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 Xxxxxx Xxxxxxxxx, with
an address at 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx (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 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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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
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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:Xxxxx X. Xxxxxx
____________________
Xxxxx X. Xxxxxx,
President
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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.)
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