and
reasonable attorneys fees and disbursements (whether or not litigation is
commenced) that may be incurred in connection with the collection or enforcement
of this Note.
<PAGE>
The undersigned, who if two or more in number, jointly or severally,
hereby irrevocably authorizes any attorney-at-law to appear in any court of
record in the State of Ohio or in any other state or territory of the United
States (other than any court in which utilization of this warrant of attorney
would be contrary to law) at any time after this Note becomes due, whether by
lapse of time, acceleration or otherwise, to waive the issuance and service of
process, to admit maturity and nonpayment of the indebtedness evidenced by this
Note, and to confess judgment against the undersigned (or any of them) in favor
of Agent for the amount then appearing due, together with interest, expenses,
the costs of suit and reasonable counsel fees, and thereupon to release and
waive all errors, rights of appeal and stays of execution. The foregoing warrant
of attorney shall survive the judgment. Should any judgment be vacated for any
reason, the foregoing warrant of attorney nevertheless may thereafter be
utilized for obtaining additional judgment or judgments. Such authority shall
not be exhausted by one exercise, but judgment may be confessed from time to
time as any sums and/or costs, expenses, or reasonable counsel fees shall be
due, by filing an original or a photostatic copy of this Note. The undersigned
hereby waives all relief from any and all appraisement or exemption laws now in
force or hereafter enacted. The undersigned agrees that Agent's attorney may
confess judgment pursuant to the foregoing warranty of attorney. The undersigned
further agrees that the attorney confessing judgment pursuant to the foregoing
warrant of attorney may receive a legal fee or other compensation from the
Agent.
This Note shall be governed by and construed in accordance with the
laws of Ohio, without giving effect to principles of conflicts of law. Borrower
hereby (i) irrevocably consents and agrees that any action or proceeding for the
enforcement of this Note may be brought in any Federal or state court situated
in Franklin County, Ohio, (ii) agrees that any process in any action commenced
in such court under this Agreement may be served upon Borrower at the address
above (or such new address for service, which shall be the same address as
Borrower's principal office, as Borrower may notify Agent in writing by
certified mail, return receipt requested), which, by certified or registered
mail, return receipt requested, or by an overnight courier service which obtains
evidence of delivery, with the same full force and effect as if personally
served upon Borrower, in addition to any other
2
<PAGE>
method of service permitted by law, and (iii) waives any claim that such court
is not a convenient forum for any such action and waives any defense of lack of
in personam jurisdiction or improper venue with respect thereon.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT 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.
By:/s/Bruce C. Weaver
---------------------------
Bruce C. Weaver, President
QPI MULTIPRESS, INC.
By: Bruce C. Weaver
----------------------------
Bruce C. Weaver, President
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT 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.
3
Warrant to Purchase
WA-___ Exhibit 4.5 **_______**
Shares of Common Stock
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND NEITHER THIS WARRANT 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.
VOID after 5:00 P.M. New York City time on September 30, 1999
SERIES A COMMON STOCK PURCHASE WARRANT
OF
QUALITY PRODUCTS, INC.
This is to certify that, FOR VALUE RECEIVED, ________________ or
registered assigns ("Holder"), is entitled to purchase, on the terms and subject
to the provisions of this Warrant, from Quality Products, Inc., a Delaware
corporation (the "Company"), at an exercise price per share of one dollar
($1.00), ______________ (_____) shares of common stock, par value $.00001 per
share ("Common Stock"), of the Company at any time during the period (the
"Exercise Period"), as hereinafter defined. The Exercise Period shall mean the
period commencing November 1, 1997 and ending at 5:00 P.M. New York City time,
on September 30, 1999; provided, however, that if such date is a day on which
banking institutions in the State of New York are authorized by law to close,
then on the next succeeding day which shall not be such a day. The number of
shares of Common Stock to be issued upon the exercise of this Warrant and the
price to be paid for a share of Common Stock may be adjusted from time to time
in the manner set forth in this Warrant. The shares of Common Stock deliverable
upon such exercise, and as adjusted from time to time, are hereinafter sometimes
referred to as "Warrant Shares," and the exercise price for the purchase of a
share of Common Stock pursuant to this Warrant, in effect at any time, as the
same may be adjusted from time to time, is hereinafter sometimes referred to as
the "Exercise Price." Reference in the Warrant to the "Series A Warrants" shall
mean any or all of the warrants designated as Series A Common Stock Purchase
Warrants by the Company.
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole at any time or in
part from time to time during the Exercise Period by presentation and surrender
hereof to the Company at its principal office, or at the office of its stock
transfer agent, if any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of shares of Common
Stock specified in such form. Payment of the Exercise Price may be made either
by check (subject to collection) in the amount of the Exercise Price or by
delivery of such number of shares of Common Stock as has a current value,
determined in the manner provided for in Paragraph (a)(2) of this Warrant (with
the current value being based on the market price of the Common Stock on the
date the Warrant, accompanied by the shares of Common Stock delivered in respect
of such exercise, is received by the Company or its transfer agent), equal to
the Exercise Price. If this Warrant should be exercised in part only, whether
pursuant to this Paragraph (a)(1) or pursuant to Paragraph (a)(2) of this
Warrant, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder hereof to
purchase the balance of the shares of Common Stock purchasable hereunder. Upon
receipt by the Company of this Warrant at its office, or by the stock transfer
agent of the Company at its office, in proper form for exercise, the Holder
shall be deemed to be
<PAGE>
the holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder.
(2) In lieu of exercising this Warrant by payment of the
Exercise Price pursuant to Paragraph (a)(1) of this warrant, the Holder shall
have the right to exchange this Warrant, in whole or in part to the extent that
this Warrant has not been exercised, for the number of shares of Common Stock
determined by (i) multiplying (x) the number of shares as to which this Warrant
is being exercised by (y) the difference between the current value per share of
Common Stock on the date of exercise and the Exercise Price per share, as in
effect on such date, and (ii) dividing the result so obtained by the current
value per share of Common Stock on the date of exercise. The date of exercise
shall mean, for purposes of this Paragraph (a)(2), the date on which this
Warrant accompanied by the notice of exercise is received by the Company. The
current value per share of Common Stock shall be determined as follows:
(A) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq Stock Market ("Nasdaq") or other
automated quotation system which provides information as to the last sale
price, the current value shall be the average of the reported last sale prices
of one share of Common Stock on such exchange or system on the last five (5)
trading days prior to the date of exercise of this Warrant, or if, on any of
such dates, no such sale is made on such day, the average of the closing
bid and asked prices for such date on such exchange or system shall be used;
or
(B) If the Common Stock is not so listed or admitted
to unlisted trading privileges, the current value shall be the average of the
reported last bid and asked prices of one share of Common Stock as reported by
Nasdaq, the National Quotation Bureau, Inc. or other similar reporting service,
on the last five (5) trading days prior to the date of the exercise of this
Warrant; or
(C) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are not so reported,
the current value of one share of Common Stock shall be an amount, not less than
book value, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
(b) RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Common Stock as shall be required for issuance
and delivery upon exercise of this Warrant and that it shall not, without the
prior approval of the holders of a majority of the Warrants then outstanding,
increase the par value of the Common Stock.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise of this Warrant,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined in
the manner set forth in Paragraph (a)(2) of this Warrant, except that the price
shall be based on the closing price on the last trading day before the date of
exercise.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to the provisions of Paragraph (k) of this
Warrant, upon surrender of this Warrant to the Company or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the office of the Company or
at the office of its stock transfer agent, if any, together with a written
notice specifying the names and denominations in which new Warrants are to be
2
<PAGE>
issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and
deliver a new Warrant of like tenor. Any such new Warrant executed and delivered
shall constitute an additional contractual obligation on the part of the Company
, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall
be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this
Warrant, be entitled to any rights of a stockholder in the Company, either at
law or equity, and the rights of the Holder are limited to those expressed in
the Warrant and are not enforceable against the Company except to the extent set
forth in this Warrant.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
(1) In case the Company shall, subsequent to the date hereof,
(A) pay a dividend or make a distribution on its shares of Common Stock in
shares of Common Stock (B) subdivide or reclassify its outstanding Common Stock
into a greater number of shares, or (C) combine or reclassify its outstanding
Common Stock into a smaller number of shares or otherwise effect a reverse
split, the Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
Holder of this Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of shares which, if this Warrant had been
exercised immediately prior to such time, he would have owned upon such exercise
and been entitled to receive upon such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed in this Paragraph (f)(1) shall occur.
(2) In case the Company shall, subsequent to the date hereof,
issue rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
current market price of the Common Stock (as defined in Paragraph (f)(5) of this
Warrant) on the record date mentioned below, the Exercise Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such issuance by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current market price
per share of the Common Stock, and of which the denominator shall be the number
of shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock offered for subscription or purchased (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock or securities convertible into Common Stock are not
delivered after the expiration of such rights or warrants, the Exercise Price
shall be readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(3) In case the Company shall, subsequent to the date hereof,
distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph (f)(1) of this Warrant,
or subscription rights or warrants (excluding those referred to in Paragraph
(f)(2) of this Warrant), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
total number of shares of Common Stock outstanding multiplied by the current
3
<PAGE>
market price per share of Common Stock (as defined in Paragraph (f)(5) of this
Warrant), less the fair market value (as determined in good faith by the
Company's Board of Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and of which the denominator shall be
the total number of shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such distribution.
(4) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Paragraphs (f)(1), (2) or (3) of this Warrant,
the number of shares of Common Stock purchasable upon exercise of each Warrant
shall simultaneously be adjusted by multiplying the number of shares of Common
Stock issuable upon exercise of each Warrant in effect on the date thereof by
the Exercise Price in effect on the date thereof and dividing the product so
obtained by the Exercise Price, as adjusted. In no event shall the Exercise
Price per share be less than the par value per share, and, if any adjustment
made pursuant to Paragraph (f)(1), (2) or (3) would result in an exercise price
of less than the par value per share, then, in such event, the Exercise Price
per share shall be the par value per share.
(5) For the purpose of any computation under Paragraphs (f)(2)
and (3) of this Warrant, 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
thirty (30) consecutive trading days commencing 45 trading days before such
date. The closing price for each day shall be the reported last sale price
regular way or, in case no such reported sale takes place on such day, the
average of the reported last bid and asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is admitted
to trading or listed or on Nasdaq, or if not listed or admitted to trading on
such exchange or such System, the average of the reported highest bid and
reported lowest asked prices as reported by Nasdaq, the National Quotation
Bureau, Inc. or other similar organization if Nasdaq is no longer reporting such
information, or if not so available, the fair market price as reasonably
determined in good faith by the Board of Directors.
(6) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments which by
reason of this Paragraph (f)(6) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Paragraph (f) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Paragraph (f) to
the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Paragraph (f), as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of Common Stock, issuance of
warrants to purchase Common Stock or distribution of evidences of indebtedness
or other assets (excluding cash dividends) referred to hereinabove in this
Paragraph (f) hereafter made by the Company to the holders of its Common Stock
shall not result in any tax to the holders of its Common Stock or securities
convertible into Common Stock.
(7) The Company may retain a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular accountants engaged by the Company) to make any computation
required by this Paragraph (f), and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(8) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph (f)(1) of this Warrant, the Holder of any
Warrant thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Paragraphs (f)(1) to
(6), inclusive, of this Warrant.
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<PAGE>
(9) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in this and similar Warrants initially
issued by the Company.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Paragraph (f) of this Warrant, the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted Exercise Price and the adjusted
number of shares of Common Stock issuable upon exercise of each Warrant,
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment, including a statement of the number of additional
shares of Common Stock, if any, and such other facts as shall be necessary to
show the reason for and the manner of computing such adjustment. Each such
officer's certificate shall be made available at all reasonable times for
inspection by the Holder, and the Company shall, forthwith after each such
adjustment, mail, by first class mail, a copy of such certificate to the Holder
at the Holder's address set forth in the Company's Warrant Register.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon Common Stock (other than a regular cash dividend payable out of retained
earnings) or (2) if the Company shall offer to the holders of Common Stock for
subscription or purchase by them any share of any class or any other rights or
(3) if any capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail, return receipt requested, to the Holder, at least fifteen days
prior to the date specified in clauses (i) and (ii), as the case may be, of this
Paragraph (h) a notice containing a brief description of the proposed action and
stating the date on which (i) a record is to be taken for the purpose of such
dividend, distribution or rights, or (ii) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any is to be fixed, as of which the holders of
Common Stock or other securities shall receive cash or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(i) 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 in which 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 of the class issuable upon exercise of this Warrant) 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 shall have
the right thereafter by exercising this Warrant, 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 a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant 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
Warrant. The foregoing provisions of this Paragraph (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
(j) REGISTRATION UNDER THE SECURITIES ACT OF l933.
(1) (A) In the event that, at any time during the five year
period commencing November 1, 1997, the Company registers its securities
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), in
connection with a public offering of its securities (other than a registration
statement on Form S-4 or S-8 or subsequent similar forms), the Company shall
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<PAGE>
advise the registered holders of the Series A Warrants or the Warrant Shares
(each such person being referred to herein as a "holder") by written notice
at least one (1) week prior to the filing of any registration statement
under the Securities Act covering securities of the Company and will upon
the request of any such holder include in any such registration statement such
information as may be required to permit a public offering of the Warrant
Shares; provided, however, that the Company shall not be required to include
such Warrant Shares in a registration statement relating solely to an offering
by the Company of securities for its own account if the managing underwriter
shall have advised the Company that the inclusion of such Warrant Shares will
have a material adverse effect upon the ability of the Company to sell
securities for its own account, and provided further that the holders are no
treated less favorably than others having piggyback registration rights. The
Company shall keep such registration statement current for a period of nine (9
months from the effective date of such registration statement or until such
earlier date as all of the registered Warrant Shares shall have been sold. In
connection with such registration, if requested by the managing underwriter
as a condition to the inclusion of the Warrant Shares in the registration
statement, the holders shall agree put to sell or otherwise distribute the
Warrant Shares pursuant to the registration statement for such period (the
"lock-up period") as the managing underwriter shall request, in which even
the Company will keep the registration statement effective for six (6) months
after the expiration of the lock-up period.
(B) If the majority holder, as hereinafter defined,
shall give notice to the Company at any time during the two-year period
commencing October 1, 1998, to the effect that such holder contemplates the
sale of the Warrant Shares under such circumstances that a public distribution
(within the meaning of the Securities Act) of the Warrant Shares will be
involved, then the Company shall, subject to Paragraph (j)(1)(C) of this
Warrant, within sixty (60) days after receipt of such notice, file a
registration statement pursuant to the Act, to the end that the Warrant Shares
may be sold under the Securities Act as promptly as practicable
thereafter, and the Company will use its best efforts to cause such registration
to become effective; 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 period, not to
exceed the greater of nine (9) months or such longer period as the registration
statement may be used without requiring audited financial statements covering a
period subsequent to that for which audited financial statements are otherwise
required, as the majority holder may request. Upon receipt of notice the Company
shall promptly give notice to the holder holders of Series A Warrants and shall,
at the request of such holders, include their Warrant Shares in the same manner
as if they had given the notice pursuant to this Paragraph (j)(1)(B). The
holders of the Series A Warrants shall be entitled to only one (1) demand
registration right pursuant to this Paragraph (j)(1)(B).
(C) Notwithstanding the provisions of Paragraph
(j)(1)(B), the Company shall be entitled to defer the filing of the registratio
statement demanded pursuant to said Paragraph (j)(1)(B) under the following
circumstances.
(i) If the notice from the majority holder
shall be given during the first two months of the Company's fiscal year, the
Company shall not be required to file the registration statement prior to
thirty (30) days after the filing by the Company of its Form 10-K Annual Report
for the prior fiscal year.
(ii) In the event that the Company has
completed an acquisition or contemplates an acquisition for which financial
statements of the acquired company are required to be included in the
registration statement, the Company shall not be required to file the
registration statement until forty-five (45)days after the required financial
statements (in form and substance appropriate for filing with the Securities
and Exchange Commission) for the company which was or is to be acquired have
been received by the Company.
(iii) In the event that, at any time, the
Company shall be engaged in confidential negotiations with respect to a business
transaction or business agreement which would have to be disclosed in a
registration statement, the Company's obligation to file the registration
statement or any amendment to a registration statement and the Company's
obligation to keep a registration statement current shall be deferred until
forty-five (45)
6
<PAGE>
days after the first to occur of (x) the date that such negotiations have been
terminated, or (y) the date that the transaction has been consummated, or (z)
the date that an agreement relating to the transaction has been executed and the
Company has publicly announced the transaction.
(2) The following provision of this Paragraph (j) shall also
be applicable:
(A) The Company shall bear the entire cost and expense of
any registration of securities initiated by it under Paragraph (j)(1)(A) of
this Warrant or filed pursuant to Paragraph (j)(1)(B) of this Warrant. Any
holder whose Warrant Shares are included in any such registration
statement pursuant to this Paragraph (j)shall, however, bear the fees
of his own counsel and accountants and any transfer taxes or underwriting
discounts or commissions (including any non-accountable expense allowance)
applicable to the Warrant Shares sold by him pursuant thereto.
(B) The Company shall indemnify and hold harmless
each holder and each underwriter, within the meaning of the Securities Act, who
may purchase from or sell for any such holder any Warrant Shares from and
against any and all losses, claims, damages and liabilities (including fees
and expenses of counsel, which counsel shall, if, in the reasonable
opinion of counsel for the Company, the representation by such counsel of
both the Company and the indemnified parties constitutes a conflict of interest
under applicable Code of Professional Responsibility, be separate from
counsel for the Company, provided, that the Company shall not be required to
pay the fees of more than one firm representing all holders and all other
parties who are entitled to indemnification as a result of the same or
similar allegations, which counsel shall be selected by the holders of a
majority of the shares held by all of such indemnified parties)caused by any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereto or any
registration statement under the Securities Act or any prospectus included
therein required to be filed or furnished by reason of this Paragraph (j) 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 Securities 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 liabilities are caused by any
such untrue statement or alleged untrue statement or omission or alleged
omission based upon information 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 the
Securities 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 the Securities Act and each other holder, in the manner
set forth in this Paragraph (j)(2)(B), 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 Paragraph (j) 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 based upon
information furnished to the Company by any such holder or underwriter expressly
for use therein.
(C) Neither the giving of any notice by any holder
nor the making of any request for prospectuses shall impose any upon any holder
making such request any obligation to sell any Warrant Shares or exercise any
Warrants.
(D) In connection with any registration statement
filed pursuant to this Paragraph (j), the Company shall supply prospectuses
and qualify the Warrant Shares for sale in such states as the Warrant holders
may reasonably designates, provided that the Company shall not be required to
qualify or register the Warrant Shares in any jurisdiction where such
qualification or registration would require the Company to submit generally to
the jurisdiction of such state.
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<PAGE>
(E) As a condition to the inclusion of the Warrant
Shares of the holder of this Warrant, such holder shall (i) furnish the
information and indemnification as set forth in Paragraph (j)(2)(B) of this
Warrant and (ii) agree not to sale or otherwise transfer any Warrant Share
pursuant to a registration statement upon receipt of advice from the Company
that the registration statement is no longer current until the holder is advised
that the Warrant Shares may be sold pursuant to the registration statement.
(F) The registration rights contained in this
Paragraph (j) shall relate to the Warrant Shares held by any transferee unless
such transferee may sell such Warrant Shares without restriction whether
pursuant to Rule 144 of the Commission pursuant to the Securities Act or any
subsequent similar rule or otherwise.
(3) The term "majority holder" shall mean the holders of at
least a majority of the shares of Common Stock for which the Series A Warrants
(considered in the aggregate) are exercisable and shall include any owner or
combination of owners of such securities, which ownership shall be calculated by
determining the number of shares of Common Stock held by such owner or owners
resulting from the exercise of any Series A Warrant after giving effect to any
stock dividend, split, reverse split or other recapitalization and the number of
shares of Common Stock issuable upon exercise of any unexercised Series A
Warrants.
(4) The Company's agreements with respect to the Warrant
Shares in this Paragraph (j) shall continue in effect regardless of the exercise
of the Warrants.
