Exhibit 4.2


 


SECURITY AGREEMENT


 


As of April 16, 2003, at Columbus, Ohio,
Quality Products, Inc., a Delaware corporation (the “Bor­rower and
Guarantors”), and QPI Multipress, Inc., an Ohio corporation, and Columbus Jack
Corpo­ration, an Ohio corporation (collectively the “Guarantors”), enter into
this Security Agreement with Richard A. and Clare F. Drexler as joint tenants
with rights of survivorship, Dan L. Drexler, Jason I. Drexler, Theodore P.
Schwartz, Eleanor Metnick and Nicole E. Drexler as joint tenants with rights of
survivorship, RD&J Corporation, Dale S. Drexler Living Trust, Karen K.
Hart, and Alyce A. Lazar Decla­ration of Trust Dated September 24, 1992
(“Lenders”).


 


WITNESSETH:


 


WHEREAS, concurrently with the execution of this
Agreement, Lenders, Borrower and Guarantors have executed a Promissory Note and
Guarantee under which the Lenders agree to lend U.S.$770,000 to the Borrower;


 


WHEREAS, to induce Lenders to lend this money and in
consideration thereof, the Borrower and Guarantors have agreed to grant Lenders
a security interest in certain assets, all on the terms set forth below; and


 


WHEREAS, the parties intend that the $770,000 shall be
used to pay off Quality Products, Inc.’s credit line with U. S. Bank with an
approximate balance of $800,000, release that bank’s senior lien on Borrower’s
and Guarantors’ assets and grant a first lien on substantially the same assets
to Lenders:


 


NOW, THEREFORE, the parties hereby agree as follows:


 


1.  Security; Enforcement; Application of Proceeds
-


 


(a) To secure payment and performance of its
obligations under the Promissory Note, Guaran­tee, and this Agreement, Borrower
and Guarantors hereby transfer, assign, and pledge to Lend­ers and grant
Lenders a security interest in all of the following (collectively
“Collateral”):


 


(i) All of Borrower and Guarantors’ present and future
accounts (as the term “account” is defined in the Ohio Uniform Commercial Code)
and other present and future receiv­ables including, without limitation, any
right to payment under a letter of credit through which any such account or
other receivable is to be paid and any promissory note, bill of exchange, or
other instrument evidencing or issued in place of or in satisfaction of any
such account or other receivable or pursuant to which any such account or other
re­ceivable is to be paid;


 


(ii) Any guarantee or collateral
securing any of the foregoing;


 


(iii) Any other tangible and intangible personal
property of Borrower and Guarantors of whatsoever nature and kind and where
ever situated, whether the property of Borrower and Guarantors now or in the
future, including, without limitation, “general intangi­bles”, “goods”,
“inventory”, “equipment”, “chattel paper”, “documents” and “instru­ments” as
these terms are defined in the Ohio Uniform Commercial Code;


 


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April
16, 2003


 


(iv) The proceeds from any of the foregoing including,
without limitation, proceeds from any insurance insuring the same against risk
of loss or non-payment.


 


(b) At the request of Lenders, Borrower, and
Guarantors shall deliver and endorse to or in ac­cordance with the instructions
of Lenders any of the Collateral.


 


(c) Upon (i) failure by Borrower and/or Guarantors to
perform any of their obligations or cove­nants, whether under the Promissory
Note, Guarantee, or this Agreement or any other agree­ment, (ii) any
representation or warranty made by Borrower and/or Guarantors to Lenders,
whether under the Promissory Note, Guarantee, or this Agreement or any other
agreement, be­ing false, (iii) the occurrence of any other default under the
Promissory Note or Guarantee, or (iv) the occurrence of any event which, with
the giving of notice or passage of time or both, would constitute a default
under the Promissory Note, then, in any such case, the Holder may, with three
(3) business days notice, take such actions as he deems advisable with respect
to the Collateral, including, without limitation: (i) directing account debtors
to make payment directly to Holder; (ii) settling, compromising, or adjusting
any Collateral, which shall be binding upon Borrower and Guarantors; (iii)
commencing, prosecuting and defending any proceeding to collect or protect any
of the Collateral or any other proceeding with respect to any Collateral; and
(iv) selling any Collateral at public or private sale on such terms as Holder
deems appropri­ate.  At any such sale
Lenders may be the purchaser.  Holder
shall give Borrower and Guaran­tors at least ten (10) days’ notice of any such
sale.


