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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
ANNUAL REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the calendar year ended December 31, 1994 Commission file no 1-11013
----------------- -------
SPECIALTY CHEMICAL RESOURCES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 34-1366838
------------------------- ---------------------------
(State of incorporation) (I.R.S. Employer I.D. No.)
9100 Valley View Road, Macedonia, Ohio 44056
----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 468-1380
----------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.10 per share.
Securities registered pursuant to Section 12(g) of the Act: None
----
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 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 _____
Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates
of the Registrant as of February 10, 1995 was $12,652,360.
As of February 10, 1995, 3,932,776 shares of the Registrant's Common Stock
were outstanding.
Documents Incorporated by Reference: The registrant's definitive proxy
statement for its 1995 Annual Meeting of Stockholders, which the registrant
intends to file with the Securities and Exchange Commission within 120 days of
the close of its fiscal year end, December 31, 1994, is incorporated by
reference in Part III of this Annual Report on Form 10-K from the date of
filing of such document.
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Page 1 of 60
<PAGE> 2
PART I
ITEM 1.
GENERAL. The Company was incorporated in Delaware in 1982 for the purpose of
operating family oriented restaurants and entertainment centers. By 1988, the
Company had concluded that enhanced growth required a change in the Company's
business focus from the operation of the restaurants to the building of an
industrial corporation. As a result, the Company acquired Aerosol Systems,
Inc. ("ASI"), effective December 31, 1988, for an aggregate purchase price of
approximately $40,000,000, of which approximately $14,750,000 was paid for
stock and approximately $25,250,000 worth of liabilities were assumed.
Further, the Company disposed of the restaurants October 31, 1991. ASI was
merged into the Company on December 30, 1992.
The Company's principal executive offices are located at 9100 Valley View
Road, Macedonia, Ohio 44056; telephone (216) 468-1380. Unless the context
otherwise indicates, the term "Company" refers to Specialty Chemical Resources,
Inc.
On February 26, 1992, the Company effected a 1-for-14 reverse stock split,
whereby each share of the Common Stock of the Company outstanding immediately
prior to the reverse split was converted into 1/14 of a share of the Common
Stock. Unless otherwise indicated, the information in this Report is adjusted
to reflect the 1-for-14 reverse stock split.
BUSINESS. The Company is a leading custom formulator and packager of specialty
chemical products, primarily for the automotive service and industrial
maintenance markets. The Company specializes in developing, formulating and
packaging new products for customers which do not have the expertise or volume
to maintain captive research and development departments and manufacturing
operations. The Company produces and sells over 1200 "proprietary" chemical
formulations, substantially all of which are packaged in aerosol containers.
In 1994, the Company sold approximately 37 million units. These proprietary
formulations represent know-how of the Company developed through the skill and
experience of its employees. These proprietary formulations are not patented.
Approximately 83% of the Company's sales are of its proprietary products sold
under the brand names of the Company's customers. The Company's products
include cleaners, sealants, gasket components, lubricants, waxes, adhesives,
paints, coatings, degreasers, polishes, anti-statics and tire inflators.
Substantially all of the Company's products are used by professionals in
commercial applications. In addition, the Company produces and sells its own
branded products under the Taylor Made Products (TMP) and Aerosol Maintenance
Products (AMP) names. Approximately 10% of the Company's sales are of its TMP
products and approximately 7% of sales are of the Company's AMP products.
The Company acts as an extension of its customers' marketing, research and
development, procurement, production and quality control departments. It
provides a wide range of services including: aerosol product design and concept
origination; chemical formulation; container
Page 2 of 60
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selection; marketing program development; labeling; filling and packaging;
component and raw materials purchasing; vendor verification; regulatory
compliance; inventory control and overall program management. As such, the
Company differentiates itself from contract packagers, which fill aerosol cans
for a fee but do not provide the same range of services. The Company believes
that it is one of three companies providing such a wide range of services in
the Company's product markets.