(5) The holders of the Warrants Shares shall not be entitled
to registration rights pursuant to this Paragraph (j) if at or prior to the
effective date of such registration statement, such holder may sell all of the
Warrant Shares owned by the holder pursuant to Rule 144 of the Securities and
Exchange Commission under the Securities Act. For purposes of this Paragraph
(j)(5), Warrant Shares shall include shares issued or issuable upon exercise of
all Series A Warrants and Series B Common Stock Purchase Warrants of the Company
which are owned by such holder.
(k)TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant or
the Warrant Shares or any other security issued or issuable upon exercise of
this Warrant may not be sold or otherwise disposed of except as follows:
(1) To a person who, in the opinion of counsel for the
Company, is a person to whom this Warrant or Warrant Shares may legally be
transferred without registration and without the delivery of a current
prospectus under the Act with respect thereto and then only against receipt of
an agreement of such person to comply with the provisions of this Paragraph (k)
with respect to any resale or other disposition of such securities which
agreement shall be satisfactory in form and substance to the Company and its
counsel; or
(2) to any person upon delivery of a prospectus then meeting
the requirements of the Act relating to such securities and the offering thereof
for such sale or disposition.
Dated as of November ___, 1997
QUALITY PRODUCTS , INC.
By:
Bruce Weaver, President
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<PAGE>
PURCHASE FORM
Dated: , 19
_______ The undersigned hereby (i) irrevocably exercises this Warrant to the
extent of purchasing shares of Common Stock and hereby makes payment
of $ in payment of the Exercise Price therefor, and (ii) represents
and warrants that the undersigned is an "accredited investor" as
such term is defined in Rule 501 promulgated under the Securities
Act of 1933, as amended.
_______ The undersigned hereby (i) irrevocably exercises this Warrant to the
extent of purchasing shares of Common Stock and hereby makes payment
of $ in payment of the Exercise Price therefor by delivery of shares
of Common Stock pursuant to Paragraph (a)(1) of this Warrant, , and
(ii) represents and warrants that the undersigned is an "accredited
investor" as such term is defined in Rule 501 promulgated under the
Securities Act of 1933, as amended.
________ The undersigned hereby (i) irrevocably elects to exchange this
Warrant to the extent of shares of Common Stock pursuant to the
provision of Paragraph (a)(2) of this Warrant, and (ii) represents
and warrants that the undersigned is an "accredited investor" as
such term is defined in Rule 501 promulgated under the Securities
Act of 1933, as amended.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
(Please typewrite or print in block letters)
Signature
Social Security or Employer Identification No.
ASSIGNMENT FORM
FOR VALUE RECEIVED,
hereby sells, assigns and transfer unto
Name
(Please typewrite or print in block letters)
Address
Social Security or Employer Identification No.
The right to purchase Common Stock represented by this Warrant to the extent of
shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint attorney to transfer the same on the books of the Company
with full power of substitution.
Dated: , 19
Signature
Signature Medallion Guaranteed:
9
Warrant to Purchase
WB-___ Exhibit 4.6 **_______**
hares of Common Stock
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND NEITHER THIS WARRANT 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.
Void after 5:00 P.M. New York City time on September 30, 2001
SERIES B COMMON STOCK PURCHASE WARRANT
OF
QUALITY PRODUCTS, INC.
This is to certify that, FOR VALUE RECEIVED, _________________ or
registered assigns ("Holder"), is entitled to purchase, on the terms and subject
to the provisions of this Warrant, from Quality Products, Inc., a Delaware
corporation (the "Company"), at an exercise price per share of two dollars
($2.00), ___________ (______) shares of common stock, par value $.00001 per
share ("Common Stock"), of the Company at any time during the period (the
"Exercise Period"), as hereinafter defined. The Exercise Period shall mean the
period commencing October 1, 1999 and ending at 5:00 P.M. New York City time, on
September 30, 2001; provided, however, that if such date is a day on which
banking institutions in the State of New York are authorized by law to close,
then on the next succeeding day which shall not be such a day. The number of
shares of Common Stock to be issued upon the exercise of this Warrant and the
price to be paid for a share of Common Stock may be adjusted from time to time
in the manner set forth in this Warrant. The shares of Common Stock deliverable
upon such exercise, and as adjusted from time to time, are hereinafter sometimes
referred to as "Warrant Shares," and the exercise price for the purchase of a
share of Common Stock pursuant to this Warrant, in effect at any time, as the
same may be adjusted from time to time, is hereinafter sometimes referred to as
the "Exercise Price." Reference in the Warrant to the "Series B Warrants" shall
mean any or all of the warrants designated as Series B Common Stock Purchase
Warrants by the Company.
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole at any time or in
part from time to time during the Exercise Period by presentation and surrender
hereof to the Company at its principal office, or at the office of its stock
transfer agent, if any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of shares of Common
Stock specified in such form. Payment of the Exercise Price may be made either
by check (subject to collection) in the amount of the Exercise Price or by
delivery of such number of shares of Common Stock as has a current value,
determined in the manner provided for in Paragraph (a)(2) of this Warrant (with
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the current value being based on the market price of the Common Stock on the
date the Warrant, accompanied by the shares of Common Stock delivered i
respect of such exercise, is received by the Company or its transfer agent),
equal to the Exercise Price. If this Warrant should be exercised in part
only, whether pursuant to this Paragraph (a)(1) or pursuant to Paragraph (a)(2)
of this Warrant, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder hereof to purchase the balance of the shares of Common Stock
purchasable hereunder. Upon receipt by the Company of this Warrant at its
office, or by the stock transfer agent of the Company at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
(2) In lieu of exercising this Warrant by payment of the
Exercise Price pursuant to Paragraph (a)(1) of this warrant, the Holder shall
have the right to exchange this Warrant, in whole or in part to the extent that
this Warrant has not been exercised, for the number of shares of Common Stock
determined by (i) multiplying (x) the number of shares as to which this Warrant
is being exercised by (y) the difference between the current value per share of
Common Stock on the date of exercise and the Exercise Price per share, as in
effect on such date, and (ii) dividing the result so obtained by the current
value per share of Common Stock on the date of exercise. The date of exercise
shall mean, for purposes of this Paragraph (a)(2), the date on which this
Warrant accompanied by the notice of exercise is received by the Company. The
current value per share of Common Stock shall be determined as follows:
(A) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NasdaqStock Market ("Nasdaq") or other automated
quotation system which provides information as to the last sale price, the
current value shall be the average ofthe reported last sale prices of one share
of Common Stock on such exchange or system on the last five (5) trading days
prior to the date of exercise of this Warrant, or if, on any of such dates,
no such sale is made on such day, the average of the closing bid and asked
prices for such date on such exchange or system shall be used; or
(B) If the Common Stock is not so listed or admitted
to unlisted trading privileges, the current value shall be the average of the
reported last bid and asked prices of one share of Common Stock as reported by
Nasdaq, the National Quotation Bureau, Inc. or other similar reporting service,
on the last five (5) trading days prior to the date of the exercise of this
Warrant; or
(C) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are not so reported,
the current value of one share of Common Stock shall be an amount, not less
than book value, determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
(b) RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Common Stock as shall be required for issuance
and delivery upon exercise of this Warrant and that it shall not, without the
prior approval of the holders of a majority of the Warrants then outstanding,
increase the par value of the Common Stock.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise of this Warrant,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined in
the manner set forth in Paragraph (a)(2) of this Warrant, except that the price
shall be based on the closing price on the last trading day before the date of
exercise.
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(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company or at the office of
its stock transfer agent, if any, for other Warrants of different denominations
entitling the holder thereof to purchase in the aggregate the same number of
shares of Common Stock purchasable hereunder. Subject to the provisions of
Paragraph (k) of this Warrant, upon surrender of this Warrant to the Company
or at the office of its stock transfer agent, if any, with the Assignment
Form annexed hereto duly executed and funds sufficient to pay any transfer
tax, the Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and this
Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants which carry the same rights upon presentation hereof at
the office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and (in
the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant,
if mutilated, the Company will execute and deliver a new Warrant of like tenor.
Any such new Warrant executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not this Warrant
so lost, stolen, destroyed, or mutilated shall be at any time enforceable by
anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this
Warrant, be entitled to any rights of a stockholder in the Company, either at
law or equity, and the rights of the Holder are limited to those expressed in
the Warrant and are not enforceable against the Company except to the extent set
forth in this Warrant.
(f)) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
(1) In case the Company shall, subsequent to the date hereof,
(A) pay a dividend or make a distribution on its shares of Common Stock in
shares of Common Stock (B) subdivide or reclassify its outstanding Common Stock
into a greater number of shares, or (C) combine or reclassify its outstanding
Common Stock into a smaller number of shares or otherwise effect a reverse
split, the Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
Holder of this Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of shares which, if this Warrant had been
exercised immediately prior to such time, he would have owned upon such exercise
and been entitled to receive upon such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed in this Paragraph (f)(1) shall occur.
(2) In case the Company shall, subsequent to the date hereof,
issue rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
current market price of the Common Stock (as defined in Paragraph (f)(5) of this
Warrant) on the record date mentioned below, the Exercise Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such issuance by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current market price
per share of the Common Stock, and of which the denominator shall be the number
of shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock offered for subscription or purchased (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock or securities convertible into Common Stock are not
delivered after the expiration of such rights or warrants, the Exercise Price
shall be readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
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(3) In case the Company shall, subsequent to the date hereof,
distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph (f)(1) of this Warrant,
or subscription rights or warrants (excluding those referred to in Paragraph
(f)(2) of this Warrant), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
total number of shares of Common Stock outstanding multiplied by the current
market price per share of Common Stock (as defined in Paragraph (f)(5) of this
Warrant), less the fair market value (as determined in good faith by the
Company's Board of Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and of which the denominator shall be
the total number of shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such distribution.
(4) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Paragraphs (f)(1), (2) or (3) of this Warrant,
the number of shares of Common Stock purchasable upon exercise of each Warrant
shall simultaneously be adjusted by multiplying the number of shares of Common
Stock issuable upon exercise of each Warrant in effect on the date thereof by
the Exercise Price in effect on the date thereof and dividing the product so
obtained by the Exercise Price, as adjusted. In no event shall the Exercise
Price per share be less than the par value per share, and, if any adjustment
made pursuant to Paragraph (f)(1), (2) or (3) would result in an exercise price
of less than the par value per share, then, in such event, the Exercise Price
per share shall be the par value per share.
(5) For the purpose of any computation under Paragraphs (f)(2)
and (3) of this Warrant, 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
thirty (30) consecutive trading days commencing 45 trading days before such
date. The closing price for each day shall be the reported last sale price
regular way or, in case no such reported sale takes place on such day, the
average of the reported last bid and asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is admitted
to trading or listed or on Nasdaq, or if not listed or admitted to trading on
such exchange or such System, the average of the reported highest bid and
reported lowest asked prices as reported by Nasdaq, the National Quotation
Bureau, Inc. or other similar organization if Nasdaq is no longer reporting such
information, or if not so available, the fair market price as reasonably
determined in good faith by the Board of Directors.
(6) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments which by
reason of this Paragraph (f)(6) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Paragraph (f) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Paragraph (f) to
the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Paragraph (f), as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of Common Stock, issuance of
warrants to purchase Common Stock or distribution of evidences of indebtedness
or other assets (excluding cash dividends) referred to hereinabove in this
Paragraph (f) hereafter made by the Company to the holders of its Common Stock
shall not result in any tax to the holders of its Common Stock or securities
convertible into Common Stock.
(7) The Company may retain a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular accountants engaged by the Company) to make any computation
required by this Paragraph (f), and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
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(8) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph (f)(1) of this Warrant, the Holder of any
Warrant thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Paragraphs (f)(1) to
(6), inclusive, of this Warrant.
(9) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in this and similar Warrants initially
issued by the Company.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Paragraph (f) of this Warrant, the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted Exercise Price and the adjusted
number of shares of Common Stock issuable upon exercise of each Warrant,
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment, including a statement of the number of additional
shares of Common Stock, if any, and such other facts as shall be necessary to
show the reason for and the manner of computing such adjustment. Each such
officer's certificate shall be made available at all reasonable times for
inspection by the Holder, and the Company shall, forthwith after each such
adjustment, mail, by first class mail, a copy of such certificate to the Holder
at the Holder's address set forth in the Company's Warrant Register.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon Common Stock (other than a regular cash dividend payable out of retained
earnings) or (2) if the Company shall offer to the holders of Common Stock for
subscription or purchase by them any share of any class or any other rights or
(3) if any capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail, return receipt requested, to the Holder, at least fifteen days
prior to the date specified in clauses (i) and (ii), as the case may be, of this
Paragraph (h) a notice containing a brief description of the proposed action and
stating the date on which (i) a record is to be taken for the purpose of such
dividend, distribution or rights, or (ii) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any is to be fixed, as of which the holders of
Common Stock or other securities shall receive cash or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(i) 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 in which 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 of the class issuable upon exercise of this Warrant) 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 shall have
the right thereafter by exercising this Warrant, 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 a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant 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
Warrant. The foregoing provisions of this Paragraph (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
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(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(10) (A) In the event that, at any time during the five year
period commencing October 1, 1999, the Company registers its securities pursuant
to the Securities Act of 1933, as amended (the "Securities Act"), in connection
with a public offering of its securities (other than a registration statement on
Form S-4 or S-8 or subsequent similar forms), the Company shall advise the
registered holders of the Series A Warrants or the Warrant Shares (each such
person being referred to herein as a "holder") by written notice at least one
(1) week prior to the filing of any registration statement under the Securities
Act covering securities of the Company and will upon the request of any such
holder include in any such registration statement such information as may be
required to permit a public offering of the Warrant Shares; provided, however,
that the Company shall not be required to include such Warrant Shares in a
registration statement relating solely to an offering by the Company of
securities for its own account if the managing underwriter shall have advised
the Company that the inclusion of such Warrant Shares will have a material
adverse effect upon the ability of the Company to sell securities for its own
account, and provided further that the holders are not treated less favorably
than others having piggyback registration rights. The Company shall keep such
registration statement current for a period of nine (9) months from the
effective date of such registration statement or until such earlier date as all
of the registered Warrant Shares shall have been sold. In connection with such
registration, if requested by the managing underwriter as a condition to the
inclusion of the Warrant Shares in the registration statement, the holders shall
agree put to sell or otherwise distribute the Warrant Shares pursuant to the
registration statement for such period (the "lock-up period") as the managing
underwriter shall request, in which event the Company will keep the registration
statement effective for six (6) months after the expiration of the lock-up
period.
(B) If the majority holder, as hereinafter defined,
shall give notice to the Company at any time during the two-year period
commencing October 1, 1999, to the effect that such holder contemplates the
sale of the Warrant Shares under such circumstances that a public distribution
(within the meaning of the Securities Act) of the Warrant Shares will be
involved, then the Company shall, subject to Paragraph (j)(1)(C) of this
Warrant, within sixty (60) days after receipt of such notice, file a
registration statement pursuant to the Act, to the end that the Warrant Shares
may be sold under the Securities Act as promptly as practicable
thereafter, and the Company will use its best efforts to cause such registration
to become effective; 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 period, not to
exceed the greater of nine (9) months or such longer period as the registration
statement may be used without requiring audited financial statements covering a
period subsequent to that for which audited financial statements are otherwise
required, as the majority holder may request. Upon receipt of notice the Company
shall promptly give notice to the holder holders of Series A Warrants and shall,
at the request of such holders, include their Warrant Shares in the same manner
as if they had given the notice pursuant to this Paragraph (j)(1)(B). The
holders of the Series A Warrants shall be entitled to only one (1) demand
registration right pursuant to this Paragraph (j)(1)(B).
(C) Notwithstanding the provisions of Paragraph
(j)(1)(B), the Company shall be entitled to defer the filing of the registration
statement demanded pursuant to said Paragraph (j)(1)(B) under the following
circumstances.
(i) If the notice from the majority
holder shall be given during the first two months of the Company's fiscal year,
the Company shall not be required to file the registration statement prior t
thirty (30) days after the filing by the Company of its Form 10-K Annual Report
for the prior fiscal year.
(ii) In the event that the Company has
completed an acquisition or contemplates an acquisition for which financial
statements of the acquired company are required to be included in the
registration statement, the Company shall not be required to file the
registration statement until forty-five (45) days after the required financial
statements (in form and substance appropriate for filing with the Securities and
Exchange Commission) for the company which was or is to be acquired have been
received by the Company.
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(iii) In the event that, at any time, the
Company shall be engaged in confidential negotiations with respect to a business
transaction or business agreement which would have to be disclosed in a
registration statement, the Company's obligation to file the registration
statement or any amendment to a registration statement and the Company's
obligation to keep a registration statement current shall be deferred until
forty-five (45) days after the first to occur of (x) the date that such
negotiations have been terminated, or (y) the date that the transaction
has been consummated, or (z) the date that an agreement relating to the
transaction has been executed and the Company has publicly announced the
transaction.
(2) The following provision of this Paragraph (j) shall also
be applicable:
(A)The Company shall bear the entire cost and expense
of any registration of securities initiated by it under Paragraph (j)(1)(A) of
this Warrant or filed pursuant to Paragraph (j)(1)(B) of this Warrant. Any
holder whose Warrant Shares are included in any such registration statement
pursuant to this Paragraph (j) shall, however, bear the fees of his own
counsel and accountants and any transfer taxes or underwriting discounts
or commissions (including any non-accountable expense allowance)
applicable to the Warrant Shares sold by him pursuant thereto.
(B) The Company shall indemnify and hold harmless
each holder and each underwriter, within the meaning of the Securities Act, who
may purchase from or sell for any such holder any Warrant Shares from and
against any and all losses, claims, damages and liabilities (including fees and
expenses of counsel, which counsel shall, if, in the reasonable opinion of
counsel for the Company, the representation by such counsel of both the Company
and the indemnified parties constitutes a conflict of interest under
applicable Code of Professional Responsibility, be separate from counsel for
the Company, provided, that the Company shall not be required to pay the fees
of more than one firm representing all holders and all other parties who are
entitled to indemnification as a result of the same or similar allegations,
which counsel shall be selected by the holders of a majority of the shares held
by all of such indemnified parties)caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereto or any registration statement under the
Securities Act or any prospectus included therein required to be filed or
furnished by reason of this Paragraph (j) 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 Securities 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 liabilities are caused by any such untrue statement
or alleged untrue statement or omission or alleged omission based upon
information 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 the Securities 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 the Securities Act and each other holder, in the manner
set forth in this Paragraph (j)(2)(B), 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 Paragraph (j) 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 based upon
information furnished to the Company by any such holder or underwriter expressly
for use therein.
(C) Neither the giving of any notice by any holder
nor the making of any request for prospectuses shall impose any upon any holder
making such request any obligation to sell any Warrant Shares or exercise any
Warrants.
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(D) In connection with any registration statement
filed pursuant to this Paragraph (j), the Company shall supply prospectuses
and qualify the Warrant Shares for sale in such states as the Warrant holders
may reasonably designates, provided that the Company shall not be required t
qualify or register the Warrant Shares in any jurisdiction where such
qualification or registration would require the Company to submit generally to
the jurisdiction of such state.
(E) As a condition to the inclusion of the Warrant
Shares of the holder of this Warrant, such holder shall (i) furnish the
information and indemnification as set forth in Paragraph (j)(2)(B) of this
Warrant and (ii) agree not to sale or otherwise transfer any Warrant Shares
pursuant to a registration statement upon receipt of advice from the Company
that the registration statement is no longer current until the holder is advised
that the Warrant Shares may be sold pursuant to the registration statement.
(F) The registration rights contained in this
Paragraph (j) shall relate to the Warrant Shares held by any transferee unless
such transferee may sell such Warrant Shares without restriction whether
pursuant to Rule 144 of the Commission pursuant to the Securities Act or any
subsequent similar rule or otherwise.
