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 Xxxxxxx X. Xxxxx, with
an address at 0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx
00000-0143 (the "Holder"), the principal sum of Two Hundred Thousand Dollars
($200,000.00) on August 30, 2001, at 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx or
such other address as the Holder shall have specified by written notice to the
Company (the "Payment Address") , in such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts, and, except as otherwise provided herein, to pay
interest (computed on the basis of a 365-day year, using the number of days
actually elapsed) at such Payment Address, in like coin or currency, on said
principal sum from the date hereof, quarterly on November 30, February 22, May
31 and August 31 in each year, commencing as of the date hereof, at the rate of
six percent (6%) per annum. Interest shall be payable at the rate of twelve
(12%) percent on the entire unpaid principal amount of this Note from and after
the time such entire unpaid principal amount shall have become due and payable
(whether at maturity or by acceleration).
The entire unpaid principal amount of this Note, together with interest
thereon shall, at the option of the Holder, exercised by written notice to the
Company, forthwith be accelerated and
become and be due and payable without further notice if the Company fails to pay
any principal or 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.
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 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.
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.
2.3 Other Provisions Pertaining to Registration Rights. The following
provision of this Article 2 shall also be applicable:
(a) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Article 2 hereof;
provided, however, that any Holder whose Note Shares are included in
such registration statement pursuant to this Article 2 shall, however,
bear the fees of his own counsel and accountants and any transfer taxes
or underwriting discounts or commissions applicable to the Note Shares
sold by him pursuant thereto.
(b) The Company shall indemnify and hold harmless each such
holder and each underwriter, within the meaning of the Act, who may
purchase from or sell for any such holder any Note Shares from and
against any and any losses, claims, damages and liabilities caused by
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement for any post-effective
amendment thereto or any registration statement under the Act or any
prospectus included therein required to be filed or furnished by reason
of this Article 2 or any application or other filing under any state
securities law caused by any omission or alleged omissions to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading to which such holder or any
such underwriter or any of them may become subject under the Act, the
Securities Exchange Act of 1934, as amended, or other Federal or state
statutory law or regulation, at common law or otherwise, except insofar
as such losses, claims, damages or 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.
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., 000 Xxxxxx Xxxxxx, Xxxxxxxx, Xxxx 00000, 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/Xxxxx X. Xxxxxx
---------------------
Xxxxx X. Xxxxxx,
President
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:
----------------------------------
(Signture)
(Signature must conform in all
respects to name of holder as
specified on the face of the Note.)