The Company's customers are principally distribution companies. The
Company sells to approximately 350 core accounts with no single customer
accounting for 10% of the Company's sales. The Company provides customers with
prompt shipment, normally within four weeks after receipt of order, and will
accept short production run orders (as few as 100 cases), thereby reducing the
inventory requirements of its customers. Approximately 85% of the Company's
aggregate sales are to customers in the automotive service and the industrial
maintenance markets. Other markets served by the Company include janitorial
and sanitation, high tech electronic and electrical manufacturing, and art and
crafts. Less than 6% of the Company's sales are to chain store merchandisers.
The Company believes, based on its experience with its customers and its
knowledge of its industry, that it is the only custom packager in its principal
markets that provides this wide range of services, and on a routine basis will
produce as few as 100 cases of a product and offers delivery within four weeks.
The Company relies heavily on its pre-sale consultation and ongoing
involvement with customers to establish long-term relationships. Its
specialized equipment permits it to meet the varied needs of its customers.
The Company's strong technical capabilities, proprietary products and
formulations, manufacturing expertise and customer support are key elements in
the Company's operating strategy.
In December, 1992, the Company experienced a non-chemical fire at its
Macedonia, Ohio facility. Machinery and equipment were damaged affecting the
Company's production capabilities. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
PRODUCT DEVELOPMENT PROCESS. The product development process typically takes
six to nine months from new product concept origination to completion.
Existing formulations may also serve as the basis for new products, in which
case the product development process may be substantially accelerated.
The Company's product development activities typically originate
through the identification by the Company's sales or research and development
personnel of a perceived product need for its customers and its potential
customers. The Company also develops products by utilizing technology
developed by third parties. After the product
Page 3 of 60
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concept is originated, the Company develops the formula and manufactures
samples of the product. The Company's sales staff then demonstrates the
product for its customers, who field test the product through end-users.
Concurrently, the Company conducts product stability tests in its laboratories.
The Company makes any necessary adjustments resulting from customer and
end-user comments. These adjustments may include changes in formulation,
valve, spray pattern and propellant chemistry. Then, the Company, with
customer input, designs the label, both for the aerosol cans and for the carton
in which it is packaged. The Company's package and container design services
include artistic design, writing of product instructions, product name creation
and regulatory compliance, if necessary. Alternatively, the product concept
origination may be initiated by the customer with the product development
activity continuing in substantially the same way from that point forward.
PRODUCTS. Aerosol containers are a convenient, effective and efficient way to
deliver thousands of products. The containers, 2.9 billion of which were sold
in the United States in 1993, are generally made of steel or aluminum and can
be recycled. Since 1978, when the use of chlorofluorocarbons ("CFC's") as
propellant was discontinued in the United States, the Company's aerosol
products generally have used compressed gases, such as carbon dioxide and
nitrogen and liquified gases, such as propane and butane, as propellants. The
Company's aerosol containers range from 4 ounces to 24 ounces in capacity. The
Company combines its chemical formulation, an appropriate propellant, dip tube,
valve, actuator, cap and the aerosol container to produce the final product.
Products developed by the Company for the automotive service and
industrial maintenance markets include cleaners, degreasers, lubricants and
paints. The Company has also developed specialized products for the automotive
service market, such as its patented non- flammable tire inflator, carburetor,
brake and choke cleaners, gasket and trim adhesives, undercoatings, silicones,
belt dressings, fabric protectors, and the Company's patented automobile fuel
injection system cleaner, a specially formulated cleaner and a patented
propellant system. Specialized products for the industrial maintenance market
include molybdenum lubricants, food-grade lubricants and cleaners, release
agents and protectors for injection and cast molding applications.
Page 4 of 60
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In 1991 the Company introduced its environmentally responsive,
water-carried (as opposed to solvent-carried), aerosol products under the
program name of SmartLine. TM Products using this system significantly reduce
solvent release. Additionally, these products meet the National Fire
Prevention Agency's most stringent fire prevention and storage standards for
aerosol products. Products using this technology include a range of cleaners,
degreasers and lubricants produced for the Company's principal markets.