(3) The term "majority holder" shall mean the holders of at
least a majority of the shares of Common Stock for which the Series B Warrants
(considered in the aggregate) are exercisable and shall include any owner or
combination of owners of such securities, which ownership shall be calculated by
determining the number of shares of Common Stock held by such owner or owners
resulting from the exercise of any Series B Warrant after giving effect to any
stock dividend, split, reverse split or other recapitalization and the number of
shares of Common Stock issuable upon exercise of any unexercised Series B
Warrants.
(4) The Company's agreements with respect to the Warrant
Shares in this Paragraph (j) shall continue in effect regardless of the exercise
of the Warrants.
(5) The holders of the Warrants Shares shall not be entitled
to registration rights pursuant to this Paragraph (j) if at or prior to the
effective date of such registration statement, such holder may sell all of the
Warrant Shares owned by the holder pursuant to Rule 144 of the Securities and
Exchange Commission under the Securities Act. For purposes of this Paragraph
(j)(5), Warrant Shares shall include shares issued or issuable upon exercise of
all Series B Warrants and Series A Common Stock Purchase Warrants of the Company
which are owned by such holder.
(k) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant or
the Warrant Shares or any other security issued or issuable upon exercise of
this Warrant may not be sold or otherwise disposed of except as follows:
(1) To a person who, in the opinion of counsel for the
Company, is a person to whom this Warrant or Warrant Shares may legally be
transferred without registration and without the delivery of a current
prospectus under the Act with respect thereto and then only against receipt of
an agreement of such person to comply with the provisions of this Paragraph (k)
with respect to any resale or other disposition of such securities which
agreement shall be satisfactory in form and substance to the Company and its
counsel; or
(2) to any person upon delivery of a prospectus then meeting
the requirements of the Act relating to such securities and the offering thereof
for such sale or disposition.
Dated as of November ___, 1997
QUALITY PRODUCTS , INC.
By:
Bruce Weaver, President
8
<PAGE>
PURCHASE FORM
Dated: , 19
________ The undersigned hereby (i) irrevocably exercises this Warrant to the
extent of purchasing shares of Common Stock and hereby makes payment
of $ in payment of the Exercise Price therefor, and (ii) represents
and warrants that the undersigned is an "accredited investor" as
such term is defined in Rule 501 promulgated under the Securities
Act of 1933, as amended.
________ The undersigned hereby (i) irrevocably exercises this Warrant to the
extent of purchasing shares of Common Stock and hereby makes payment
of $ in payment of the Exercise Price therefor by delivery of shares
of Common Stock pursuant to Paragraph (a)(1) of this Warrant, , and
(ii) represents and warrants that the undersigned is an "accredited
investor" as such term is defined in Rule 501 promulgated under the
Securities Act of 1933, as amended.
________ The undersigned hereby (i) irrevocably elects to exchange this
Warrant to the extent of shares of Common Stock pursuant to the
provision of Paragraph (a)(2) of this Warrant, and (ii) represents
and warrants that the undersigned is an "accredited investor" as
such term is defined in Rule 501 promulgated under the Securities
Act of 1933, as amended.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
(Please typewrite or print in block letters)
Signature
Social Security or Employer Identification No.
ASSIGNMENT FORM
FOR VALUE RECEIVED,
hereby sells, assigns and transfer unto
Name
(Please typewrite or print in block letters)
Address
Social Security or Employer Identification No.
The right to purchase Common Stock represented by this Warrant to the extent of
shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint attorney to transfer the same on the books of the Company
with full power of substitution.
Dated: , 19
Signature
Signature Medallion Guaranteed:
9
Exhibit 10.3
EMPLOYMENT AGREEMENT
BRUCE C. WEAVER
AGREEMENT, dated as of October 1, 1997 by and between QUALITY
PRODUCTS, INC., a Delaware corporation having its principal place of business at
560 Dublin Avenue, Columbus, Ohio 43215-2388 ("Employer") and Bruce C. Weaver
("Employee") residing at 87 Lillian Street, Unit 20, Toronto M4S 2H7 Canada.
1. Capacity. Employer hereby employs Employee to serve as
President and Chief Executive Officer of the Employer,and Employee hereby agrees
to accept the foregoing employment.
2. Duties. Employee shall perform executive duties and assume
executive responsibilities consistent with Employee's position in Employer.
Employee agrees to devote his full business time and attention to the
performance of his duties hereunder. Employee shall be entitled to perform his
duties hereunder at such locations in North America as he, in his reasonable
discretion determines (the "Office"), and nothing herein shall be construed to
require Employee to relocate.
3. Term of Agreement. Subject to the provisions of Paragraph 5
hereof, the term of this Agreement (the "Term") shall commence as of the date
hereof and continue until September 30, 2000.
4. Compensation. Salary. During the Term, Employer will pay to
Employee and Employee will accept from Employer a base annual salary of Eighty
Four Thousand ($84,000) Dollars, payable in equal installments at Employer's
usual payroll intervals. Employee shall be reimbursed for all reasonable and
necessary out-of-pocket business expenses (including without limitation, travel
and long distance telephone costs related to the Employer's business) incurred
by him during the course of his employment on behalf of the Employer; provided,
however, that the Employer shall not be responsible for Employee's expenses of
maintaining an Office apart from the Company's principal administrative office.
(b Bonus. During the Term, Employer will pay Employee
a bonus equal to five percent (5%) of the net income of Employer in excess of
$750,000, for each of Employer's fiscal years ending during the Term, as
reported on Employer's consolidated financial statements for such fiscal years.
Such bonus shall be payable within thirty (30) days of the Employer's filing
with the Securities and Exchange Commission of its annual report on Form 10-KS
with respect to the fiscal year for which such bonus is earned.
5. Termination.
This Agreement may be terminated for any of the following reasons:
<PAGE>
(a) Upon the death of Employee, the Agreement and th
Term shall be deemed terminated as of the date of death.
(b) Employer may, upon ten (10) business days written
notice to Employee, terminate the employment of Employee and the Term hereof in
the event that (i)Employee shall be convicted of or plead guilty (which shall
include a plea of nolo contendre) to a misdemeanor involving dishonesty o
moral turpitude or a felony; (ii) Employee's "permanent and total disability" as
such term is used by Section 22(e) of the Internal Revenue Code of 1986,
as amended; (iii) an illegal, immoral or unethical act by the Employee
resulting in or intended to result, directly or indirectly, in gain to the
Employee or a third party at the expense of the Employer, (iv) the Employee's
willful engagement in misconduct that results in material injury to the Employer
or (v) the Employee's continuing inability, or willful and continued failure,
to substantially perform the Employee's duties to the Employer or a breach
of the Employee's duties to the Employer which remains uncured within thirty
(30) days after a written demand for cure is delivered to the Employee by the
Employer, which demand specifically identifies the manner in which it is
believed that the Employee has not substantially performed his duties or
has breached a duty.
6. Partial Invalidity. In the event any one or more of the
provisions of this Agreement shall be judicially held to be invalid, illegal or
unenforceable in any respect, such provision shall be ineffective to the extent
of such invalidity, illegality or unenforceability, but the remainder of this
Agreement shall not in any way be affected thereby. If, moreover, any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be excessively broad as to time, duration, geographical scope, activity
or subject, it shall be construed by limiting and reducing it so as to be
enforceable to the extent compatible with the applicable law as it shall then
appear.
7. Notices. All notices and other communications which are required
or which may be given under this agreement shall be in writing and shall be
deemed to have been duly given or made: if by hand, immediately upon delivery;
if by Federal Express, Express Mail or any other overnight delivery service,
upon receipt; and if mailed by registered or certified mail, return receipt
requested, two days after mailing. All notices, are to be given or made to the
parties at the addresses set forth on the first page of this agreement (or to
such other address as either party may designate by notice in accordance with
the provisions of this paragraph).
8. No Waiver. The waiver by Employer or Employee of a breach of any
provision of the Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach by the other party.
9. Binding on Successors. This Agreement shall inure to the benefit
of and shall be binding upon Employee, his heirs, executors, administrators, and
legal representatives, and shall inure to the benefit of and be binding upon the
Employer and its successors and assigns. The obligations of Employee may not be
delegated and Employee may not assign, transfer, pledge, encumber, hypothecate
or otherwise dispose of this Agreement, or any of his rights hereunder, and any
such attempted delegation or disposition shall be null and void and without
effect.
10. Miscellaneous. This Agreement constitutes the entire
understanding between the parties hereto relating to the subject matter of this
Agreement, superseding any and all prior written or prior or contemporaneous
agreements, proposals or understandings, and no commitments by either party
implied or otherwise outside of this Agreement shall be binding on the parties
hereto unless expressly set forth herein. This Agreement will be interpreted and
construed in accordance with the laws of the State of
2
<PAGE>
Ohio applicable to agreements executed and to be performed wholly within such
state. The parties consent to the jurisdiction and venue of the federal and
state courts in Columbus, Ohio, New York, New York and Wilmington, Delaware for
the resolution of any dispute hereunder. The parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals on the date first above set forth.
QUALITY PRODUCTS, INC.
/s/ Jonathon P. Reuben
BY:-----------------------------------
Jonathon P. Reuben, Vice President
BY: /s/Bruce C. Weaver
----------------------------------
BRUCE C. WEAVER
3
Exhibit 10.4
EMPLOYMENT AGREEMENT
JONATHON P. REUBEN
AGREEMENT, dated as of October 1, 1997 by and between QUALITY
PRODUCTS, INC., a Delaware corporation having its principal place of business at
560 Dublin Avenue, Columbus, Ohio 43215-2388 ("Employer") and Jonathon P. Reuben
("Employee") residing at with an address 23440 Hawthorne Boulevard, Suite 270,
Torrance, California 90505.
1. Capacity. Employer hereby employs Employee to serve as Vice President
and Chief Financial and Accounting Officer of the Employer, and Employee hereby
agrees to accept the foregoing employment.
2. Duties. Employee shall perform executive duties and assume executive
responsibilities consistent with Employee's position in Employer. Employee
agrees to devote his full business time and attention to the performance of his
duties hereunder. Employee shall be entitled to perform his duties hereunder at
such locations in North America as he, in his reasonable discretion determines
(the "Office"), and nothing herein shall be construed to require Employee to
relocate. Employee's duties shall include: (a) consultation with the Company's
accounting personnel and independent auditors with respect to the preparation of
quarterly and annual financial statements for the Company ad its subsidiaries
and the annual audit thereof; (b) the preparation of the Company's and its
subsidiaries' federal, state and local income and other tax returns; and (c)
providing assistance and guidance to the Company's management with respect to
financial statement and tax matters pertaining to the Company. The Company
acknowledges that Employee is a certified public accountant who is currently
self-employed full time and will remain self-employed or otherwise employed full
time apart from his employment with the Company. Employee shall devote such time
to his duties hereunder as is reasonably necessary to allow Employee to complete
such duties on a timely basis, but Employee will not be required to devote any
particular portion of his time and attention to the performance of his duties
hereunder.
3. Term of Agreement. Subject to the provisions of Paragraph 5 hereof, the
term of this Agreement (the "Term") shall commence as of the date hereof and
continue until September 30, 2000.
4. Compensation. During the Term, Employer will pay to Employee and
Employee will accept from Employer an annual salary of Thirty Thousand ($30,000)
Dollars, payable in equal installments at Employer's usual payroll intervals.
Employee shall be reimbursed for all reasonable and necessary out-of-pocket
business expenses (including without limitation, travel and long distance
telephone costs related to the Employer's business) incurred by him during the
course of his employment on behalf of the Employer; provided, however, that the
Employer shall not be responsible for Employee's expenses of maintaining an
Office apart from the Company's principal administrative office.
<PAGE>
5. Termination.
This Agreement may be terminated for any of the following reasons:
(a)Upon the death of Employee, the Agreement and the Term shall be
deemed terminated as of the date of death.
(b)Employer may, upon ten (10) business days written notice to Employee,
terminate the employment of Employee and the Term hereof in the event that (i)
Employee shall be convicted of or plead guilty (which shall include a plea of
nolo contendre) to a misdemeanor involving dishonesty or moral turpitude or a
felony; (ii) Employee's "permanent and total disability" as such term is used by
Section 22(e) of the Internal Revenue Code of 1986, as amended; (iii) an
illegal, immoral or unethical act by the Employee resulting in or intended to
result, directly or indirectly, in gain to the Employee or a third party at the
expense of the Employer, (iv) the Employee's willful engagement in misconduct
that results in material injury to the Employer or (v) the Employee's continuing
inability for whatever reason, or willful and continued failure, to
substantially perform the Employee's duties to the Employer or a breach of the
Employee's duties to the Employer which remains uncured within thirty (30) days
after a written demand for cure is delivered to the Employee by the Employer,
which demand specifically identifies the manner in which it is believed that the
Employee has not substantially performed his duties or has breached a duty.
6. Partial Invalidity. In the event any one or more of the
provisions of this Agreement shall be judicially held to be invalid, illegal or
unenforceable in any respect, such provision shall be ineffective to the extent
of such invalidity, illegality or unenforceability, but the remainder of this
Agreement shall not in any way be affected thereby. If, moreover, any one or
more of the provisions contained in this Agreement shall, for any reason, be
held to be excessively broad as to time, duration, geographical scope, activity
or subject, it shall be construed by limiting and reducing it so as to be
enforceable to the extent compatible with the applicable law as it shall then
appear.
7. Notices. All notices and other communications which are required
or which may be given under this agreement shall be in writing and shall be
deemed to have been duly given or made: if by hand, immediately upon delivery;
if by Federal Express, Express Mail or any other overnight delivery service,
upon receipt; and if mailed by registered or certified mail, return receipt
requested, two days after mailing. All notices, are to be given or made to the
parties at the addresses set forth on the first page of this Agreement (or to
such other address as either party may designate by notice in accordance with
the provisions of this paragraph).
8. No Waiver. The waiver by Employer or Employee of a breach of any
provision of the Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach by the other party.
9. Binding on Successors. This Agreement shall inure to the benefit
of and shall be binding upon Employee, his heirs, executors, administrators, and
legal representatives, and shall inure to the benefit of and be binding upon the
Employer and its successors and assigns. The obligations of Employee may not be
delegated and Employee may not assign, transfer, pledge, encumber, hypothecate
or otherwise dispose of this Agreement, or any of his rights hereunder, and any
such attempted delegation or disposition shall be null and void and without
effect.
2
<PAGE>
10. Miscellaneous. This Agreement constitutes the entire
understanding between the parties hereto relating to the subject matter of this
Agreement, superseding any and all prior written or prior or contemporaneous
agreements, proposals or understandings, and no commitments by either party
implied or otherwise outside of this Agreement shall be binding on the parties
hereto unless expressly set forth herein. This Agreement will be interpreted and
construed in accordance with the laws of the State of Ohio applicable to
agreements executed and to be performed wholly within such state. The parties
consent to the jurisdiction and venue of the federal and state courts in
Columbus, Ohio, New York, New York and Wilmington, Delaware for the resolution
of any dispute hereunder. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals on the date first above set forth.
QUALITY PRODUCTS, INC.
/S/ BRUCE C. WEAVER
BY:------------------------------
BRUCE C. WEAVER, President
/S/ JONATHON P. REUBEN
BY:----------------------------------
JONATHON P. REUBEN
3
Exhibit 10.5
EMPLOYMENT AGREEMENT
AGREEMENT, made this 8th day of December, 1997, by and between QPI
Multipress, Inc., an Ohio corporation, with offices located at 560 Dublin
Avenue, Columbus, Ohio 43215-2388 ("Company"), and Theodore P. Schwartz,
residing at 3817 Lyon Drive, Columbus, Ohio 43220 ("Executive").
W I T N E S S E T H :
WHEREAS, Company is desirous of employing Executive as President of
Company and a member of the Board of Directors, and Executive is desirous of
committing himself to serve Company in such capacity, all upon the terms and
subject to the conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto, intending to be legally bound,
agree as follows:
1. Employment.
Company agrees to employ Executive, and Executive agrees to be
employed by Company, upon the terms and subject to the conditions of this
Agreement.
2. Term.
The employment of Executive by Company as provided in Section 1 will
be for a period commencing on December 15, 1997, and ending December 31, 2002,
unless sooner terminated as hereinafter provided (the "Term").
3. Duties; Best Efforts.
(a)Executive shall serve as President of Company, subject to policy directions
from the Board of Directors of Company. Executive shall have supervision and
control over, and responsibility for, all day to day operations of Company,
and shall have such other powers and duties as may be from time to time
<PAGE>
prescribed by the Board of Directors of Company, provided that the nature of
Executive's powers and duties so prescribed shall not be inconsistent with
Executive's position and duties hereunder. Notwithstanding the foregoing,
the Company's selling, general and administrative expenditures shall be subject
to budgets submitted to and approved by Company's Board of Directors, and
Executive shall not have authority to authorize or approve unbudgeted
expenditures without prior Board approval.
(b)Executive shall devote all of his business time, attention and
energies to the business and affairs of Company, shall use his best efforts to
advance the best interests of Company and its stockholder Quality Products,
Inc., and shall not during the Term be engaged in any other business activity,
whether or not such business activity is pursued for gain, profit or other
pecuniary advantage.
4. Place of Performance.
In connection with his Employment by Company, Executive shall be
based at the principal offices of Company, which shall be in Ohio, and Executive
shall have reasonable discretion regarding his absence therefrom on sales travel
status.
5. Compensation.
(a) Base Salary. Company shall pay to Executive a base
salary (the "Base Salary") at a rate of not less than $120,000 per annum,
payable in equal installments during the Term in accordance with the
Company's usual payroll practices. The Board of Directors of Company will
review the Base Salary at least annually during the Term with increases
based upon the Cost of Living Index of the United States Department of Labor.
The Base Salary provided hereunder, as increased by the Board of Directors of
Company from time to time, shall not be reduced without Executive's consent.
(b) Out-of-Pocket Expenses. Company shall promptly pay
or reimburse to Executive the reasonable and
properly documented expenses incurred by him in the
performance of his duties hereunder, including,
without limitation, those incurred in connection
with business related travel or entertainment.
2
<PAGE>
(C) Participation in Benefit Plans. Executive shall
be entitled to participate in and receive benefits under any 401(k) plan
(after 6 months of employment), disability plan, health plan or any other
employee benefit plan or arrangement currently existing or made available in
the future by Company to its executives and key management employees.
(d) Vacation. Executive shall be entitled to paid
vacation personal days in each calendar year beginning in 1998 of four (4)weeks,
prorated in any calendar year during which Executive is employed hereunder for
less than an entire year in accordance with the number of complete months in
such year during which he is so employed. Unused vacation/personal days shall
not accrue to future years. Executive shall also be entitled to all paid
holidays given by Company to its executives and key management employees.
(e) Bonus Compensation. For each fiscal year during
the Term, Executive will receive a bonus based upon Company's cumulative margins
calculated as follows: 5.0% of Company Gross Margins 2.0 million up to $2.75
million 7.5% of Company Gross Margins > $2.75 million Bonus for any partial
fiscal years during the Term will be prorated based upon the number of days
employed during that fiscal year divided by 365.
(f) Company Gross Margins shall consist of the
Company's total gross margins for each fiscal year of the term, as reported in
the Company's financial statements forming a part of Quality Products, Inc.'s
audited consolidated financial statements for each such year, after deduction
of sales commissions payable to independent sales epresentatives. Company
represents that the Company's gross margin for the year ended September 30, 1997
was approximately $2,345,000 on net sales of approximately $6,340,000, and that
such figures were used by Company to establish the baseline for Executive's
bonus. Such gross margin was approximately 37% of net sales for fiscal 1997.
Company represents to Executive that its gross margin exceeded 30% of sales in
fiscal years 1995 and 1996. Based upon the foregoing, Executive represents that
he will use his best efforts as Company President to maintain a Company Gross
Margin of 30% or better, subject to economic conditions and factors beyond his
and Company's control.
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<PAGE>
(g) Signing Bonus: Executive shall be paid a cash
bonus of $10,000 on his first day of employment with Company.
(h) Purchase of Executive's PH Group, Inc. Stock
and Beneficial Interests in PH Group, Inc. Stock. Company and Executive agree
that it is in the Company's and Executive's best interests that Executive not
have investments in the Company's competitors.