 


(d) The receipts and other
proceeds from any of the Collateral shall be applied as follows: first, to the satisfaction of all
obligations of the Borrower and Guarantors to Lenders under the Promissory Note
and this Agreement in such order as the Lenders determines; and then, any balance to Borrower and
Guarantors.


 


2.  Borrower and Guarantors’ Representations,
Covenants, and Warranties -
The Borrower and Guarantors hereby make the following representations,
covenants, and warranties for the benefit of the Lenders:


 


(a) Quality Products, Inc., is duly incorporated and
validly existing under the laws of Delaware, QPI Multipress, Inc. and Columbus
Jack Corporation, are incorporated and validly existing un­der the laws of
Ohio; each of these corporations is duly qualified to conduct business in the
State of Ohio; and each has the corporate power and authority to own its
property and assets and to carry on its business as it is now being conducted;


 


(b) Each of these corporations has the corporate power
and authority to execute, deliver and carry out the terms and provisions of
this Agreement, the Promissory Note, and Guarantee and any other agreements and
documents executed under or in connection with this Agreement, and each has
taken all necessary corporate action to authorize the execution, delivery and
perform­ance of this Agreement; this Agreement, the Promissory Note and the
Guarantee constitute le­gally binding obligations of Borrower and Guarantors
and are enforceable against Borrower and Guarantors in accordance with their
respective terms;


 


(c) Upon payment to U.S. Bank and release of that
bank’s security interest, there shall be no claims, security interests,
options, rights or other privileges outstanding with respect to any of


 


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the Collateral or any of Borrower and/or Guarantors’
other assets except as listed in Schedule A. 
Borrower and Guarantors warrant and covenant as follows:


 


(a) Except for security
interests granted in favor of U.S. Bank and any liens set forth in Schedule A
attached hereto, Borrower or Guarantors are, or as to the Collateral arising or
to be acquired after the date hereof, shall be, the sole and exclusive owner of
the Collateral, and the Collateral is and shall remain free from any and all liens,
security interests, encumbrances, claims, and interests, and no security
agreement, financing statement, equivalent security, or lien instrument or
continuation statement covering any of the Collateral is on file or of record
in any public office;


 


(b) Except for security
interests granted in favor of the Bank and any liens or encum­brances set forth
in Schedule A, Borrower and Guarantors shall not create, permit or suffer to
exist, and shall take such action as is necessary to remove, any claim to or in­terest
in or lien or encumbrance upon the Collateral and shall defend the right, title
and interest of Lenders in and to the Collateral against all claims and demands
of all persons and entities at any time claiming the same or any interest
therein;


 


3.  Covenants of Borrower and Guarantors to Act - The Borrower and Guarantors will take or cause
to be taken such action and execute and deliver or cause to be executed and
delivered such other documents as the Lenders may request:


 


(a) In connection with this
Agreement and any of the Collateral, and


 


(b) To perfect and to maintain the perfection of
Lenders’ security interest in any of the Collat­eral, including, without
limitation, delivering any Collateral to the Lenders and executing and filing
financing and other statements under the Uniform Commercial Code in effect in
any ju­risdiction; and Borrower and Guarantors hereby authorize the Lenders to
sign and file any such statement on its behalf or file any such statement
without its signature.


 


4.  Negative Covenants of Borrower and
Guarantors - The Borrower
and Guarantors will not with­out prior written consent of the Lenders:


 


(a) Sell, pledge, transfer, assign, or grant a
security interest in any of the Collateral or any of Borrower and/or
Guarantors’ other assets other than sales of inventory in the ordinary course
of business and purchase money security interests in equipment as described in
Schedule A.


 


(b) Should Borrower default on the Promissory Note to
Lenders under any of its default provi­sions, Borrower shall make no payment,
including interest or principal, under that certain $300,000 Note dated October
15, 2002 to Dennis Mellman.


 


(c) Whether or not Borrower defaults on the Promissory
Note to Lenders, Borrower shall be permitted to make payment under any future
settlement agreement reached in the Granville Solvents case.