The Company has developed a number of products using barrier packages.
In a typical aerosol, the propellant and product are mixed and released from
the can as a foam or spray. In a barrier package, the product is separated
from the propellant by a liner (a can within a can) and only the product, and
not the propellant, is released. This is important with products that cannot
be mixed with a propellant, such as room temperature vulcanizing silicones
(RTV's), or products which are too viscous to be propelled through a standard
aerosol, such as caulking compounds.
The Company also produces its own brand name products through its
Taylor Made Products Division (TMP), which are sold principally to the
automotive do-it-yourself market through chain store merchandisers. The
products include, cleaners, lubricants and degreasers. In addition, the
Company produces its own brand name products through its Aerosol Maintenance
Products Division (AMP). These products are sold principally to janitorial and
sanitation supply distributors and include cleaning compounds and
disinfectants.
MARKETING AND DISTRIBUTION. The Company's marketing and sales activities are
carried out by eight full-time salaried salespersons, except for sales of the
Company's brand name products, which are marketed and sold by 21 manufacturer's
representative agencies. The Company's customers are distributors of a broad
range of products to the automotive service and industrial maintenance markets.
The Company's efforts to obtain sales involve detailed pre-production and
ongoing involvement with a customer. The Company seeks to develop long-term
customer relationships. More than 71% of the Company's current sales volume is
attributable to customers who have been with the Company for more than 10
years. The Company's active core customers number more than 350, with no
single customer accounting for 10% of the Company's net sales. Substantially
all of the Company's customers are located in the eastern two-thirds of the
United States.
RESEARCH AND DEVELOPMENT. The Company's research and development activities
are directed toward aerosol product development and improvement, product
screening and custom applications designed to meet the specific requirements of
its customers. The Company's research and development activities involve both
the formulation of proprietary chemical compounds and the development of
associated aerosol delivery systems. The Company works with its customers to
develop new products and to modify existing products for them. It also seeks
to develop new, proprietary products such as its patented fuel injection system
cleaner, water-carried aerosol products, and patented tire inflators. The
Company's technical activities are carried out by four chemists and 11
laboratory technicians. The Company holds several registered trademarks and
patents.
Page 5 of 60
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MANUFACTURING. The Company currently has two manufacturing facilities, one in
Macedonia, Ohio and the other in Twinsburg, Ohio. Upon completion of its
restructuring plan, the Company will have consolidated its two manufacturing
facilities into the Macedonia facility (see Management's Discussion and
Analysis and Note I to Financial Statements). The expanded facility will
contain six production lines. Each line will have different characteristics,
providing the Company with flexibility to accommodate the short production runs
required for many customized products, the longer high speed production runs,
and the specialized barrier packaging production. In addition, the Company will
be able to package its products in one gallon cans, five gallon pails, and
fifty-five gallon drums.
In 1994, the Company sold approximately 37 million units. The handling
of large volumes of liquid propellants requires that the manufacturing area be
compartmentalized, permitting the isolation of each step in the production
process. Control systems automatically shut down operation if safety limits
are exceeded. Raw materials are stored within the plant, while propellants and
solvents are stored in above- ground tanks outside the plant. The raw
materials are moved as needed to the mixing area and the product is piped into
a separate filling area where cans are filled. The cans are then conveyed into
propellant charging rooms, two lines per room, where the propellant is loaded
and the cans are crimped (sealed) automatically. After leaving the propellant
charging room, the cans are coded and run through a hot water test tank to test
for leaking and container integrity at elevated temperatures. In cases where
the can label has not been preprinted, a label is applied. The cans are coded,
then packed and palletized for shipment or, in some cases, stored in the
warehouse on racks for order picking.
The Company purchases its raw materials and components such as metal
cans, chemicals, solvents, propellants, labels and other supplies from a broad
range of suppliers. The Company is not experiencing any difficulty in
obtaining adequate supplies of raw materials or purchased components and does
not anticipate any such difficulty in the foreseeable future.