(i) PH Group, Inc. Stock. Executive will
use his best efforts to sell all of his PH Group, Inc. stock in arms-length
transactions for $5.00 per share pursuant to which neither Executive nor any
member of his family will retain any continuing economic or other interest in
such shares by no later than April 30, 1998. In the event that such sale has not
occurred by April 30, 1997, then on and after May 1, 1998 and through
July 31, 1998, Company shall have an assignable option to purchase all of
Executive's unsold PH Group, Inc. stock at a price of $5.00 cash per share.
(ii) Phoenix Management Ltd. Executive has
disclosed in connection herewith, his ownership of membership interests in
Phoenix Management Ltd., which beneficially owns stock in PH Group, Inc.
Company acknowledges that Executive's pre-existing ownership interest in
Phoenix Management Ltd., is not per se a violation of any term of this Agreement
nor a conflict of interest with any duties hereunder. Executive represents
that he will exercise his best efforts to sell his Phoenix interest in
arms-length transactions, provided owever, that Executive shall not be
under any duty to accept less than fair market value (in cash) for his Phoenix
interests. Executive covenants not to buy or acquire any additional beneficial
interest in PH Group, Inc., Phoenix or any other company which is a competitor
of the Company on or after the date hereof.
(i) Executive shall be granted an option to purchase
50,000 shares of Quality Products, Inc. Common Stock for $2.00 per share
during the period beginning October 1, 1999 and ending September 30, 2001
or such earlier date as the Term ends.
4
<PAGE>
(j) Other Benefits. In addition to the benefits
specified pursuant to this Section 5, Company shall pay the premiums on $150,000
of term life insurance for Executive's designated beneficiary, together with
providing Executive with the use of a Chrysler LHS automobile or comparable
automobile and shall pay the costs of insurance, epairs and maintenance thereon.
6. Termination.
Executive's employment hereunder shall be terminated upon
Executive's death and may be terminated by Company (which termination shall end
the Term) as follows:
(a) Company may, upon thirty (30) days written notice
to Executive, terminate the employment of Executive and the Term hereof in the
event (i) that Executive shall be convicted of or plead guilty (which shall
include a plea of nolo contendre) to a misdemeanor involving dishonesty or moral
turpitude or a felony; (ii) of an illegal, immoral or unethical act by the
Executive resulting in or intended to result, directly or indirectly, in gain
to the Executive or a third party at the expense of the Company, (iii) of the
Executive's willful engagement in misconduct that results in material injury
over $2,000) to the Company or (iv) of the Executive's continuing inability, or
willful and continued failure, to substantially perform the Executive's duties
to the Company or a breach of the Executive's duties to the Company which
remains uncured within thirty (30) days after a written demand for cure is
delivered to the Executive by the Company, which demand specifically
identifies the manner in which it is believed that the Executive has not
substantially performed his duties or has breached a duty.
(b) (i)Upon not less than thirty (30) days' written notice
by the Board of Directors of Company to Executive in the event that (i) the
Board shall have received a written statement from a reputable independent
physician to the effect that Executive shall have become so incapacitated as to
be unable to resume, within the ensuing three (3) months, his employment
hereunder by reason of physical or mental illness, or (ii) Executive shall not
have substantially performed his duties hereunder for three (3) months by reason
of any such physical or mental illness.
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<PAGE>
(ii)In the event of the termination of Executive's
employment pursuant to Section 6(b)(i) hereof, for the shorter of six (6)
months following any such termination or the balance of the Term (as if
such termination had not occurred), as liquidated damages in full
satisfaction of Executive's claims under this Agreement, Company shall (i)
continue to pay Executive the Base Salary in effect at the time of such
termination, less the amount, if any, then payable to Executive under any
disability benefits of Company, (ii) maintain, at Company expense, all
medical and other health, accident, life or other disability plans and
programs in which Executive was entitled to participate immediately prior to
such termination.
(C)In the event of the termination of Executive's
employment as a result of Executive's death, Company shall (i) pay to
Executive's estate his Base Salary through the date of his death, (ii) pay to
Executive's estate within 120 days after the end of the fiscal year in which
Executive's death occurred, the amount which would have been payable to
Executive pursuant to Executive's Section 5(e) bonus for the fiscal year in
which his death occurred pro-rated to the date of his death and (iii) for the
longer of one year following his death or the balance of the Term (as if such
termination had not occurred), maintain, at its expense, for the continued
benefit of Executive's family, all medical and other health, accident, life
or other disability plans and programs in which Executive's family was
entitled to participate immediately prior to his death.
(d) In the event that any termination by Company of
Executive's employment is determined not to have been in accordance with
Sections 6(a), 6(b) or 6(c) and therefore constitutes a breach of the terms of
this Agreement or applicable law, then Company shall pay Executive as
liquidated damages in lieu of all other compensation or damages, the following:
(a) Base Salary equal to the lesser of $240,000 or the Base Salary due over the
unexpired Term; (b) the amount which would have been payable to Executive
pursuant to Executive's Section 5(e) bonus for the fiscal year in which his
termination occurred pro-rated to the date of termination; (c) the cost of all
medical, life and disability insurance benefits Executive was receiving from
Company prior to the termination, for a period of the shorter of two years
following the termination or the unexpired Term. Company's obligation to pay
liquidated damages hereunder shall not be diminished or reduced by any incom
which Executive may earn in subsequent employment.
6
<PAGE>
7. Executive's Representations.
(a)Executive represents and warrants to Company that
he is not subject to any written contract or agreement (including, without
limitation, any non-compete,non-disclosure or non- solicitation agreement or
covenant), which prevents or inhibits his accepting employment with the
Company or his performance of his obligations under this Agreement;
that he has resigned from all other employment; and that he has not
removed or retained any business records from his prior employer. Executive
shall indemnify and hold harmless Company (and its officers, directors and
shareholders) against any liability in connection with Executive's breach of
the foregoing representations and warranties. Provided that Executive is
not in breach of the foregoing representations and warranties, Company shall
defend and indemnify Executive at its expense against any action in tort
or contract by Executive's current employer concerning Executive's
termination of such employment, acceptance of employment by Company and sale of
his PH stock and Phoenix membership interests.
(b)Executive represents and warrants that he is full
capable of performing the essential functions of his position hereunder and is
suffering from no condition which would preclude such performance.
8. Limited Non-Competition Covenant.
During the Term and for a one-year period following the end of the
Term, Executive shall not engage in the marketing or sale of industrial presses
in the states of Ohio, Indiana and Michigan; provided, however, that in the
event that Executive's termination by Company is determined not to have been in
accordance with Sections 6(a) or 6(b)(i) of this Agreement or in violation of
applicable law, he shall not be subject to the restrictions of this section 8.
7
<PAGE>
9. Specific Remedies. If Executive commits a breach of any of the
provisions of Section 8 hereof, such violation shall be deemed to be grounds for
termination pursuant to Section 6(a)(iii) hereof and Company shall have the
right, in addition to its other remedies, to have the provisions of Section 8
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach will cause ir reparable injury to
Company and that money damages alone will not provide an adequate remedy to
Company.
10. Disputes. If Company or Executive shall dispute any termination
of Executive's employment hereunder or if a dispute concerning any payment
hereunder shall exist:
(a) either party shall have the right to compel
arbitration of the dispute in the City of Columbus, Ohio under the rules of the
American Arbitration Association by giving written notice of arbitration to
the other party within thirty (30)days after notice of such dispute has been
received by the party to whom noticehas been given; and
(b) if such dispute (whether or not submitted to
arbitration pursuant to Section 10(a) hereof) results in a determination that
(i) Company did not have the right to terminate Executive's employment under
the provisions of this Agreement or (ii) the position taken by Executive
concerning payments to Executive is correct, Company shall promptly pay, or
if theretofore paid by Executive, shall promptly reimburse Executive for, all
costs and expenses (including reasonable attorney's fees) reasonably
incurred by Executive in connection with such dispute.
11. Successors; Binding Agreement.
In the event of a future disposition by Company (whether direct or
indirect, by sale of assets or stock, merger, consolidation or otherwise) of all
or substantially all of its business and/or assets in a transaction to which
Executive consents, Company will require any successor, by agreement in form and
substance satisfactory to Executive, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that Company would be
required to perform if no such disposition had taken place. If the future
disposition by Company is not satisfactory to Executive, but is completed in
8
<PAGE>
any event, then Executive may resign and Company's successor and Executive shall
be released from all obligations under this Agreement.
This Agreement and all rights of Executive hereunder shall inure to
the benefit of, and be enforceable by, Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees and
legatees. If Executive should die while any amount would still be payable to him
hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Executive's estate.
12. Notices.
All notices, consents or other communications required or permitted
to be given by any party hereunder shall be in writing (including telecopy or
other similar writing) and shall be given by personal delivery, certified or
registered mail, return receipt requested, postage prepaid, or telecopy (or
other similar writing) as follows:
To Company: QPI Multipress, Inc.
560 Dublin Avenue
Columbus, Ohio 43215-2388
Attn: Bruce C. Weaver
Fax: (614) 228-2358
With a copy to: Richard W. Cohen, Esq.
Robinson Brog Leinwand Greene Genovese & Gluck
1345 Avenue of the Americas, 31st Floor
New York, New York 10105-0143
Fax: (212) 956-2164
To Executive: Theodore P. Schwartz
3817 Lyon Drive
Columbus, Ohio 43220
Fax: (614) 457-3998
With a copy to: Gary Greenwald, Esq.
Shayne & Greenwald
221 S. High Street
Columbus, Ohio 43215
Fax: (614) 221-4070
9
<PAGE>
or at such other address or telecopy number (or other similar number) as either
party may from time to time specify to the other by notice given in similar
manner. Any notice, consent or other communication required or permitted to be
given hereunder shall have been deemed to be given on the date of mailing,
personal delivery or telecopy or other similar means (provided an appropriate
delivery receipt is received by sender) thereof or, in the case of personal
delivery or telecopy or other similar means, the day of delivery thereof.
13. Modifications and Waivers.
No term, provision or condition of this Agreement may be modified or
discharged unless such modification or discharge is authorized by the Board of
Directors of Company and is agreed to in writing and signed by Executive. No
waiver by either party hereto of any breach by the other party hereto of any
term, provision or condition of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
14. Entire Agreement.
This Agreement constitutes the entire understanding between the
parties hereto relating to the subject matter hereof, superseding all
negotiations, prior discussions, preliminary agreements and agreements relating
to the subject matter hereof made prior to the date hereof. This Agreement is
the product of arms-length negotiation between Executive and Company, with each
party having been represented by legal counsel. All provisions herein shall be
deemed to have been drafted by both parties, jointly.
15. Law Governing.
Except as otherwise explicitly noted, this Agreement shall be
governed by and construed in accordance with the laws of the State of Ohio
(without giving effect to conflicts of law).
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16. Invalidity.
Except as otherwise specified herein, the invalidity or
unenforceability of any term or terms of this Agreement shall not invalidate,
make unenforceable or otherwise affect any other term of this Agreement which
shall remain in full force and effect.
11
<PAGE>
17. Headings.
The headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year set forth above.
QPI Multipress, Inc.
/S/Bruce C. Weaver
By:---------------------
Bruce C. Weaver
Executive:
/s/ Theodore P. Schwartz
By:-------------------------
Theodore P. Schwartz
12
Exhibit 10.6
QUALITY PRODUCTS, INC.
1997 STOCK OPTION PLAN
SECTION I. GENERAL PROVISIONS
1.1 Purposes of the Plan and Types of Grants
This 1997 Stock Option Plan (the "Plan") of Quality Products, Inc., a
Delaware corporation (the "Company") is designed to enable the Company to
attract, retain and motivate its employees by providing for or increasing the
proprietary interest or such employees in the Company through the granting of
options. The term "option," as used in this Plan, shall include incentive stock
options ("Incentive Stock Options") and non-qualified stock options
("Non-qualified Stock Options"). It is intended that the Incentive Stock Options
granted under the Plan shall constitute "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986 as now in effect or
as later amended (the "Code") and shall be subject to the tax treatment
described in Section 421 of the Code. Except as otherwise expressly provided
herein, the term "Company" shall include any "parent corporation" and
"subsidiary corporation" of the Company, as such terms are used in Sections
424(e) and 424(f), respectively, of the Code.
1.2 Stock Subject to the Plan
The maximum number of shares which will be issuable in respect of grants
under the Plan shall be an aggregate of 150,000 shares of the Company's Common
Stock, par value $.00001 per share (the "Common Stock"), subject to adjustment
as provided in Section 3 herein. Such shares may be authorized and unissued
shares, or shares which shall have been purchased or acquired by the Company for
this or any other purpose in accordance with the Plan. In the event any options
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part, those shares relating to an unexercised option shall not again be
available for the purposes of the Plan.
1.3 Administration of the Plan
(a) The Plan shall be administered by the Board of Directors or
committee (collectively, the "Board") designated by the Board of Directors;
provided however, if administered by a committee, such committee, unless
otherwise permitted by Section 16 of the Exchange Act (as defined), shall be
composed solely of two or more "Non-Employee Directors," as such term is used by
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(b) The Board shall determine, within the limits of the express
provisions of the Plan, the individuals to whom, and the time or times at which
options shall be granted, the number of shares to be subject to each option, the
terms, conditions, restrictions and limitations of each option to be granted,
the expiration date of each option (the "Expiration Date"), whether and to what
extent options granted under the Plan shall be designated as Incentive Stock
Options or Non-qualified Stock Options, the exercise price of each option and
the time or times within which (during the term of the option) all or portions
of each
<PAGE>
option may be exercised. In making such determinations, the Board shall take
into account such factors as the Board in its discretion shall deem relevant.
(c) Subject to the express provisions of the Plan, the Board may
interpret the Plan; correct any defect, supply any omission or reconcile any
inconsistency in the Plan; prescribe, amend and rescind rules and regulations
relating to the Plan; determine the terms and provisions of each option (which
need not be identical); and make all other determinations necessary or advisable
for the administration of the Plan.
1.4 Eligibility
Options may be granted only to persons who are employees of the
Company, including employees who are directors and/or officers.
SECTION II. STOCK OPTIONS
2.1 General Limitation on Incentive Stock Options
(a) The aggregate fair market value (determined as of the date on
which the option is granted) of stock with respect to which options designated
as Incentive Stock Options, together with incentive stock options under any
other plan of the Company, are exercisable for the first time by any employee in
any calendar year shall not exceed $100,000. In addition, no options designated
as Incentive Stock Options may be granted under the Plan if such grant, together
with any other applicable grant of Incentive Stock Options under the Plan or
incentive stock options under any other plan of the Company would exceed any
other applicable maximum established under Section 422 of the Code for Incentive
Stock Options. If an option granted under the Plan which is designated as an
Incentive Stock Option exceeds such limitations or otherwise fails to qualify as
an Incentive Stock Option, such option, to the extent of such excess or failure,
shall be a separate Non-qualified Stock Option.
2.2 Exercise Price
The price at which shares of Common Stock may be purchased
pursuant to the exercise of Incentive Stock Options granted under the Plan
("Exercise Price") shall be established by the Board, but shall not be less than
100% of the fair market value of the Common Stock on the date the option is
granted; provided, however, that the Exercise Price with respect to Incentive
Stock Options must be not less than 110% of the fair market value of the Common
Stock on the date the option is granted if an optionee owns (or is deemed to own
under applicable provisions of the Code and rules and regulations promulgated
thereunder) more than 10% of the combined voting power of all classes of the
stock of the Company. The price at which shares of the Common Stock may be
purchased pursuant to the exercise of Non-qualified Stock Options shall be
determined by the Board, but shall not be less than 75% of the fair market value
of the Common Stock on the date the option is granted. The fair market value of
the Common Stock on any day shall be the value of a share of Common Stock as
reported on the stock exchange on which the Common Stock is listed (including an
automated system of quotation transactions) and/or determined in accordance with
any applicable resolutions or regulations of the Board in effect at the relevant
time.
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<PAGE>
2.3 Term of Each Option
The term of each option shall be for such period as the Board
shall determine, but not more than ten years from the date of the granting
thereof, provided that if an optionee owns (or is deemed to own under applicable
provisions of the Code and rules and regulations promulgated thereunder) more
than 10% of the combined voting power of all classes of the stock of the
Company, and an option granted to such optionee is intended to qualify as an
Incentive Stock Option, the term of such option shall be no more than five
years.
2.4 Exercise of Options
(a) Options granted under the Plan shall be exercisable as
provided by the Board and evidenced in the option agreement or instrument.
(b) The Exercise Price of the shares as to which an option shall
be exercised shall be paid in full at the time of exercise by cash or check
(subject to collection).
2.5 Non-Transferability of Options
(a) Any option granted hereunder shall by its terms be
nontransferable by the optionee other than by will or the laws of the descent
and distribution and shall be exercisable during the optionee's lifetime only by
him or his guardian or legal representative.
2.6 Termination of Employment or Other Service
(a) If an optionee ceases to be employed by the Company for any
reason other than Good Cause (as defined), disability (as such term is defined
below) or death, each outstanding option granted to such optionee under the Plan
shall be exercisable only to the extent it was exercisable at the time of such
termination of employment, and it may not be exercised more than three months
after the date of termination of employment or, if earlier, the date specified
in the option agreement or instrument. If an optionee ceases to be an employed
by the Company by reason of death or disability, then each outstanding option
granted to the optionee under the Plan shall be exercisable only to the extent
it was exercisable at the time of such termination of employment, and it may not
be exercised more than one year after the date of such termination of employment
or, if earlier, the date specified in the option agreement or instrument. For
the purpose of this Section 2.6, "disability" or "disabled" shall have the
meaning ascribed to the term "permanent and total disability" by Section 22(e)
of the Code.
(b) This Option, to the extent unexercised, shall immediately
terminate and be of no further force and effect upon the termination of
Grantee's relationship with the Company for Good Cause (as defined). The term
"Good Cause" as used herein shall mean (i) Employee shall be convicted of or
plead guilty (which shall include a plea of nolo contendre) to a misdemeanor
involving dishonesty or moral turpitude or a felony; (ii) Employee's "permanent
and total disability" as such term is used by Section 22(e) of the Internal
Revenue Code of 1986, as amended; (iii) an illegal, immoral or unethical act by
the Employee resulting in or intended to result, directly or indirectly, in
substantial gain to the Employee or a third party at the expense of the
Employer, (iv) the Employee's willful engagement in misconduct that results in
material
3
<PAGE>
injury to the Employer or (v) the Employee's willful and continued failure
substantially to perform the Employee's duties to the Employer or a breach of
the Employee's duties to the Employer which remains uncured within thirty (30)
days after a written demand for care is delivered to the Employee by the
Employer, which demand specifically identifies the manner in which it is
believed that the Employee has not substantially performed his duties or has
breached a duty.
(c) Notwithstanding anything to the contrary herein, an option may
not, under any circumstances, be exercised subsequent to its Expiration Date.
2.7 Option Instruments
Options shall be evidenced by an instrument or agreement
indicating the date of grant, and shall contain such terms and conditions,
consistent with the Plan, as the Board shall approve.
SECTION III. ANTI-DILUTION PROVISIONS
3.1 Adjustments and Corporate Reorganizations
(a) If the outstanding shares of the class of stock subject to
options granted pursuant to the plan are increased or decreased, or are changed
into or exchanged for a different number or kind of shares or securities, as a
result of one or more reorganizations, recapitalizations, stock splits, reverse
stock splits, stock dividends or the like, appropriate adjustments shall be made
in the number and/or kind of shares or securities for which the unexercised
portions of such options may thereafter be exercised, all without any change in
the aggregate exercise price applicable to the unexercised portions of such
options, but with a corresponding adjustment in the exercise price per share or
other unit. Such adjustments shall be made by or under authority of the Board
whose determinations as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive.
(b) 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 of the class issuable upon exercise of options granted pursuant
to the plan) 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 options granted pursuant to the Plan shall have the right thereafter
by exercising such option, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such event by a holder of the
number of shares of Common Stock which might have been purchased upon exercise
of such option immediately prior to such event. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for above.