 


5.  Expenses - Borrower and Guarantors shall pay:


 


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(a) Reasonable expenses (including, without
limitation, legal fees) incurred by Lenders in con­nection with negotiating and
preparing this Agreement, the Promissory Note, and Guarantee and in connection
with the transactions contemplated by these Agreements;


 


(b) Reasonable expenses (including, without
limitation, legal fees, court costs, the cost of ap­pellate proceedings)
incurred by Lenders in connection with (i) enforcing, preserving, and de­fending
any rights and any security interest under this Agreement, (ii) protecting and
collecting any of the Collateral, and (iii) any proceeding respecting any of
the foregoing.


 


Borrower and Guarantors shall be jointly and
severally liable to pay Lenders interest at the rate of 10% per annum simple interest on any amount
that Borrower and Guarantors owe to Lenders under this Section: (i) from the
date Lenders expend the amount in any case where the Lenders has requested Bor­rower
and Guarantors pay the same and Borrower and Guarantors failed to do so, or
(ii) from the date Lenders request reimbursement in any case where Lenders have
not requested Borrower and Guaran­tors to pay the same.


 


6.  Governing Law - This Agreement shall be governed by and
construed in accordance with the law of the State of Ohio.


 


7.  Dispute Resolution - The
Parties agree to submit any disputes involving money or damages greater than
$10,000 relating to this Agreement and/or transactions, duties, or obligations
to be per­formed under this Agreement, to mediation with a mediator approved by
the Parties to the dispute.  If the
Parties resolve their disputes through mediation, the Parties shall share the
mediator’s fees evenly but pay their own attorneys’ fees and other expenses
related to mediation.  If mediation
fails to resolve all disputes within thirty (30) days after the Parties submit
the dispute to a mediator, then either Party may file a court action or request
arbitration.  The Parties agree that
mediation is a pre-condition to filing an action of any kind.  The prevailing Party in any action or
arbitration relating to transactions contemplated by this Agreement shall be
entitled to costs and expenses including rea­sonable attorneys fees and the
attorney’s fees and expenses incurred in connection with mediation that failed
to resolve the dispute.  Claims of
$10,000 or less may be submitted to mediation or as­serted in any other legal
manner including filing a court action.


 


8.  Waiver - No failure to exercise and no delay on the part
of Lenders in exercising any right, power or privilege under this Agreement or
granted to them by law will operate as a waiver thereof; and any single or
partial exercise of any right, power, or privilege shall not preclude any other
or further exer­cise thereof or the exercise of any other right, power or
privilege.  Lenders may waive any right
or other matter only by an instrument in writing signed by the Lenders.


 


9.  Rights and Remedies - The rights and remedies provided in this
Agreement are cumulative and not exclusive of any rights or remedies provided
by law or by any other agreement. 
Lenders will not be required to resort to or pursue any of its rights or
remedies under or with respect to any other agreement or with respect to any
other collateral, guarantee or other security before pursuing any of its rights
or remedies under this Agreement.  The
Lenders may pursue its rights and remedies in such order as it determines.


 


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10.  Notices - Notices under
this Agreement shall be sufficient only if sent (a) by overnight courier, or
(b) by facsimile or other electronic means and by U. S. Mail, or (c) personally
delivered to the other Party.  Notices
shall be addressed as follows:


 


	
  To Borrower and Guarantors:

  	
  To Lenders:

  
	
   

  	
   

  
	
  Quality Products, Inc.

  	
  Jason I. Drexler

  
	
  2222 South Third Street

  	
  Suite 3350

  
	
  Columbus, Ohio 43207

  	
  875 Michigan Ave.

  
	
   

  	
  Chicago, IL 60611

  
	
  Tele: (614) 228-0185

  	
   

  
	
  Fax: (614) 228-8340

  	
  Telephone: (312) 337-4800 or (847)

  
	
  E-mail: tkensler@multipress.com

  	
  372-3425

  
	
   

  	
  Fax: (312) 337-4807

  
	
  With a copy to:

  	
  E-mail: jasondrexler@hotmail.com

  
	
  C. Timothy Smoot, Attorney

  	
   

  
	
  Suite 263

  	
   

  
	
  23505 Crenshaw Blvd.

  	
   

  
	
  Torrance, CA 90505-5221

  	
   

  
	
   

  	
   

  
	
  Tele: (310) 530-3366

  	
   

  
	
  Fax: (310) 530-2233

  	
   

  
	
  E-mail: smoot@earthlink.net

  	
   

  



 


Notice shall be deemed given on receipt.