The Company generally produces against firm commitment purchase orders
and usually ships within 4 weeks from date of order. Accordingly, backlog is
not material to the Company's business and is not indicative of future sales.
COMPETITION. The aerosol industry is highly fragmented geographically,along
product lines and by production capacity. Within these areas, the industry is
highly competitive. Although many companies perform some of the
individual operations and services carried out by the Company, and some of its
competitors have greater financial and other resources, the Company believes it
has few competitors that offer the same type of technical assistance, product
formulation and packaging. Further, the Company's competitors do not routinely
offer to produce as few as 100 cases of product and to deliver products within
four weeks. These services are provided by the Company. Most of the
Company's customers do not have their own aerosol research or production
facilities. Because of the highly specialized nature of the Company's
business, price, while important, is not normally the principal competitive
factor. The Company believes that the principal competitive factors in the
industry are quality of product and the product's ease of use by its end-user.
Page 6 of 60
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EMPLOYEES. As of January 31, 1995, the Company employed approximately 222
people on a full-time basis, of whom 82 are salaried and the remainder are
hourly. All of the Company's hourly employees are represented by two collective
bargaining units with collective bargaining agreements. One expired in
November 1994, the other expires in February 1997. The Company considers its
relationship with its employees to be good. There have not been any work
stoppages or slowdowns due to labor related problems.
In December, 1994 the Company and its employees substantially agreed on
the fundamental terms of a new collective bargaining agreement to replace the
one which expired in November, 1994. However, a binding collective bargaining
agreement has not been executed. The Company expects to enter into a new
collective bargaining agreement in 1995.
ENVIRONMENTAL MATTERS. The Company's manufacturing facilities are subject to
extensive environmental laws and regulations concerning, among other things,
emissions to the air, discharges to the land, surface, subsurface strata and
water, and the generation, handling, storage, transportation, treatment and
disposal of waste and materials, and are also subject to other federal, state
and local laws and regulations regarding health and safety matters. Management
believes that the Company's business, operations and facilities are being
operated in substantial compliance in all material respects with applicable
environmental and health and safety laws and regulations. As a result,
compliance with existing federal, state and local environmental laws is not
expected to have a material effect upon the earnings or competitive position of
the Company. However, management of the Company cannot predict the effect, if
any, of environmental laws that may be enacted in the future. Capital
expenditures for environmental control facilities for the next two fiscal years
(exclusive of expenses that are expected to be substantially reimbursed) are
not expected to be material. See "Legal Proceedings". Such costs, if any,
should comprise a part of normal purchases of new or replacement equipment or
facilities.
ITEM 2. PROPERTIES
PROPERTY. The Company's Macedonia and Twinsburg production facilities are
leased. The 72,820 square feet Macedonia facility lease expires in 1997; the
lease on 33,600 square feet Twinsburg plant will be maintained on a month to
month basis until the facility is abandoned in accordance ith the Company's
Restructuring Plan (see Management's Discussion and Analysis and Note I to
Financial Statements). Under a lease amendment dated July 25, 1994, upon
completion of certain leasehold improvements, the term of the Macedonia lease
will be extended through the year 2005, with four (4) five-year unilateral
options to extend the lease through the year 2025. The Company leases 8,000
square feet of space for its executive offices, which are located adjacent to
the Macedonia plant. The lease expires in 1996. The Company also currently
leases a warehouse in Macedonia, Ohio for the storage and distribution of its
manufactured finished goods. This lease is currently maintained on a month to
month basis. Negotiations are ongoing to establish a long term lease on this
property.
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS. The Company is currently involved in litigation and
investigations pertaining to environmental concerns which preceded the
Company's acquisition of ASI, which is now operated as a division of the
Company.
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With respect to the environmental concerns at its Macedonia plant, in
1990 ASI entered into a Consent Order with the State of Ohio. ASI was required
to submit a closure plan to address contamination identified at the property.