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<PAGE>
SECTION IV. MISCELLANEOUS
4.1 Compliance with Securities Laws and Stock Exchange Requirements
Each option granted under the Plan shall be subject to the
requirement that, if at any time the Board shall determine, in its sole
discretion, that the registration, qualification or listing of the shares
subject to such option upon a securities exchange (which for the purposes of
this Section 4.1 shall include NASDAQ or other similar automated system of
quotation) or under any state or federal law, or the consent or approval of any
government regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting or exercise of such option, the Company shall not
be required to issue such shares unless such registration, qualification,
listing, consent or approval shall have been effected or obtained free of any
conditions not reasonably acceptable to the Board. Nothing in the Plan or any
agreement or grant hereunder shall obligate the Company to effect any such
registration, qualification or listing.
4.2 Withholding Taxes
The Company shall have the right to deduct any sums that foreign,
federal, state or local tax law requires to be withheld with respect to the
exercise of any option, or as otherwise may be required by such laws. The
Company may require as a condition to issuing or delivering shares upon exercise
of the option that the holder of an option or other person exercising the option
pay any sums that foreign, federal, state, or local tax law requires to be
withheld with respect to such exercise. This authority shall permit the Company
to withhold or receive shares or other property and to make cash payments in
respect thereof in satisfaction of the optionee's tax obligations, including tax
obligations in excess of mandatory withholding requirements, subject to and only
to the extent authorized by the Board. The Company shall not be obligated to
advise any optionee of the existence of the tax or the amount which the Company
will be so required to withhold.
4.3 Amendment and Termination
The Board of Directors may from time to time amend and at any time
rescind or terminate the Plan as it shall deem advisable; provided, however,
that no change that would impair the rights of the optionees may be made in
options previously granted without the consent of the optionees.
4.4 No Rights Conferred
Nothing contained herein will be deemed to give any individual any
right to receive an option under the Plan or to be retained in the employ or
service of the Company, nor shall this Plan nor any option granted hereunder be
construed as a contract of employment with any employee.
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<PAGE>
4.5 Governing Law
The Plan and each agreement or instrument evidencing an option
shall be governed by and construed in accordance with the laws of the State of
Delaware applicable to contracts made and performed within such state.
4.6 Term of the Plan
The Plan shall become effective as of August 8, 1997 by action of
the Board; provided, however, that the grant of an option designated as an
Incentive Stock Option shall be deemed to be Non-qualified Stock Option unless
the Plan is approved by the stockholders of the Company during the period and in
the manner required by Section 422 of the Code.
6
Exhibit 10.7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is made and dated as of the 25th
day of November, 1997, by and among Quality Products, Inc., a Delaware
corporation ("Quality"), QPI Multipress, Inc., an Ohio corporation and
wholly-owned subsidiary of Quality ("Multipress"), (Quality and Multipress are
referred to collectively, as the "Borrower") and Eastlake Securities, Inc., a
New York corporation, for itself and as agent for the holders of beneficial
interests in the Note (as hereinafter defined) pursuant to a certain
Subscription Agreement and Participation Agreement dated as of September 22,
1997 among Quality, such holders of beneficial interests ("Holders") and
Eastlake Securities, Inc. (the "Agent").
RECITALS
A. The Borrower has requested the Agent to extend credit to
the Borrower, and the Agent has agreed to do so.
B. The Borrower and the Agent desire to set forth herein the
mutually agreed upon terms and conditions of such credit
extension.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Term Loan Facility
(a) Term Loan. On the terms and subject to the
conditions set forth herein, the Agent shall,
contemporaneously herewith, advance a loan (the
"Term Loan") to the Borrower in the amount of
$1,500,000, in one disbursement, and the
Borrower agrees to borrow such sum from the
Agent.
<PAGE>
(b) Calculation of Interest. The Borrower shall pay
interest on the outstanding principal balance of
the Term Loan from the date disbursed to but not
including the date of payment at a rate per
annum equal to six percent (6%).
(c) Payment of Interest. Interest accruing on the
Term Loan shall be payable quarterly on the last
business day of each calendar quarter,
commencing December 31, 1997, and a final
payment on the Final Maturity Date in the amount
of the interest then accrued but unpaid.
(d) Repayment of Principal. The principal of the
Term Loan shall be payable in twelve (12)
consecutive equal installments of $50,000, each
such installment payable on the last Business
Day of each calendar quarter, commencing on
December 31, 1997, and one final installment in
the full remaining outstanding principal balance
of the Term Loan on the Final Maturity Date.
2. Miscellaneous Provisions
(a) Use of Proceeds. The proceeds of the Term Loan
shall be utilized by the Borrower for payment of
all indebtedness owed to:
(i) The Provident Bank;
(ii) the $235,000 outstanding principal
balance, plus interest (6%) accrued,
with respect to $250,000 lent
($15,000 having been repaid) by the
Agent in August and October 1997
which Borrower used to settle certain
claims. The balance, if any, may be
utilized by Borrower for working
capital.
(b) Note. The obligation of the Borrower to repay
the Term Loan shall be evidenced by one note
payable to the order of the Agent, as agent for
the Holders, in the form of that attached hereto
as Exhibit A (the "Note").
(c) Nature and Place of Payments. All payments made
on account of the Obligations shall be made by
the Borrower, without setoff or counterclaim, in
lawful money of the United States in immediately
available funds, free and clear of and without
deduction for any taxes, fees, or other charges
of any nature whatsoever imposed by any taxing
authority and must be received by the Agen by
3:00 P.M., Eastern time, on the day of payment,
it being expressly agreed and understood that if
a payment is received after 3:00 P.M., Eastern
time, by the Agent, such payment will be
considered to have been made by the Borrower on
the next succeeding Business Day and interest
thereon shall be payable by the Borrower at the
rate of twelve percent (12%)during such
extension. All payments on account of the
Obligations shall be
2
<PAGE>
made to the Agent at its office located at 575
Lexington Avenue, New York, New York 10022.
(d) Postmaturity Interest. Any Obligations not paid
when due (whether at stated maturity, upon
acceleration or otherwise) shall bear interest
from the date due until paid in full at a per
annum rate equal to twelve percent (12%).
(e) Computations. All computations of interest and
fees payable hereunder shall be based upon a
year deemed to consist of 360 days for the
actual number of days elapsed.
(f) Prepayments.
(i) The Borrower may prepay the Term
Loan, in whole at any time or in part
from time to time, upon not less than
one Business Day's prior written
notice to the Agent. Principal
amounts prepaid shall be applied to
installments on the Term Loan in
inverse order of maturity.
(ii) The Borrower shall pay in connection
with any prepayment hereunder all
interest accrued but unpaid on the
Term Loan concurrently with payment
to the Agent of any principal
amounts.
(g) Collateral Security; Additional Documents. A
collateral security for the Obligations, the
Borrower shall execute and deliver to the Agent,
(i) a security agreement in the form of that
attached hereto as Exhibit B (the "Security
Agreement"),pursuant to which the Borrower shall
pledge, assign, and grant to the Agent a first
priority security interest in and lien upon the
Collateral and (ii) such UCC-1 financing
statements as the Agent may require. The
Borrower further agrees to execute and deliver
or to cause to be executed and Delivered to the
Agent from time to time such confirmatory and
supplementary security agreements, financing
statements, consents of and notices to third
parties and such other documents, instruments
and agreements as the Agent may reasonably
request that are in the Agent's judgment
necessary or desirable (the Security Agreement,
the UCC-1 financing statements referred to in
subparagraph (ii) above, and such additional
documents, instruments, and agreements being
referred to herein as the "Security Documents").
3. Conditions to Making Term Loan
As conditions precedent to the obligations of the Agent to
make the Term Loan:
(a) Delivery of Documents. The Borrower shall have
delivered or shall have had delivered to the
Agent, in form and substance satisfactory to the
Agent and its counsel, each of the following:
(i) A duly executed copy ofthis Agreement
(ii) Duly executed copies of each of the
other Loan Documents;
(iii) Such credit applications, financial
statements, authorizations, and such
information concerning the Borrower
and its business, operations and
condition (financial and otherwise)
as the Agent may reasonably request;
(iv) Certified copies of resolutions of
the Board of Directors of the
Borrower approving the execution and
delivery of the Loan Documents;
(v) A certificate of the Secretary or an
Assistant Secretary of the Borrower
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<PAGE>
certifying the names and true
signatures of the officers of the
Borrower authorized to sign the Loan
Documents;
(vi) A copy of the Certificate or Articles
of Incorporation of each Borrower,
certified by the Secretary of State
of its respective state of
incorporation as of a recent date;
(vii) A copy of the Bylaws or Code of
Regulations of each Borrower,
certified by the Secretary or an
Assistant Secretary of the Borrower
as of the date of this Agreement as
being accurate and complete;
(viii) A certificate of good standing or
status of each Borrower from the
Secretary of State of its respective
state of incorporation as of a recent
date;
(ix) Certificates of authority and good
standing of the Borrower for each
state in which the Borrower is
qualified to do business; and
(x) Acknowledgment copies of all UCC-1
financing statements filed with
respect to the Collateral accompanied
by a search report showing such
financing statements as duly filed
and evidencing that the security
interest of the Agent in the
Collateral will be prior to all other
security interests of record.
(b) Approvals, etc. All acts and conditions
(including, without limitation, the obtaining of
any necessary regulatory approvals and the
making of any
4
<PAGE>
required filings, recordings, or registrations)
required to be done and performed and to have
happened precedent to the execution, delivery,
and performance of the Loan Documents and to
constitute the same legal, valid, and binding
obligations, enforceable in accordance with
their respective terms, shall have been done and
performed and shall have happened in due and
strict compliance with all applicable laws.
(c) Documentation Acceptable. All documentation,
including, without limitation, documentation for
corporate and legal proceedings in connection
with the transactions contemplated by the Loan
Documents shall be satisfactory in form and
substance to the Agent and its counsel.
(d) Representations and Warranties. The
representations and warranties of the Borrower
contained in the Loan Documents shall be
accurate and complete in all respects as if made
on and as of the proposed funding date for the
Term Loan.
(e) Existence of Defaults. There shall not have
occurred an Event of Default or Potential
Default that is continuing unwaived.
4. Representations and Warranties of the Borrower
As an inducement to the Agent to enter into this Agreement
and to make the Term Loan as provided herein, the Borrower represents and
warrants to the Agent (and each Holder) that:
(a) Financial Condition. The financial statements,
dated the Statement Date and the Interim Date,
copies of which have heretofore been furnished
to each Agent and the Agent, are complete and
correct and present fairly in accordance with
GAAP the financial condition of the Borrower and
its consolidated Subsidiaries at such dates and
the consolidated and consolidating results of
their operations and changes in financial
position for the fiscal periods then ended.
(b) No Change. Since the Statement Date there has
been no material adverse change in the business,
operations, assets, or financial or other
condition of the Borrower or the Borrower and
its consolidated Subsidiaries taken as a whole.
Since the Statement Date, the Borrower has not
entered into, incurred, or assumed any long-term
debt, mortgages, material leases or oral or
written commitments, nor commenced any
significant project, nor made any purchase or
acquisition of any significant property.
(c) Corporate Existence; Compliance with Law. Each
Borrower (i)is duly organized, validly existing,
and in good standing as a corporation under the
laws of its respective state of incorporation
and is qualified to do business in
5
<PAGE>
each jurisdiction where its ownership of
property or conduct of business requires such
qualification and where failure to qualify would
have a material adverse effect on the Borrower
or its property and/or business or on the
ability of the Borrower to pay or perform the
Obligations; (ii) has the corporate power and
authority and the legal right to own and operate
its property and to conduct business in the
manner in which it does and proposes so to do;
and (iii) is in compliance with all Requirements
of Law and Contractual Obligations.
(d) Corporate Power; Authorization; Enforceable
Obligations. The Borrower has the corporate
power and authority and the legal right to
execute, deliver, and perform the Loan Documents
to which it is a party and has taken all
necessary corporate action to authorize the
execution, delivery, and performance of the Loan
Documents. The Loan Documents have been duly
executed and delivered on behalf of the Borrower
and constitute legal, valid, and binding
obligations of the Borrower enforceable against
the Borrower in accordance with their respective
terms, subject to the effect of applicable
bankruptcy and other similar laws affecting the
rights of creditors generally and the effect of
equitable principles whether applied in an
action at law or a suit in equity.
(e) No Legal Bar. The execution, delivery, and
performance of the Loan Documents, the borrowing
hereunder and the use of the proceeds thereof,
will not violate any Requirement of Law or any
Contractual Obligation of the Borrower or create
or result in the creation of any Lien on any
assets of the Borrower.
(f) No Material Litigation. Except as disclosed on
Exhibit C hereto, no litigation, investigation,
or proceeding (including, without limitation,
Hazardous Materials Claims) of or before any
arbitrator or Governmental Authority is pending
or, to the knowledge of the Borrower, threatened
by or against the Borrower or any of its
Subsidiaries or against any of such parties'
properties or revenues which is likely to be
adversely determined and which, if adversely
determined, is likely to have a material adverse
effect on the business, operations, property, or
financial or other condition of the Borrower
or any of its Subsidiaries.
(g) Taxes. The Borrower and each of its Subsidiaries
have filed or caused to be filed all tax returns
that are required to be filed and have paid all
taxes shown to be due and payable on said
returns or on any assessments made against them
or any of their property other than taxes that
are being contested in good faith by appropriate
proceedings and as to which the Borrower or
applicable Subsidiary has established adequate
reserves in conformity with GAAP.
6
<PAGE>
(h) Investment Company Act. The Borrower is not an
"investment company" or a company "controlled"
by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(i) Subsidiaries. Attached hereto as Exhibit D is an
accurate and complete list of all presently
existing Subsidiaries of the Borrower, their
respective jurisdictions of incorporation and
qualification and the percentage of their
capital stock owned by the Borrower or other
Subsidiaries. All of the issued and outstanding
shares of capital stock of such Subsidiaries
have been duly authorized and issued and are
fully paid and nonassessable.
(j) Federal Reserve Board Regulations. Neither the
Borrower nor any of its Subsidiaries is engaged
or will engage, principally or as one of its
important activities, in the business of
extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" within the
respective meanings of such terms under
Regulation U. No part of the proceeds of the
Term Loan issued hereunder will be used for
"purchasing" or "carrying" "margin stock" as so
defined or for any purpose that violates, o
that would be inconsistent with, the provisions
of the Regulations of the Board of Governors of
the Federal Reserve System.
(k) ERISA.(i) No Prohibited Transactions Accumulated
Funding Deficiencies, withdrawals from
Multiemployer Plans, or Reportable Events have
occurred with respect to any Plans or
Multiemployer Plans that,in the aggregate, could
subject the Borrower to any tax, penalty, or
other liability where such tax, penalty, or
liability is not covered in full for the benefit
of the Borrower, by insurance; (ii) no notice of
intent to terminate a Plan has been filed, nor
has any Plan been terminated under Section 4041
of ERISA,nor has the PBGC instituted proceeding
to terminate,or appoint a trustee to administer,
a Plan, vent has occurred or condition exists
that might constitute grounds under Section 4042
of ERISA for the termination of, or the
appointment of a trustee to administer,any Plan
(iii) the present value of all benefit
liabilities (as defined in Section 4001(a)(16 o
ERISA) under all Plans (based on the actuarial
assumptions used to fund the Plans) does not
exceed the assets of the Plans; and (iv) the
execution, delivery, and performance by the
Borrower of this Agreement and the Term Loan
hereunder and the use of the proceeds thereof
will not involve any Prohibited Transactions.
(l) Assets. The Borrower and each of its
Subsidiaries has good and marketable title to
all property and assets reflected in the
financial statements referred to in paragraph
4(a) previously, except property and assets sold
or otherwise disposed of in the ordinary course
of business subsequent to the respective dates
thereof. Neither the Borrower nor any of its
Subsidiaries has outstanding Liens on any of its
properties or assets nor are there any security
agreements
7
<PAGE>
to which the Borrower or any of its Subsidiaries
is a party, or title retention agreements,
whether in the form of leases or otherwise, of
any personal property, except as reflected in
the financial statements referred to previously
in paragraph 4(a) or as permitted under
paragraph 6(a) below.
(m) Securities Acts. The Borrower is not violating
any rule, regulation or requirement under the
Securities Act of 1933, as amended, or the
Securities and Exchange Act of 1934, as amended,
and is not required to qualify an indenture
under the Trust Indenture Act of 1939, as
amended, in connection with its execution and
delivery of the Note.
(n) Consents, etc. No consent, approval,
authorization of, or registration, declaration
or filing with any governmental authority is
required on the part of the Borrower in
connection with the execution and delivery of
the Loan Documents (other than filings to
perfect the Lien granted by it to the Agent) or
the performance of or compliance with the terms,
provisions, and conditions hereof or thereof.
(o) Hazardous Materials. Neither the Borrower nor,
to the best knowledge of the Borrower, any other
Person has (i) caused or permitted any Hazardous
Materials to be placed, held, located, or
disposed of in, on, under, or about the Property
or any part thereof, and neither the Property,
nor any part thereof,has ever been used (whether
by the Borrower or, to the best knowledge of the
Borrower, by any other Person) for activities
involving, directly or indirectly, the use,
generation, treatment, storage, or disposal of
any Hazardous Materials;(ii) caused or permitted
to be incorporated into or utilized in the
construction of any improvements located on the
Property any chemical, material, or substance to
which exposure is prohibited, limited, or
regulated by any Hazardous Materials Laws or
that, even if not so regulated, is known to pos
a hazard (either in its present form or if
disturbed or removed) to the health and safety
of the occupants of the Property or of property
adjacent to the Property; or (iii) discovered
any occurrence or condition on the Property
or any property adjacent to or in the vicinity
of the Property that could cause the Property or
any part thereof to be subject to any
restrictions on the ownership, occupancy,
transferability, or use of the Property under
any Hazardous Materials Laws.
5. Affirmative Covenants
The Borrower hereby covenants and agrees with the Agen
that, as long as any Obligations remain unpaid, the
Borrower shall:
(a) Financial Statements. Furnish or cause to be
furnished to the Agent:
8
<PAGE>
(i) Within ninety (90) days after the
last day of each fiscal year of the
Borrower, consolidated and
consolidating statements of income
and statements of cash flow for such
year and balance sheets as of the
end of such year presented fairly in
accordance with GAAP and accompanied
by an unqualified report of a firm o
independent certified public
accountants acceptable to the Agent
and including therewith a copy of the
management letter from such certified
public accountants; and
(ii) Within forty-five (45) days after the
last day of each fiscal quarter,
consolidated and consolidating
statements of income and cash flow
for such fiscal quarter and balance
sheets as of the end of such fiscal
quarter of the Borrower and its
Subsidiaries, accompanied in each
case by a certificate of the chief
financial officer of the Borrower
stating that such financial
statements are presented fairly in
accordance with GAAP.
(b) Certificates; Reports; Other Information.Furnish
or cause to be furnished to the Agent:
(i) Promptly after sending, filing, or
publishing the same, copies of all
proxy statements, financial
statements, and reports that the
Borrower sends to its public
stockholders and copies of all
regular and periodic reports and all
registration statements that the
Borrower files with the Securities
and Exchange Commission and copies of
all press releases issued by
Borrower;
(ii) Upon Agent's request, a certificate
of the chief financial officer or
treasurer of the Borrower stating he
has no knowledge that an Event of
Default or Potential Default has
occurred and is continuing or, if an
Event of Default or Potential Default
has occurred and is continuing, a
statement as to the nature thereof
and the action that the Borrower
proposes to take with respect
thereto; and
(iii) Promptly, such additional financial
and other information, including,
without limitation, financial
statements of the Borrower or any
Affiliate as the Agent may from time
to time reasonably request,
including, without limitation, such
information as is necessary for the
Agent to sell, assign, or otherwise
transfer all or portions of, and
participations in, the Note.