 


11.  Lender’s Representative -  Jason Drexler is the Holder of the
Promissory Note on behalf of the Lenders. 
Lenders agree to act through Jason Drexler as their agent for purposes
of this Agreement.  Borrower shall
consider Jason Drexler as the duly appointed agent for the Lenders with the
sole right to act as the Holder of the Note unless and until he is replaced by
a writing signed by all Lend­ers except Mr. Schwartz and delivered to Borrower
and Guarantors.


 


10.  Amendment - This Agreement may not be amended or terminated
except by an instrument in writing signed by the Borrower and Guarantors and
the Holder.


 


IN WITNESS
WHEREOF, the Lenders and
the Borrower and Guarantors execute this Agreement as of the day and year first
above written.


 


BORROWER


 


	
  Date: April 16, 2003

  	
  QUALITY PRODUCTS, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/Tac D. Kensler

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Chief Financial Officer

  	
   

  
	
   

  	
  Name and Title

  	
   

  
					



 


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GUARANTORS


 


	
  Date: April 16, 2003

  	
  QPI MULTIPRESS, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/Tac D. Kensler

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Chief Financial Officer

  	
   

  
	
   

  	
  Name and Title

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: April 16, 2003

  	
  COLUMBUS JACK
  CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/Tac D. Kensler

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Chief Financial Officer

  	
   

  
	
   

  	
  Name and Title

  	
   

  
	
   

  	
   

  	
   

  
	
  LENDERS

  
	
   

  	
   

  	
   

  
	
  Date: April 16, 2003

  	
   

  	
  /s/Richard A. Drexler

  	
   

  	
   

  
	
   

  	
  Richard A. Drexler

  	
   

  
	
   

  	
  And

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/Clare F. Drexler

  	
   

  	
   

  
	
   

  	
  Clare F. Drexler

  	
   

  
	
   

  	
  As joint tenants with
  rights of survivorship

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: April 16, 2003

  	
   

  	
  /s/Dan L. Drexler

  	
   

  	
   

  
	
   

  	
  Dan L. Drexler

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: April 16, 2003

  	
   

  	
  /s/Jason I. Drexler

  	
   

  	
   

  
	
   

  	
  Jason I. Drexler

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: April 16, 2003

  	
   

  	
  /s/Theodore P. Schwartz

  	
   

  	
   

  
	
   

  	
          Theodore P.
  Schwartz

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: April 16, 2003

  	
   

  	
  /s/Eleanor Metnick

  	
   

  	
   

  
	
   

  	
  Eleanor Metnick

  	
   

  
	
   

  	
  And

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/Nicole E. Drexler

  	
   

  	
   

  
	
   

  	
  Nicole E. Drexler

  	
   

  
	
   

  	
  As joint tenants with
  rights of survivorship

  	
   

  
									



 


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  Date: April 16, 2003

  	
  RD&J CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/Dan L. Drexler

  	
   

  	
   

  
	
   

  	
  Dan L. Drexler, Vice
  President

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: April 16, 2003

  	
  DALE S. DREXLER LIVING
  TRUST

  U/A MARCH 15, 1999

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/Dale S. Drexler

  	
   

  	
   

  
	
   

  	
  Dale S. Drexler,
  Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: April 16, 2003

  	
   

  	
  /s/Karen K. Hart

  	
   

  	
   

  
	
   

  	
  Karen K. Hart

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: April 16, 2003

  	
  ALYCE A. LAZAR
  DECLARATION OF TRUST

  DATED SEPTEMBER 24, 1992

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/Richard A. Drexler

  	
   

  	
   

  
	
   

  	
  Richard A. Drexler

  	
   

  
	
   

  	
  Under Power of Attorney
  for Alyce A. Lazar

  	
   

  
									



 


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Schedule
A


 


Permitted
Other Security Interests


 


1.  Security interest in the
Cincinnati Mill as evidenced by note and security agreement issued to Schuler
Inc.


 


2.  Any and all past or future
purchase money security interests in equipment necessary or appropri­ate for
conducting the business of Borrower and/or Guarantors.


 


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