ASI submitted the closure plan as required. In December 1991, ASI received a
Notice of Deficiency with respect to the proposed closure plan from the Ohio
EPA requesting that ASI address the deficiencies within 30 days (which it did)
and that certain additional testing be undertaken by ASI. Ohio EPA also
requested, in the event the remedial measures in the proposed closure plan are
not successful within a two-year period, that at that time ASI provide
supplemental or alternative measures to clean up the remaining contamination.
On May 17, 1994, the Ohio EPA approved the revised closure plan which
included unilateral modifications as deemed necessary by the Ohio EPA. On June
17, 1994, the Company appealed the Ohio EPA's action on the grounds that the
unilateral modifications were unreasonable and unlawful. On January 6, 1995,
the Company and the State of Ohio entered into a settlement agreement. The
Company anticipates that, under this agreement, the Ohio EPA will issue a
supplemental closure plan approval letter that will establish certain deadlines
and further identify the scope of certain tasks. Upon issuance of the
supplemental closure plan approval letter by the Ohio EPA, the Company will
withdraw its appeal and the litigation will be terminated.
Technical consultants to the Company have estimated the cost of
implementing the proposed closure plan to be approximately $670,000,
substantially all of which will be paid by former owners of the Company from
funds that have been deposited in a trust account with Ohio EPA for that
purpose. As of December 31, 1994, the trust contained approximately $786,000.
Additionally, there is approximately $227,000 available to the Company in an
environmental escrow established by the former owners of the Company (the
"Environmental Escrow"). The Environmental Escrow requires the Company to
participate in 38% of the costs incurred. The terms of the trust have no such
participation requirement. If the remediation techniques proposed in the
closure plan are not successful, or if supplemental or alternative technologies
are required to be used, then the Company may incur costs in excess of the
amounts in such trust and in the "Environmental Escrow". The Company believes,
based on discussions with technical consultants, that the cost of the
additional testing requested by Ohio EPA will be approximately $120,000 and
that the cost of the supplemental or alternative clean up measures, if
determined to be necessary, will not exceed $2,000,000.
Other than the environmental matters discussed above, the Company is
involved only in claims, legal actions and complaints arising in the ordinary
course of its business. In the opinion of management, the outcome of such
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1994.
Executive Officers
------------------
Set forth below is certain information concerning the Executive Officers
of the Company. Officers of the Company are elected annually by the Board of
Directors of the Company, and serve at the pleasure of the Board of Directors
that elects them.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edwin M. Roth 67 President, Chairman of the
Board and Director
Corey B. Roth 37 Vice President, Treasurer,
Asst. Secretary and
Director
John H. Ehlert 42 Vice President and President of
the Aerosol Systems Division
</TABLE>
Mr. Edwin M. Roth has been a Director and President of the Company and
Chairman of the Board of Directors of the Company since its formation in June
1982. Mr. Roth was Chief Executive Officer of ASI from the time of its
acquisition in December 1988 until its merger into the Company in December
1992. Mr. Roth is the father of Mr. Corey B. Roth.
Mr. Corey B. Roth has been Vice President of the Company since June 1982,
a Director since October 1984 and Asst. Secretary since June, 1992. Mr. Roth
served as Treasurer from November 1987 until January 30, 1990 and has again
served in that capacity since June, 1992. Mr. Roth served as secretary from
October 1984 until June 1992. Mr. Roth was Vice President of Administration of
ASI from April 1989 until December 1992. Mr. Roth is the son of Mr. Edwin M.
Roth.
Mr. John H. Ehlert joined the Company in 1990. He has been Vice President
of the Company since April 1992. Mr. Ehlert was President of ASI from April
1992 until December 1992. In December of 1992, he was named President of the
Aerosol Systems Division.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
From March 21, 1989 to August 1, 1991, the Company's Common Stock was
listed on the Interdealer Quotation System of NASDAQ ("NASDAQ System") under
the symbol "MMNT". From August 1, 1991 to February 27, 1992, the Common Stock
was eligible for trading in the over-the-counter market. On February 27, 1992
the Common Stock was listed on the American Stock Exchange ("AMEX") under the
symbol "CHM".