(c) Payment of Indebtedness. Pay, discharge, or
otherwise satisfy at or before maturity or
before it becomes delinquent, defaulted, or
accelerated, as the case may be, all its
Indebtedness (including taxes), except
Indebtedness being
9
<PAGE>
contested in good faith and for which provision
is made to the satisfaction of the Agent for the
payment thereof in the event the Borrower is
found to be obligated to pay such Indebtedness
and which Indebtedness is thereupon promptly
paid by the Borrower.
(d) Maintenance of Existence and Properties;
Compliance. Maintain its corporate existence and
maintain all rights, privileges, licenses,
approvals, franchises, properties, and assets
necessary or desirable in the normal conduct of
its business, and comply with all Contractual
Obligations and Requirements of Law.
(e) Inspection of Property; Books and Records;
Discussions. Keep proper books of record and
account in which full, true, and correct entrie
in conformity with GAAP and all Requirements of
Law shall be made of all dealings and
transactions in relation to its business and
activities, and permit representatives of the
Agent (at no cost or expense to the Borrower
unless there shall have occurred and be
continuing an Event of Default) to visit and
inspect any of its properties and examine and
make abstracts from and copies of any of its
books and records at any reasonable time and as
often as may easonably be desired by the Agent,
and to discuss the business, operations,
properties, and financial and other condition of
the Borrower and any of its Subsidiaries with
officers and employees of such parties, and with
their independent certified public accountants.
(f) Notices. Promptly give written notice to the
Agent of:
(i) The occurrence of any Potential
Default or Event of Default;
(ii) Any litigation or proceeding
affecting the Borrower or any of its
Subsidiaries that could have a
material adverse effect on the
business, operations, property, or
financial or other condition of the
Borrower or any of its Subsidiaries;
and
(iii) A material adverse change in the
business, operations, property, or
financial or other condition of the
Borrower or any of its Subsidiaries.
(g) Expenses. Pay all reasonable out-of-pocket
expenses (including fees and disbursements of
counsel): (i) of the Agent incident to the
preparation and negotiation of the Loan
Documents, closing of the Loan and related
transactions and due diligence in connection
therewith (not to exceed 0.67% of the principal
amount of the Note plus disbursements), (ii) of
the Agent incident to the administration of the
Loan Documents and the protection of the rights
of the Holders and the Agent under the Loan
Documents, and (iii)
10
<PAGE>
of the Agent incident to the enforcement of
payment of the Obligations, whether by judicial
proceedings or otherwise, and before as well as
after judgment including, without limitation, in
connection with bankruptcy, insolvency,
liquidation, reorganization, moratorium, or
other similar proceedings involving the Borrower
or a "workout" of the Obligations. The
obligations of the Borrower under this paragraph
5(g) shall be effective and enforceable whether
or not the Term Loan is made hereunder and shall
survive payment of all other Obligations.
(h) Loan Documents.Comply with and observe all term
and conditions of the Loan Documents.
(i) Insurance. Obtain and maintain insurance with
responsible companies in such amounts and
against such risks as are usually carried by
corporations engaged in similar businesses
similarly situated, and furnish the Agent on
request full information as to all such
insurance.
(j) Hazardous Materials
(i) Keep and maintain the Property in
compliance with, and not cause or
permit the Property to be in
violation of, any Hazardous Materials
Laws or any federal, state, or local
laws, ordinances, or regulations
relating to industrial hygiene or to
the environmental conditions on,
under, or about the Property,
including, but not limited to, soil
and ground water conditions.
(ii) Not cause or permit the discharge,
release, or disposal of any Hazardous
Materials in, on, under, or about the
Property, nor shall the Borrower use,
generate, manufacture, or store, or
permit to be used, generated,
manufactured, or stored in, on,
under, or about the Property, or
transport to or from or permit to be
transported to or from the Property,
any Hazardous Materials.
(iii) Immediately advise the Agent in
writing of (A) any threatened or
actual Hazardous Materials Claims;
(B) the Borrower's receipt of any
notice of any violation of Hazardous
Materials Laws(and the Borrower shal
immediately provide the Agent with a
copy of such notice of violation);an
(C) the Borrower's discovery of any
occurrence or condition on the
Property or any property adjacent to
or in the vicinity of the Property
that could cause the Property or any
part thereof to be in violation of
any Hazardous Materials Laws or to
be subject to any restrictions on the
ownership, occupancy, transferability
or use of the Property under any
Hazardous Materials Laws. The Agent
shall have the right to join and
participate in, as a
11
<PAGE>
party if it so elects, any legal
proceedings or actions initiated in
connection with any Hazardous
Materials Claims and to have its
reasonable attorney fees and
disbursements in connection therewith
paid by the Borrower.
(iv) In the event (a "Hazardous Materials
Event") of a Hazardous Materials
Claim, the receipt of a notice of
violation as described in the
preceding Paragraph 5(j)(iii)(B), or
the discovery of an occurrence or
condition as described in the
preceding Paragraph 5(j)(iii)(C):
A. Retain, at the Borrower's
own cost, a reputable and
experienced environmental
consultant reasonably
acceptable to the Agent;
B. Cause such environmental
consultant to perform a
thorough investigation of
the Property and the
circumstances that gave
rise to the Hazardous
Materials Event, and to
produce a complete report
of such investigation with
recommendations as to any
further action to be taken
on account of such
Hazardous Materials Event,
a copy of which report
shall be provided to the
Agent;
C. If the report of such
environmental consultant so
recommends, or if otherwise
required pursuant to any
Hazardous Materials Laws,
cause such environmental
consultant to prepare a
remediation program
pursuant to which the
circumstances that have
given rise to the Hazardous
Materials Event are to be
fully remedied, which
program shall be prepared
in coordination with the
Borrower and all relevant
Governmental Authorities,
and approved by all
relevant Governmental
Authorities;
D. Cause such remediation
program to be carried out
SS with diligence and at all
times in compliance with
all Hazardous Materials
Laws and with the approval
of all relevant
Governmental Authorities;
E. Upon completion of such
remediation program, cause
all final approvals from
relevant Governmental
Authorities to be obtained,
and provide evidence to the
Agent that the program has
been completed and all
approvals obtained; and
12
<PAGE>
F. In the course of carrying
out the covenants in
paragraphs 5(j)(iv)(A)
through 5(j)(iv)(E) above,
(y) provide the Agent
with such periodic
information and notices
regarding the Hazardous
Materials Event, the
environmental consultant's
investigation, and the
preparation, approval, and
carrying out of any
remediation program as the
Agent shall require, nd (z)
allow the Agent to enter
and inspect the Property at
any time, provided that an
such entry and inspection
Shall deemed to impose any
liability or responsibility
on the Agent with respect
to any Hazardous Materials
Event or any remediation
thereof, nor constitute an
representation Or warranty
by the Agent with respect
to any condition, action or
activity on or affecting
the Property.
(k) ERISA. Furnish to the Agent:
(i) Promptly and in any event within 10
days after the Borrower knows
or has reason to know of the
occurrence of a Reportable Event with
respect to a Plan with regard to
which notice must be provided to the
PBGC, a copy of such materials
required to be filed with the PBGC
with respect to such Reportable Event
and in each such case a statement o
the chief financial officer of the
Borrower setting forth details as to
such Reportable Event and the action
that the Borrower proposes to take
with respect thereto;
(ii) Promptly and in any event within 10
days after the Borrower knows or has
reason to know of any condition
existing with respect to a Plan that
presents a material risk of
termination of the Plan, imposition
of an excise tax, requirement to
provide security to the Plan or
incurrence of other liability by the
Borrower or any ERISA Affiliate, a
statement of the chief financial
officer of the Borrower describing
such condition;
(iii) At least ten (10) days prior to the
filing by any plan administrator of a
Plan of a notice of intent to
terminate such Plan, a copy of such
notice;
(iv) Promptly and in no event more than
ten (10) days after the filing
thereof with the Secretary of the
Treasury, a copy of any application
by the Borrower or an ERISA Affiliate
for a waiver of the minimum funding
standard under Section 412 of the
Code;
(v) Promptly and in no event more than
ten (10) days after the filing
thereof with the Internal Revenue
Service, copies of each annual
13
<PAGE>
report that is filed on Form 5500,
together with certified financial
statements for the Plan (if any) as
of the end of such year and actuarial
statements on Schedule B to such Form
5500;
(vi) Promptly and in any event within ten
(10) days after it knows or has
reason to know of any event or
condition that might constitute
grounds under Section 4042 of ERISA
for the termination of, or the
appointment of a trustee to
administer, any Plan, a statement of
the chief financial officer of the
Borrower describing such event or
condition;
(vii) Promptly and in no event more than
ten (10) days after receipt thereof
by the Borrower or any ERISA
Affiliate, a copy of each notice
received by the Borrower or an ERISA
Affiliate concerning the imposition
of any withdrawal liability under
Section 4202 of ERISA; and
(viii) Promptly after receipt thereof a copy
of any notice the Borrower or any
ERISA Affiliate may receive from the
PBGC or the Internal Revenue Service
with respect to any Plan or
Multiemployer Plan; provided,
however, that this subparagraph
(viii) shall not apply to notices of
general application promulgated by
the PBGC or the Internal Revenue
Service.
6. Negative Covenants
The Borrower hereby agrees that, as long as any Obligations
remain unpaid, the Borrower shall not, directly or
indirectly, without the consent of the Agent:
(a) Liens. Create, incur, assume or suffer to exist,
any Lien upon the Collateral except as
contemplated by the Security Agreement or
create, incur, assume or suffer to exist, any
Lien upon any of its property and assets except:
(i) Liens or charges for current taxes,
assessments, or other governmental
charges that are not delinquent or
that remain payable without penalty,
or the validity of which are
contested in good faith by
appropriate proceedings upon stay of
execution of the enforcement thereof,
provided the Borrower shall have set
aside on its books and shall maintain
adequate reserves for the payment of
same in conformity with GAAP;
(ii) Liens, deposits, or pledges made to
secure statutory obligations, surety,
or appeal bonds, or bonds for the
release of attachments or for stay of
execution, or to secure the
performance of bids, tenders,
14
<PAGE>
contracts (other than for the payment
of borrowed money), leases, or for
purposes of like general nature in
the ordinary course of the Borrower's
business;
(iii) Purchase money security interests for
property hereafter acquired,
conditional sale agreements, or other
title retention agreements, with
respect to property hereafter
acquired; provided, however, that no
such security interest or agreement
shall extend to any property other
than the property acquired; and
(iv) Liens securing Permitted Secured Debt
(Exhibit E hereto).
(v) Liens securing Senior Debt.
(b) Indebtedness. Create, incur, assume, or suffer
to exist, or otherwise become or be liable, or
cause any Subsidiary to create, incur, assume,
or suffer to exist, or otherwise become or be
liable, in respect of any Indebtedness except:
(i) The Obligations;
(ii) Indebtedness reflected in the
financial statements referred to in
previous paragraph 4(a);
(iii) Trade debt incurred in the ordinary
course of business and outstanding
less than sixty (60) days after the
same has become due and payable or
which is being contested in good
faith, provided provision is made to
the satisfaction of the Agent for the
eventual payment thereof in the event
it is found that such contested trade
debt is payable by the Borrower;
(iv) Indebtedness secured by Liens
permitted under previous paragraph
6(a); and
(v) Permitted Other Debt.
(c) Consolidation and Merger. Liquidate or dissolve
or enter into any consolidation, merger,
partnership, joint venture, syndicate, or other
combination, except that the Borrower may be
consolidated with or merged with any
corporation, provided that in any such merger or
consolidation, the Borrower shall be the
surviving or resulting corporation and
immediately after the effectiveness of such
merger or consolidation, there shall have
occurred and be continuing no Event of Default
or Potential Default.
15
<PAGE>
(d) Acquisitions. Purchase or acquire or incur
liability for the purchase or acquisition of any
or all of the assets or business of any person,
firm, or corporation, other than in the normal
course of business as presently conducted.
(e) Payment of Dividends. Declare or pay any
dividends upon its shares of stock now or
hereafter outstanding or make any distribution
of assets to its stockholders as such, whether
in cash, property, or securities, except
dividends payable in shares of capital stock and
cash in lieu of fractional shares or in options,
warrants, or other rights to purchase shares of
capital stock.
(f) Purchase or Retirement of Stock. Acquire,
purchase, redeem, or retire any shares of its
capital stock now or hereafter outstanding.
(g) Investments; Advances. Make or commit to make
any advance, loan, or extension of credit or
capital contribution to, or purchase any stock,
bonds, notes, debentures, or other securities
of, or make any other investment in, any Person.
(h) Sale of Assets. Sell, lease, assign, transfer,
or otherwise dispose of any of its assets (other
than obsolete or worn out property), whether now
owned or hereafter acquired, other than in the
ordinary course of business as presently
conducted and at fair market value.
(i) ERISA
(i) Terminate or withdraw from any Plan
so as to result in any material
liability to the PBGC;
(ii) Engage in or permit any person to
engage in any Prohibited Transaction
involving any Plan that would subject
the Borrower to any material tax,
penalty, or other liability;
(iii) Incur or suffer to exist any material
Accumulated Funding Deficiency,
whether or not waived, involving any
Plan;
(iv) Allow or suffer to exist any event or
condition that presents a risk of
incurring a material liability to the
PBGC;
(v) Amend any Plan so as to require the
posting of security under Section
401(a)(29) of the Code; or
16
<PAGE>
(vi) Fail to make payments required under
Section 412(m) of the Code and
Section 302(e) of ERISA that would
subject the Borrower to any material
tax, penalty, or other liability.
7. Events of Default
Upon the occurrence of any of the following events (an
"Event of Default"):
(a) The Borrower shall fail to pay any principal or
interest on the Term Loan on the date when due
or fail to pay within five business days of the
date when due any other Obligation under the
Loan Documents;
(b) Any representation or warranty made by the
Borrower in any Loan Document or in connection
with any Loan Document shall be inaccurate or
incomplete in any material respect on or as of
the date made;
(c) The Borrower shall fail to maintain its
corporate existence or shall default in the
observance or performance of any covenant or
agreement contained in previous paragraphs 5(j)
or 6;
(d) The Borrower shall fail to observe or perform
any other term or provision contained in the
Loan Documents and such failure shall continue
for thirty (30) days;
(e) The Borrower shall default in any payment of
principal of or interest on any Indebtedness
(other than the Obligations) or any other event
shall occur, the effect of which is to permit
such Indebtedness to be declared or otherwise to
become due prior to its stated maturity;
(f) (i) The Borrower or any of its Subsidiaries,
shall commence any case, proceeding or other
action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization, or
relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution,
composition, or other relief with respect to i
or its debts, or (B)seeking appointment of a
receiver, trustee, custodian, or other similar
official for it or for all or any substantial
part of its assets, or the Borrower or any of
its Subsidiaries shall make a general assignment
for the benefit of its creditors;
or (ii) there shall be commenced against the
Borrower or any of its Subsidiaries, any case,
proceeding or other action of a nature referred
to previously in clause (i) that (A) results in
the entry of an order for relief or any such
adjudication or appointment; (B) remains
undismissed, undischarged, or unbonded for a
period of sixty (60) days; (iii) there shall be
commenced against the Borrower or any of its
Subsidiaries,
17
<PAGE>
any case, proceeding or other action seeking
issuance of a warrant of attachment, execution,
distraint, or similar process against all or
substantially all of its assets that results in
the entry of an order for any such relief that
shall not have been vacated, discharged, stayed,
satisfied, or bonded pending appeal within sixty
(60) days from the entry thereof; (iv) the
Borrower or any of its Subsidiaries, shall take
any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in
(other than in connection with a final
settlement), any of the acts set forth in clause
(i), (ii), or (iii) above; or (v) the Borrower
or any of its Subsidiaries, shall generally not,
or shall be unable to, or shall admit in writing
its inability to pay its debts as they become
due;
(g) (i) Any Reportable Event or a Prohibited
Transaction shall occur with respect to any Pla
(ii) a notice of intent to terminate a Plan
under Section 4041 of ERISA shall be filed;(iii)
a notice shall be received by the plan
administrator of a Plan that the PBGC has
instituted proceedings to terminate a Plan or
appoint a trustee to administer a Plan; (iv) any
other event or condition shall exist that might,
in the opinion of the Agent, constitute grounds
under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to
administer, any Plan; or (v) the Borrower or any
ERISA Affiliate shall withdraw from a
Multiemployer Plan under circumstances that the
Agent, determines could have a material adverse
effect on the financial condition of the
Borrower;
(h) One or more judgments or decrees shall be
entered against the Borrower or any of its
Subsidiaries for $50,000 or more individually,
or in the aggregate for $100,000 or more, and
all such judgments or decrees shall not have
been vacated, discharged, stayed, satisfied, or
bonded pending appeal within ninety (90) days
from the entry thereof or in any event later
than five days prior to the date of any proposed
sale thereunder; or
(i) The Borrower shall voluntarily suspend the
transaction of business for more than five
business days in any calendar year;
THEN:
(i) Automatically upon the occurrence of
an Event of Default under paragraph
7(f); and
(ii) In all other cases, at the option of
the Agent,
the principal balance of the Term Loan and
interest accrued but unpaid thereon and all
other Obligations shall become immediately due
and payable,
18
<PAGE>
without demand upon or presentment to the
Borrower, which are expressly waived by the
Borrower, and the Agent and the Agent may
immediately exercise all rights, powers, and
remedies available to them at law, in equity or
otherwise.
8. Successor Agent. The Agent may resign as Agent under the
Loan Documents upon thirty 30 days'notice to the Borrower.
If the Agent shall resign, then the Agent shall appoint a
successor Agent (which successor agent shall, in either
case and assuming that there does not exist a Potentia
Default or Event of Default, be reasonably acceptable to
the Borrower),whereupon such successor Agent shall succeed
to the rights, powers, and duties of the Agent, and the
term "Agent" shall mean such successor agent effective
upon its appointment, and the former Agent's rights,
powers, and duties as Agent shall be terminated, without
any other or further act or deed on the part of such
former Agent or any of the parties to this Agreement or
any of the Loan Documents or successors thereto.
9. Miscellaneous Provisions
(a) No Assignment. The Borrower may not assign its
rights or obligations under this Agreement
without the prior written consent of the Agent.
Subject to the foregoing, all provisions
contained in this Agreement or any document or
agreement referred to herein or relating hereto
shall inure to the benefit of the Agent (on its
own behalf and as agent to the Holders), its
successors and assigns, and shall be binding
upon the Borrower, its successors and assigns.
(b) Amend; No Waiver. This Agreement may not be
amended or terms or provisions hereof waived
unless such amendment or waiver is in writing
and signed by the Agent, and the Borrower. It is
expressly agreed and understood that the failure
by the Agent to elect to accelerate amounts
outstanding hereunder shall not constitute an
amendment or waiver of any term or provision of
this Agreement. No delay or failure by the Agent
to exercise any right, power, or remedy shall
constitute a waiver thereof by the Agent, and no
single or partial exercise by the Agent of any
right, power, or remedy shall preclude other or
further exercise thereof or any exercise of any
other rights, powers, or remedies.
(c) Cumulative Rights. The rights, powers, and
remedies of the Agent hereunder are cumulative
and in addition to all rights, powers, and
remedies provided under any and all agreements
between the Borrower, the Agent, and any Holder
relating hereto, at law, in equity or otherwise.
(d) Entire Agreement. This Agreement and the
documents and agreements referred to herein
embody the entire agreement and understanding
between the parties hereto and supersede all
prior agreements and understandings relating
to the subject matter hereof and thereof.
19
<PAGE>
(e) Survival. All representations, warranties,
covenants, and agreements herein contained on
the part of the Borrower shall survive the
termination of this Agreement and shall be
effective until the Obligations are paid and
performed in full or longer as expressly
provided herein.
(f) Notices. All notices, consents, requests, and
demands to or upon the respective parties hereto
shall be in writing, and shall be deemed to have
been given or made when delivered in person to
those Persons listed on the signature pages
hereof or when deposited in the U.S. mail,
postage prepaid, or, in the case of overnight
courier service, when delivered to the overnight
courier service, or in the case of telex or
telecopy notice, when sent, verification
received, in each case addressed as set forth on
the signature pages hereof, or such other
address as either party may designate by notice
to the other in accordance with the terms of
this paragraph.
(g) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of
Ohio, without giving effect to principles of
conflict of law.
(h) Counterparts. This Agreement and the other Loan
Documents may be executed in any number of
counterparts, all of which together shall
constitute one agreement.
(i) Accounting Terms. All accounting terms not
otherwise defined herein are used with the
meanings given such terms under GAAP.
(j) Warranty of Attorney. The undersigned, who if
two or more in number, jointly and severally,
hereby irrevocably authorizes any attorney-at-
law to appear in any court of record in the
State of Ohio or in any other state or territory
of the United States (other than any court in
which utilization of this warrant of attorney
would be contrary to law) at any time after the
Note becomes due, whether by lapse of time,
acceleration or otherwise, to waive the issuanc
and service of process, to admit maturity and
nonpayment of the indebtedness evidenced by the
Note, and to confess judgment against the
undersigned (or any of them) in favor of Agent
for the amount then appearing due, together with
interest, expenses, the costs of suit and
reasonable counsel fees, and thereupon to
release and waive all errors, rights of appeal
and stays of execution. The foregoing warrant
of attorney shall survive the judgment. Should
any judgment be vacated for any reason, the
foregoing warrant of attorney nevertheless may
thereafter be utilized for obtaining additional
judgment or judgments. Such authority shall not
be exhausted by one exercise, but judgment may
be confessed from time to time as any sums
20
<PAGE>
and/or costs, expenses, or reasonable counsel
fees shall be due, by filing an original or a
photostatic copy of the Note. The undersigned
hereby waives all relief from any and all
appraisement or exemption laws now in force or
hereafter enacted. The undersigned agrees that
Agent's attorney may confess judgment pursuant
to the foregoing warranty of attorney. The
undersigned further agrees that the attorney
confessing judgment pursuant to the foregoing
warrant of attorney may receive a legal fee or
other compensation from the Agent.
10. Definitions. For purposes of this Agreement, the terms
set forth below shall have the following
meanings:
"Accumulated Funding Deficiency" shall mean a funding
deficiency described in Section 302 of ERISA.
"Affiliate" shall mean, as to any corporation, any
other corporation directly or indirectly controlling,
controlled by or under direct or indirect common control
with, such corporation. "Control" as used herein means the
power to direct the management and policies of such
corporation.
"Agent" shall have the meaning given such term in the
introductory paragraph hereof and shall include any
successor to Eastlake Securities, Inc. as the initial
"Agent" hereunder.
"Agreement" shall mean this Agreement, as the same may
be amended, extended, or replaced from time to time.
"Business Day" shall mean any day other than a
Saturday, a Sunday, or a day on which banks in New York
are authorized or obligated to close their regular banking
business.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations issued thereunder
as from time to time in effect.
"Collateral" shall mean the personal property (tangible
and intangible) and fixtures that are covered by the
Security Agreement.
"Commonly Controlled Entity" of a Person shall mean a
Person, whether or not incorporated, which is under common
control with such Person within the meaning of Section
414(c) of the Code.
21
<PAGE>
"Contractual Obligation" as to any Person shall mean
any provision of any security issued by such Person or of
any agreement, instrument, or undertaking to which such
Person is a party or by which it or any of its property is
bound.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and the rules and
regulations issued thereunder as from time to time in
effect.
"ERISA Affiliate" shall mean each trade or business,
including the Borrower, whether or not incorporated, which
together with the Borrower would be treated as a single
employer under Section 4001 of ERISA.
"Event of Default" shall have the meaning given such
term in paragraph 7.
"Final Maturity Date" shall mean the earlier of: (a)
December 29, 2000 and (b) the date payment of the Term
Loan is accelerated pursuant to paragraph 7.
"GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from
time to time.
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision
thereof, or any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or
pertaining to government.
"Hazardous Materials" shall mean any flammable
materials (excluding wood products normally used in
construction), explosives, radioactive materials,
hazardous wastes, toxic substances, or related materials,
including, without limitation, any substances defined as
or included in the definitions of "hazardous substances,"
"hazardous wastes," "hazardous materials," "special
wastes," "solid wastes;" or "toxic substances" under any
applicable federal, state, county, regional, or local
laws, ordinances, regulations, or guidelines.
"Hazardous Materials Claims" shall mean any
enforcement, cleanup, removal, or other governmental or
regulatory action or order or any governmental claim for
damages or other compensation with respect to the
Property, made under or pursuant to any Hazardous
Materials Laws, and/or any claim asserted in writing by
any third party relating to damage, contribution, cost
recovery, compensation, loss, or injury resulting from any
Hazardous Materials.
"Hazardous Materials Event" shall have the meaning
given such term in paragraph 5(j)(iv).
"Hazardous Materials Laws" shall mean any applicable
federal, state, county, regional, or municipal or local
laws, ordinances, or regulations relating to Hazardous
Materials.
22
<PAGE>
"Indebtedness" of any Person shall mean all items of
indebtedness which, in accordance with GAAP and practices,
would be included in determining liabilities as shown on
the liability side of a statement of condition of such
Person as of the date as of which indebtedness is to be
determined, including, without limitation, all obligations
for money borrowed and capitalized lease obligations, and
shall also include all indebtedness and liabilities of
others assumed or guaranteed by such Person or in respect
of which such Person is secondarily or contingently liable
(other than by indorsement of instruments in the course of
collection) whether by reason of any agreement to acquire
such indebtedness or to supply or advance sums or
otherwise.
"Lien" shall mean any security interest, mortgage,
pledge, lien, claim on property, charge, or encumbrance
(including any conditional sale or other title retention
agreement), any lease in the nature thereof, and the
filing of or agreement to give any financial statement
under the Uniform Commercial Code of any jurisdiction.
"Loan Documents" shall mean this Agreement, the Notes
and each other document, instrument or agreement executed
by the Borrower in connection herewith or therewith, as
any of the same may be amended, extended, or replaced from
time to time.
"Multiemployer Plan" shall mean a Plan described in
Section 4001(a) (3) of ERISA to which the Borrower or any
ERISA Affiliate is required to contribute on behalf of any
of its employees.
"Note" shall mean, the note delivered by the Borrower
to Agent, in the form attached hereto as Exhibit A.
"Obligations" shall mean any and all debts,
obligations, and liabilities of the Borrower to the Agent
arising out of or related to the Loan Documents (whether
principal, interest, fees or otherwise, now existing or
hereafter arising, whether voluntary or involuntary,
whether or not jointly owed with others, whether direct or
indirect, absolute or contingent, contractual or tortious,
liquidated or unliquidated, arising by operation of law or
otherwise, whether or not from time to time decreased or
extinguished and later increased, created or incurred, and
whether or not extended, modified, rearranged,
restructured, refinanced, or replaced, including without
limitation modifications to interest rates or other
payment terms of such debts, obligations or liabilities).
"PBGC" shall mean the Pension Benefit Guaranty
Corporation established pursuant to subtitle A of Title IV
of ERISA and any successor thereto.
"Permitted Other Debt" shall mean that Indebtedness
described on Exhibit E attached hereto.
23
<PAGE>
"Permitted Secured Debt" shall mean Permitted Other
Debt that is designated as "Permitted Secured Debt" on
Exhibit E attached hereto.
"Person" shall mean any corporation, natural person,
firm, joint venture, limited liability company,
partnership, trust, unincorporated organization,
government, or any department or agency of any government.
"Plan" shall mean any plan (other than a Multiemployer
Plan) subject to Title IV of ERISA maintained for
employees of the Borrower or any ERISA Affiliate (and any
such plan no longer maintained by the Borrower or any of
its ERISA Affiliates to which the Borrower or any of its
ERISA Affiliates has made or was required to make any
contributions during the five years preceding the date on
which such plan ceased to be maintained).
"Potential Default" shall mean an event that but for
the lapse of time or the giving of notice, or both, would
constitute an Event of Default.
"Property" shall mean, collectively and severally, any
and all real property, including all improvements and
fixtures thereon, owned or occupied by the Borrower.
"Reportable Event" shall mean any of the events set
forth in Section 4043(b) of ERISA or the regulations
thereunder, a withdrawal from a Plan described in Section
4063 of ERISA, a cessation of operations described in
Section 4068(f) of ERISA, an amendment to a Plan
necessitating the posting of security under Section
401(a)(29) of the Code, or a failure to make a payment
required by Section 412(m) of the Code and Section 302(e)
of ERISA when due.
"Requirements of Law" shall mean as to any Person the
Certificate or Articles of Incorporation and ByLaws or
Code of Regulations or other organizational or governing
documents of such Person, and any law, treaty, rule, or
regulation, or a final and binding determination of an
arbitrator or a determination of a court or other
Governmental Authority, in each case applicable to or
binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Security Agreement" shall have the meaning given such
term in paragraph 2(g).
"Security Documents" shall have the meaning given such
term in paragraph 2(g).
24
<PAGE>
"Senior Debt" shall mean debt incurred by the Borrower
or any Subsidiary in connection with the acquisition b
the Borrower or any subsidiary of any business, r
egardless of whether such acquisition is structured as
an acquisition of assets or stock,a merger or
consolidation or otherwise, but only if, and to the
extent that, the Agent, shall, in its sole discretion,
agree that such obligations constitute Senior Debt.
Senior
Debt also includes any refundings or refinancings of
Senior Debt. There are no limitations or restrictions on
the amount of Senior Debt which may be incurred.
"Subsidiary" shall mean any corporation more than fifty
percent (50%) of the stock of which having by the terms
thereof ordinary voting power to elect the board of
directors, managers, or trustees of the corporation
(irrespective of whether or not at the time stock of any
other class or classes of such corporation shall have or
might have voting power by reason of the happening of any
contingency) shall, at the time as of which any
determination is being made, be owned, either directly or
through Subsidiaries.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO
NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT 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.
a Delaware corporation,
as the Borrower
/s/Bruce C. Weaver
By:_______________________________
Bruce C. Weaver
President
560 Dublin Avenue
Columbus, Ohio 43215-2388
QPI Multipress, Inc.
an Ohio corporation,
as the Borrower
/s/ Bruce C. Weaver
By:_______________________________
Bruce C. Weaver
President
560 Dublin Avenue
Columbus, Ohio 43215-2388
Eastlake Securities, Inc.
as Agent
/s/ Murray Koppelman
By:_______________________________
Murray Koppelman
President
575 Lexington Avenue
New York, New York 10022
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO
NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT 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.
26
<PAGE>
SCHEDULE OF EXHIBITS
EXHIBIT DOCUMENTS
A Form of Notes
B Form of Security Agreement
C Litigation Schedule
D Schedule of Subsidiaries
E Permitted Other Debt
27
Exhibit 10.8
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Security Agreement") dated this 25th day of
November, 1997, between QPI Multipress, Inc., an Ohio corporation
("Multipress"), Quality Products, Inc., a Delaware corporation ("Quality")
(Multipress and Quality are referred to collectively, as the "Debtor") and
Eastlake Securities, Inc., a New York corporation ("Eastlake" or the "Collateral
Agent") for itself and as collateral agent for the holders of beneficial
interests in the Note (as defined) dated the date hereof issued by Debtor as
maker and payable to the order of Eastlake in the principal amount of $1,500,000
(the "Note") (in such capacity, "Collateral Agent") and as "Agent" as such term
is defined in that certain Credit Agreement, dated as of the date hereof,
between Debtor and Eastlake (as may be modified, supplemented or amended from
time to time, the "Credit Agreement").
RECITALS
A. Pursuant to the Note, the Credit Agreement and the
documents, instruments, and agreements executed by Debtor
in connection therewith (as amended, extended, or replaced
from time to time, the "Credit Documents"), the Agent
extended credit to Debtor on the terms and subject to the
conditions set forth more particularly therein
(Capitalized terms not otherwise defined herein are used
with the same meanings as in the Credit Documents).
B. To induce the Collateral Agent to extend such credit,
Debtor has agreed to pledge and to grant to Collateral
Agent, a security interest in and lien upon certain
property of Debtor described more particularly herein.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
<PAGE>
AGREEMENT
1. Appointment
Eastlake has agreed to serve as the secured party
(Collateral Agent) for the benefit of itself and the various holders of
beneficial interests in the Note, and for the convenience of all such persons
and the Borrower, and Borrower accepts and acknowledges Eastlake's
appointment as the secured party (Collateral Agent).
2. Grant of Security Interest
Debtor hereby pledges and grants to Collateral Agent a
security interest in the property described in paragraph 3 (collectively and
severally, the "Collateral") to secure payment and performance of the
obligations described in paragraph 4 (collectively and severally, the
"Obligations").
3. Collateral
The Collateral shall consist of all of the following:
a. Accounts, Etc. All present and future accounts,
and other rights of Debtor to the payment of
money no matter how evidenced, all chattel
paper, instruments, and other writings
evidencing any such right, and all goods
repossessed or returned in connection therewith.
b. Inventory. All inventory of Debtor, now owned or
hereafter acquired, and all raw materials, work
in process, materials used or consumed in
Debtor's business and finished goods, together
with all additions and accessions thereto and
replacements therefor, and products thereof.
c. Equipment. All equipment of Debtor, now owned or
hereafter acquired, including, without
limitation, all machinery, tools, dies,
blueprints, catalogues, computer hardware, and
software, furniture, furnishings, and fixtures.
d. Documents and Instruments. All documents and
instruments of Debtor, now owned or hereafter
acquired.
e. General Intangibles, Etc. All now existing or
hereafter acquired general intangibles of every
nature, all tax refunds, permits, regulatory
approvals, copyrights, patents, trademarks,
service marks, trade names, mask works, good
will, licenses, all other intellectual property
owned by Debtor or used in Debtor's business and
the right to sue for all past, present and
future infringement of the foregoing.
f. Securities. All securities, now owned or
hereafter acquired, of the corporation(s) listed
on Exhibit D to the Credit Agreement (each an
"Issuer"), and all new substituted and
additional documents, instruments, and general
intangibles issued with respect thereto
(collectively and severally, the "Pledged
Shares") and all now existing and hereafter
arising rights of the holder of the
2
<PAGE>
Pledged Shares, including, without limitation,
all voting and rights to and interest in all
cash and noncash dividends and all other
property now or hereafter distributable on
account of or receivable with respect to any of
the foregoing.
g. Deposit Accounts. All deposit accounts, now
existing or hereafter arising, maintained in
Debtor's name with any financial institution and
any and all funds at any time held therein.
h. Property in Possession. All other property of
Debtor now or hereafter in the possession,
custody, or control of any Agent, including,
without limitation, all deposit accounts of
Debtor maintained with any Agent, and all
property of Debtor in which Collateral Agent now
has or hereafter acquires a security interest
for the benefit of the Agent.
i. Books and Records. All now existing and
hereafter acquired books and records relating to
the foregoing Collateral and all equipment
containing such books and records (including,
without limitation, computer data, and storage
media).
j. Proceeds. All proceeds (whether cash or
non-cash) of the foregoing Collateral. For
purposes of this Security Agreement, the term
"proceeds" includes whatever is receivable or
received when Collateral or proceeds is sold,
collected, exchanged, or otherwise disposed of,
whether such disposition is voluntary or
involuntary, and includes, without limitation,
all rights to payment, including return
premiums, with respect to any insurance relating
thereto.
4. Obligations
The Obligations secured by this Security Agreement shall consist of any and all
debts,obligations, and liabilities of Debtor to the Collateral Agent arising out
of or related to the Credit Documents (whether principal, interest, fees or
otherwise, whether now existing or hereafter arising, whether voluntary or
involuntary, whether or not jointly owed with others, whether direct or indirec
, absolute or contingent, contractual or tortious, liquidated or unliquidated,
arising by operation of law or otherwise, whether or not from time to time
decreased or extinguished and later increased, created or incurred and
whether or not extended, modified, rearranged, restructured, refinanced, or
replaced, including without limitation, modifications to interest rates or
other payment terms of such debts, obligations, or liabilities).
3
<PAGE>
5. Representations and Warranties
In addition to any representations and warranties of Debtor set forth in the
Credit Documents, which are incorporated herein by this reference, each Debto
hereby represents and warrants that:
a. Authority. It has authority, and has completed
all proceedings and obtained all approvals and
consents necessary, to execute, deliver, and
perform this Security Agreement and the
transactions contemplated hereby.
b. No Default or Lien. Such execution, delivery,
and performance will not contravene, or
constitute a default under or result in a lien
upon any property of Debtor pursuant to any
applicable law or regulation or any contract,
agreement, judgment, order, decree, or other
instrument binding upon or affecting Debtor.
c. Enforceability. This Security Agreement
constitutes a legal, valid, and binding
obligation of Debtor, enforceable in accordance
with its terms (except as enforceability may be
affected by bankruptcy, insolvency, or other
similar laws affecting the enforcement of
creditor's rights), and this Security Agreement
grants to Collateral Agent a valid,
first-priority perfected, and enforceable lien
on the Collateral.
d. No Litigation. Except as disclosed in Exhibit C
to the Credit Agreement, there is no action,
suit, or proceeding pending or, to the best
knowledge of Debtor after reasonable
investigation, threatened against Debtor which
might adversely affect its property or financial
condition in any material respect.
e. Ownership of Collateral. Debtor is the sole
owner of and has good and marketable title to
the Collateral (or, in the case of
after-acquired Collateral, at the time the
Debtor acquires rights in the Collateral, will
be the sole owner thereof) and is the record and
beneficial owner of any Pledged Shares.
f. Priority. Except for security interests in favor
of Collateral Agent and those reflected on
Exhibit E to the Credit Agreement, no person has
(or, in the case of after-acquired Collateral,
at the time Debtor acquires rights therein, will
have) any right, title, claim, or interest (by
way of security interest or other lien or
charge) in, against or to the Collateral.
g. Accuracy of Information. All information
heretofore, herein or hereafter supplied to
Collateral Agent by or on behalf of Debtor with
respect to the Collateral is true and correct.
4
<PAGE>
h. Delivery of Documents, Etc. Debtor has delivered
to Collateral Agent all instruments, documents,
chattel paper, and other items of Collateral in
which a security interest is or may be perfected
by possession, the certificate of title with
respect to each motor vehicle, if any, included
in the Collateral, and any certificated Pledged
Shares together with such additional writings,
including, without limitation, assignments and
stock powers, with respect thereto as Collateral
Agent shall request.
i. Enforceability Against Account Debtors. Each
account, contract right, item of chattel paper,
instrument, or any other right to the payment of
money constituting Collateral is genuine and
enforceable in accordance with its terms against
the party obligated to pay the same (an "Account
Debtor"), which terms have not been modified or
waived in any respect or to any extent.
j. Amount Due From Account Debtors. Any amount
represented by Debtor to Collateral Agent as
owning by any Account Debtor is the correct
amount actually and unconditionally owing by
such Account Debtor.
k. No Account Debtor Defense. No Account Debtor has
any defense, setoff, claim, or counterclaim
against Debtor that can be asserted against
Collateral Agent, whether in any proceeding to
enforce Collateral Agent's rights in the
Collateral, or otherwise.
l. Pledged Shares. The Pledged Shares, if any, in
the aggregate constitute all of the issued and
outstanding shares of the Issuer thereof, have
been validly issued and are fully paid and
nonassessable; there are no outstanding options,
warrants or other agreements with respect
thereto.
6. Covenants and Agreements of Debtor
In addition to all covenants and agreements of Debtor set forth in the Credit
Documents, which are incorporated herein by this reference, Debtor hereby
agrees:
a. Preservation of Collateral. To do all acts that
may be necessary to maintain, preserve, and
protect the Collateral.
b. Use of Collateral. Not to use or permit any
Collateral to be used unlawfully or in violation
of any provision of this Security Agreement, any
other agreement with Collateral Agent related
hereto or any applicable statute, regulation, or
ordinance or any policy of insurance covering
the Collateral.
c. Payment of Taxes, Etc. To pay promptly when due
all taxes, assessments, charges, encumbrances,
and liens now or hereafter imposed upon or
affecting any Collateral.
5
<PAGE>
d. Defense of Litigation. To appear in and defend
any action or proceeding which may affect its
title to or Collateral Agent's interest in the
Collateral.
e. Possession of Collateral. Not to surrender or
lose possession of (other than to Collateral
Agent), sell, encumber, lease, rent,or otherwise
dispose of or transfer any Collateral or right
or interest therein except as hereinafter
provided, and to keep the Collateral free of all
levies and security interests or other liens or
charges except those approved in writing by
Collateral Agent; provided that, unless an Event
of Default shall occur, Debtor may, in the
ordinary course of business, sell, or lease any
Collateral consisting of inventory.
f. Compliance With Law. To comply with all laws,
regulations, and ordinances relating to the
possession, operation, maintenance, and control
of the Collateral.
g. Standard of Care by Secured Party. That such
care as Collateral Agent gives to the
safekeeping of its own property of like kind
shall constitute reasonable care of the
Collateral when in Collateral Agent's
possession.
h. Delivery of After-Acquired Collateral.To account
fully for and promptly deliver to Collateral
Agent, in the form received, all documents,
chattel paper, instruments, and agreements
constituting Collateral hereunder and all
proceeds of the Collateral received, all
endorsed to Collateral Agent or in blank, as
requested by Collateral Agent, and accompanied
by such stock powers as appropriate and until so
delivered all such documents, instruments,
agreements, and proceeds shall be held by Debtor
in trust for the Agent, separate from all other
property of Debtor.
i. Maintenance of Records. To keep separate,
accurate, and complete records of the Collateral
and to provide Collateral Agent with such
records and such other reports and information
relating to the Collateral as Collateral Agent
may request from time to time.
j. Further Assurances. To procure, execute, and
deliver from time to time any edorsements,
notifications, registrations, assignments,
financing statements, certificates of title,
ship mortgages, aircraft mortgages, copyright
mortgages, assignments or mortgages of patents,
mortgages of mask works, mortgages for filing
pursuant to the Interstate Commerce Act, and
other writings deemed necessary or appropriate
by Collateral Agent to perfect, maintain, and
protect its security interest in the Collateral
hereunder and the priority thereof; and to
take such other actions as Collateral Agent may
request to protect the value of the Collateral
and of Collateral Agent's security interest in
the Collateral, including, without limitation,
provision of assurances from third parties
6
<PAGE>
regarding Collateral Agent's access to, right to
foreclose on or sell, Collateral, and right to
realize the practical benefits of such
foreclosure or sale.
k. Payment of Secured Party's Costs and Expenses.
To reimburse Collateral Agent upon demand for
any costs and expenses, including, without
limitation, attorney fees and disbursements,
Collateral Agent may incur while exercising any
right, power, or remedy provided by this
Security Agreement or by law, all of which costs
and expenses are included in the Obligations.
l. Notification Regarding Certain Types of
Collateral. To promptly notify Collateral Agent
of inclusion in the Collateral after the date
hereof of any aircraft, watercraft or vessels,
railroad cars, railroad equipment, locomotives
or other rolling stock intended for a use
related to interstate commerce, tradenames,
trademarks, service marks, mask works,
copyrights, patents, fixtures, or uncertificated
securities.
m. Notice of Changes. To give Collateral Agent
thirty (30) days prior written notice of any
change in Debtor's residence or chief place of
business or legal name or trade name(s) or
style(s) set forth in the penultimate paragraph
of this Security Agreement.
n. Location of Records. To keep the records
concerning the collateral at the location(s) set
forth in the penultimate paragraph of this
Security Agreement and not to remove such
records from such location(s) without the prior
written consent of the Collateral Agent.
o. Insurance. To insure the Collateral, with
Collateral Agent named as loss payee, in form
and amounts, with companies, and against risks
and liabilities satisfactory to Collateral
Agent, and Debtor hereby assigns the policies to
Collateral Agent, agrees to deliver them to
Collateral Agent at its request, and agrees that
Collateral Agent may make any claim thereunder,
cancel the insurance on default by Debtor,
collect and receive payment of and endorse any
instrument in payment of loss or return premium
or other refund or return, and apply such
amounts received, at Collateral Agent's election
, to replacement of Collateral or to the
Obligations.
p. Dividends on Pledged Shares. To account fully
for and promptly deliver to Collateral Agent, in
the form received, any dividend or any other
distribution on account of the Pledged Shares
whether in securities or property by way of
stock-split, spin-off, split-up, or
reclassification, combination of shares or the
like, or in case of any reorganization,
consolidation, or merger; provided, however,
that until there shall have occurred an Event of
Default, Debtor shall be entitled to retain any
cash dividends paid on account of the Pledged
Shares out of retained earnings of the Issuer.
7
<PAGE>
q. Care for Collateral by Debtor. To keep the
Collateral in good condition and repair and not
to cause or permit any waste or unusual or
unreasonable depreciation of the Collateral.
r. Inspection by Secured Party. At any reasonable
time, upon demand by Collateral Agent, to
exhibit to and allow inspection by Collateral
Agent of the Collateral.
s. Location of Collateral. To keep the Collateral
at the location(s) set forth below and not to
remove the Collateral from such location(s)
without the prior written consent of Collateral
Agent.
7. Authorized Action by Secured Party
Debtor hereby agrees that from time to time after the occurrence of a Potential
Default or Event of Default, without presentment, notice or demand, and without
affecting or impairing in any way the rights of Collateral Agent with respect to
the Collateral, the obligations of the Debtor hereunder or the Obligations,
Collateral Agent may, but shall not be obligated to and shall incur no liability
to Debtor, or any third party for failure to take any action which Debtor is
obligated by this Security Agreement to do and to exercise such rights and
powers as Debtor might exercise with respect to the Collateral, and Debtor
hereby irrevocably appoints Collateral Agent as its attorney-in-fact to exercise
such rights and powers, including without limitation, to (a) collect by legal
proceedings or otherwise and indorse, receive, and receipt for all dividends,
interest, payments, proceeds, and other sums and property now or hereafter
payable on or on account of the Collateral; (b) enter into any extension,
reorganization, deposit, merger, consolidation, or other agreement pertaining
to, or deposit, surrender, accept, hold, or apply other property in exchange for
the Collateral; (c) insure, process, and preserve the Collateral; (d) transfer
the Collateral to its own or its nominee's name; (e) make any compromise or
settlement, and take any action it deems advisable, with respect to the
Collateral; and (f) notify any Account Debtor on any Collateral to make payment
directly to Collateral Agent.
8. Default
A default under this Security Agreement shall be deemed to
exist upon the occurrence
of any of the following (an "Event of Default"):
a. Default in Payment. Any of the Obligations shal
not be paid when due.
b. Default under Credit Documents. Debtor shall
fail to observe any other term or condition of
the Credit Documents or there shall otherwise
occur any event which would permit the Agent to
accelerate amounts outstanding thereunder.
c. Debtor's Bankruptcy. Either a court shall enter
a decree or order for relief in respect of
Debtor in an involuntary case under any
applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or
appointing a
8
<PAGE>
receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of
Debtor or for any substantial part of its
property, or ordering the winding up or
liquidation of its affairs, and such decree or
order shall remain unstayed and in effect for a
period of sixty (60) consecutive days or Debtor
shall commence a voluntary case under any
applicable bankruptcy, insolvency, or other
similar law now or hereafter in effect, or shall
consent to the entry of an order for relief in
any voluntary case under any such law, or shall
consent to the appointment of or taking
possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or similar
official) of Debtor or for any substantial part
of its property, or shall make any general
assignment for the benefit of creditors, or
shall fail generally to pay its debts as they
become due or shall take any action in
furtherance of the foregoing.
d. Judgment Against Debtor. A final judgment for
the payment of money in excess of $50,000 shall
be rendered against Debtor and Debtor shall not
pay or discharge the same or cause it to be paid
or discharged within ninety (90) calendar days
from the entry thereof, or shall not appeal
therefrom or from the order, decree, or process
upon or pursuant to which said judgment was
granted, based or entered, and secure a stay of
execution pending such appeal.
e. Misrepresentation by Debtor. Any representation
or warranty by Debtor hereunder, under any
Credit Document or otherwise made by Debtor in
connection with the Obligations shall be
inaccurate or incomplete in any material respect
as of the date made.
9. Remedies
Upon the occurrence of any such Event of Default, Collateral Agent may, at its
option, and without notice to or demand on Debtor and in addition to all rights
and remedies available to it under the Credit Documents, at law, in equity or
otherwise, do any one or more of the following:
a. General Enforcement. Foreclose or otherwise
enforce Collateral Agent's security interest in
any manner permitted by law, or provided for in
this Security Agreement.
b. Sale, Etc. Sell, lease, or otherwise dispose of
any Collateral at one or more public or private
sales at Collateral Agent's place of business or
any other place or places, including, without
limitation, any broker's board or securities
exchange, whether or not such Collateral is
present at the place of sale, for cash or credit
or future delivery, on such terms and in such
manner as Collateral Agent may determine.
c. Costs of Remedies. Recover from Debtor all costs
and expenses, including, without limitation,
9
<PAGE>
Agent in exercising any right, power, or remedy
provided by this Security Agreement.
d. Assembly of Collateral. Require Debtor to
assemble the Collateral and make it available to
Collateral Agent at a place to be designated by
Collateral Agent.
e. Take Possession of Collateral. Enter onto
property where any Collateral is located and
take possession thereof with or without judicial
process.
f. Preparation of Collateral for Sale. Prior to the
disposition of the Collateral, store, process,
repair, or recondition it or otherwise prepare
it for disposition in any manner and to the
extent Collateral Agent deems appropriate and in
connection with such preparation and
disposition, without charge, use any trademark,
tradename, copyright, patent, or technical
process used by Debtor.
g. Vote of Pledged Shares. Vote or consent, and in
connection therewith Debtor grants to Collateral
Agent a proxy to vote or to consent, with
respect to Pledged Shares.
h. Manner of Sale of Pledged Shares. Restrict the
prospective bidders or purchasers of Pledged
Shares to persons or entities who (i) will
represent and agree that they are purchasing for
their own account, for investment, and not with
a view to the distribution or sale of any of the
Pledged Shares; and (ii) satisfy the offeree and
purchaser requirements for a valid private
placement transaction under Section 4(2) of the
Securities Act of 1933, as amended (the "Act"),
and/or under Regulation D promulgated by the
Securities and Exchange Commission under the Act
, or under any similar statute, rule, or
regulation. Debtor agrees that disposition of
the Pledged Shares pursuant to any private sale
made as provided above may be at prices and on
other terms less favorable than if the Pledged
Shares were sold at public sale, and that
Collateral Agent has no obligation to delay the
sale of any Pledged Shares for public sale under
the Act. Debtor agrees that a private sale or
sales made under the foregoing circumstances
shall be deemed to have been made in a
commercially reasonable manner. In the event
that Collateral Agent elects to sell the Pledge
Shares, or part of them, and there is a public
market for the Pledged Shares, in a public sale,
Debtor shall use its best efforts to register
and qualify the Pledged Shares, or applicable
part thereof, under the Act and all state Blue
Sky or securities laws required by the proposed
terms of sale, and all expenses thereof shall be
payable by Debtor, including, but not limited
to, all costs of (i) registration or
qualification of, under the Act or any state
Blue Sky or securities laws or pursuant to any
applicable rule or regulation issued pursuant
thereto, any Pledged Shares, and (ii) sale of
such Pledged Shares, including, but not limited
to, brokers' or underwriters' commissions,
fees or discounts, accounting and legal fees and
disbursements, costs of
10
<PAGE>
printing and other expenses of transfer and
sale. If any consent, approval, or authorization
of any state, municipal, or other governmental
department, agency, or authority shall be
necessary to effectuate any sale or other
disposition of Pledged Shares, or any part
thereof, Debtor will execute such applications
and other instruments as may be required in
connection with securing any such consent,
approval, or authorization, and will otherwise
use its best efforts to secure the same.
i. Manner of Sale of Collateral Other Than Pledged
Shares. Debtor shall be given ten (10) business
days' prior notice of the time and place of any
public sale or of the time after which any
private sale or other intended disposition of
Collateral other than Pledged Shares is to be
made, which notice Debtor hereby agrees shall be
deemed reasonable notice thereof.
j. Delivery to and Rights of Purchaser. Upon any
sale or other disposition pursuant to this
Security Agreement, Collateral Agent shall have
the right to deliver, assign, and transfer to
the purchaser thereof the Collateral or portion
thereof so sold or disposed of. Each purchaser
at any such sale or other disposition (includin
Collateral Agent) shall hold the Collateral free
from any claim or right of whatever kind,
including any equity or right of redemption of
Debtor and Debtor specifically waives (to the
extent permitted by law) all rights of
redemption, stay, or appraisal which it has or
may have under any rule of law or statute now
existing or hereafter adopted.
10. Financing Statements
Debtor agrees to assign and deliver to Collateral Agent such financing
statements, in form acceptable to Collateral Agent, as Collatera Agent may from
time to time deem reasonably necessary to establish and maintain a valid,
enforceable, first priority security interest in the Collateral as provided
herein and the other rights and security contemplated herein, all in accordance
with the Uniform Commercial Code as enacted in any and all relevantjurisdictions
or any other relevant law.Debtor will pay any applicable filing fees and related
reasonable expenses. Debtor authorizes Collateral Agent to file any such
financing statements without the signature of Debtor.
11. Indemnification
Debtor hereby agrees to indemnify and defend Collateral Agent and its agents,
officers, and employees and to hold Collateral Agent and its agents, officers
and employees harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements, (including, without limitation, attorney fees and special or
consequential damages) of any kind whatsoever which may at any time (including,
without limitation, at any time following the payment of the Obligations) be
imposed on, assessed against or incurred by Collateral Agent or its agents,
officers, and employees (excluding such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, or disbursements resulting
from the gross negligence or willful
11
<PAGE>
misconduct of Collateral Agent): (i) in any way relating to or arising out of
the Credit Documents or any documents contemplated by or referred to therein or
in the transactions contemplated thereby or any action taken or omitted to be
taken by Collateral Agent or its agents, officers and employees in connection
with the foregoing; or (ii) in any manner resulting from any action taken or
omitted to be taken by the Collateral Agent or its agents, officers and
employees with respect to the Collateral in accordance with the written
instruction of Debtor or the Collateral Agent given consistent with provisions
of the Credit Documents as permitted hereunder. The indemnification obligations
of Debtor under this paragraph 11 shall survive termination of this Security
Agreement and payment in full of the Obligations except to the extent claims for
which indemnification is sought are barred by applicable statutes of limitation.
12. Cumulative Rights
The rights, powers, and remedies of Collateral Agent under this Security
Agreement shall be in addition to all rights, powers, and remedies given to the
Collateral Agent by virtue of any statute or rule of law, the Credit Documents
or any other agreement, all of which rights, powers, and remedies shall be
cumulative and may be exercised successively or concurrently without impairing
Collateral Agent's security interest in the Collateral.
13. Waiver
Any waiver, forbearance, or failure or delay by Collateral Agent in exercising
any right, power, or remedy shall not preclude the further exercise thereof,
and every right, power or remedy of Collateral Agent shall continue in full
force and effect until such right, power, or remedy is specifically waived in a
writing executed by Collateral Agent. Debtor waives any right to require
Collateral Agent to proceed against any person or to exhaust any Collateral or
to pursue any remedy in Collateral Agent's power.
14. Binding Upon Successors
All rights of Collateral Agent under this Security Agreement shall inure to the
benefit of its successors and assigns, and all obligations of Debtor shall bind
its heirs, executors, administrators, successors, and assigns.
15. Entire Agreement; Severability
This Security Agreement and the Trademark Collateral Assignment and Security
Agreement dated the date hereof between Collateral Agent and Debtor, contains
the entire security agreement between Collateral Agent and Debtor. If any of the
provisions of this Security Agreement shall be held invalid or unenforceable,
this Security Agreement shall be construed as if not containing those provisions
and the rights and obligations of the parties hereto shall be construed and
enforced accordingly.
12
<PAGE>
16. References
The singular includes the plural. If more than one executes this Security
Agreement, the term Debtor shall be deemed to refer to each of the undersigned
Debtors as well as to all of them, and their obligations and agreements
hereunder shall be joint and several.
17. Choice of Law
This Security Agreement shall be construed in accordance with and governed by
the laws of Ohio, without giving effect to choice of law rules, and, where
applicable and except as otherwise defined herein, terms used herein shall have
the meanings given them in the Uniform Commercial Code of such state.
18. Amendment
This Security Agreement may not be amended or modified except by a writing
signed by each of the parties hereto.
19. Residence; Collateral Location Records
Debtor represents that its residence or chief place of business is as set forth
in the Credit Agreement; that "Quality Products" and "Multipress" constitute the
only trade name(s) or style(s) used by Debtor; and that, except as otherwise
disclosed to Collateral Agent in writing prior to the date hereof, the
Collateral and Debtor's records concerning the Collateral are located at its
chief place of business.
20. Notices
All notices and communications hereunder shall be made at the addresses, in the
manner and with the effect provided in paragraph 9(f) of the Credit Agreement.
21. Execution in Counterparts
This Security Agreement may be executed in counterparts each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement.
22. Warranty of Attorney
The undersigned, who if two or more in number, jointly and
severally, hereby irrevocably authorizes any attorney-at-law to appear in any
court of record in the State of Ohio or in any other state or territory of the
United States (other than any court in which utilization of this warrant of
attorney would be contrary to law) at any time after the Note becomes due,
whether by lapse of time, acceleration or otherwise, to waive the issuance and
service of process, to admit maturity and nonpayment of the indebtedness
evidenced by the Note, and to confess judgment against the undersigned (or any
of them) in favor of Collateral Agent for the amount then appearing due,
together with interest, expenses, the costs of suit and reasonable counsel
fees, and thereupon to release and waive all errors, rights of appeal and stays
of execution. The foregoing warrant of attorney shall survive the judgment.
Should any judgment be vacated for any reason, the foregoing warrant of attorney
nevertheless may thereafter be utilized for obtaining additional udgment or
judgments. Such authority shall not be exhausted by one exercise, but
judgment may be confessed from time to time as any sums and/or costs, expenses,
or reasonable counsel fees shall be due, by filing an original or a photostatic
copy of the Note. The undersigned hereby waives all relief from any and all
appraisement or exemption laws now in force or hereafter enacted. The
undersigned agrees that Collateral Agent's attorney may confess judgment
pursuant to the foregoing warranty of attorney. The undersigned further agrees
that the attorney confessing judgment pursuant to the foregoing warrant of
attorney may receive a legal fee or other compensation from the Collateral Agent
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be executed as of the day and year first above written.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO
NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT 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.
DEBTOR: QPI MULTIPRESS, INC.
/s/ Bruce C. Weaver
By:-----------------------------
Bruce C. Weaver
President
DEBTOR: QUALITY PRODUCTS, INC.
/s/ Bruce C. Weaver
By:------------------------------
Bruce C. Weaver
President
COLLATERAL AGENT: EASTLAKE SECURITIES, INC.
/s/ Murray Koppelman
By:------------------------------
Murray Koppelman
President
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO
NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT 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.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000843462
<NAME> Quality Products, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-START> Oct-01-1996
<PERIOD-END> Sep-30-1997
<CASH> 448,860
<SECURITIES> 0
<RECEIVABLES> 714,462
<ALLOWANCES> 11,867
<INVENTORY> 808,317
<CURRENT-ASSETS> 1,977,923
<PP&E> 844,852
<DEPRECIATION> (808,877)
<TOTAL-ASSETS> 2,023,293
<CURRENT-LIABILITIES> 2,437,900
<BONDS> 40,000
0
0
<COMMON> 25
<OTHER-SE> 24,997,312
<TOTAL-LIABILITY-AND-EQUITY> 2,023,293
<SALES> 6,340,142
<TOTAL-REVENUES> 6,340,142
<CGS> 3,968,208
<TOTAL-COSTS> 3,968,208
<OTHER-EXPENSES> 1,347,482
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155,221
<INCOME-PRETAX> 1,043,563
<INCOME-TAX> 33,887
<INCOME-CONTINUING> 1,009,676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,009,676
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