Page 9 of 60
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During 1994, the closing sales prices on AMEX ranged from $2.88 to
$7.25. During 1993, the closing sales prices on AMEX ranged from $5.75 to
$7.50. The following table sets forth the high and low sale prices by quarter
for 1994 and 1993.
<TABLE>
<CAPTION>
___Calendar Year Ended December 31,__
-------------------------------------
_____1994____ _____1993_____
------------- --------------
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter........ 7.250 4.125 6.375 5.750
Second Quarter....... 4.813 3.250 7.250 5.750
Third Quarter........ 4.500 3.500 6.875 5.875
Fourth Quarter....... 4.063 2.875 7.500 6.375
____________________
</TABLE>
As of February 10, 1995, the closing price for the Common Stock on AMEX
was $3.94. As of February 10, 1995, there were 625 holders of record of Common
Stock.
The Company has not paid cash dividends on its Common Stock and intends to
follow a policy of retaining earnings in order to finance the continued growth
and development of its business. Payment of dividends will be within the
discretion of the Company's Board of Directors and will depend, among other
factors, on earnings, capital requirements, and the operating and financial
condition of the Company. The terms of outstanding loans to the Company
currently prohibit the Company from paying cash dividends to its stockholders
in any fiscal year in excess of 20% of the Company's net income for such fiscal
year.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the fiscal years 1990 through 1994 are
derived from the Company's audited financial statements. All financial data
have been restated to reflect the discontinued restaurant operations and the
adoption of Financial Accounting Standards Board (FASB) Statement 109,
"Accounting for Income Taxes". This information should be read in conjunction
with the Company's Financial Statements and Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations, each
of which is included elsewhere in this Report.
Page 10 of 60
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<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
Year Ended December 31,
------------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data (1) (2) (3):
Net sales.................................... $ 44,931 $ 47,362 $ 47,927 $ 43,937 $ 41,779
Cost of goods sold........................... 38,066 36,988 38,149 34,222 32,660
---------- ---------- --------- ---------- ----------
Gross Profit................................. 6,865 10,374 9,778 9,715 9,119
Selling, general and
adminstrative expenses..................... 6,995 6,327 6,128 5,001 4,976
Amortization of intangibles.................. 874 862 865 865 859
Restructuring Charges........................ 954 -- -- -- --
---------- ---------- --------- ---------- --------
Operating profit (loss)...................... (1,958) 3,185 2,785 3,849 3,284
Other income (expense)
Interest expense........................... (560) (531) (1,051) (3,836) (4,211)
Amortization of debt issuance expenses..... -- -- (30) (180) (181)
Other...................................... 39 29 69 2 106
---------- ---------- --------- ---------- --------
(521) (502) (1,012) (4,014) (4,286)
---------- ---------- --------- ---------- --------
Earnings (Loss) from continuing operations
before income taxes, extraordinary items
and cumulative effect of a change in
accounting principle....................... (2,479) 2,683 1,773 (165) (1,002)
Income tax benefits (expense)................ 840 (944) (775) (31) (11)
---------- ---------- --------- ---------- --------
Earnings (Loss) from continuing operations
before extraordinary items and cumulative
effect of a change in accounting
principle.................................. (1,639) 1,739 998 (196) (1,013)
Earnings (Loss) from discontinued
operations................................. -- -- -- (169) 367
---------- ---------- --------- ---------- --------
Earnings (Loss) before extraordinary items and
cumulative effect of a change in accounting
principle.................................. (1,639) 1,739 998 (365) (646)
Extraordinary items:
Gain/(loss) due to fire (net of income
taxes)................................... 2,265 (884) -- -- --
Deferred financing cost and original issue
discount (net of income taxes)........... -- -- (714) -- --
Cumulative effect of a change in accounting for
deferred income taxes...................... -- -- -- -- 241
---------- ---------- ---------- ----------- ------------
Net earnings (loss) $ 626 $ 855 $ 284 $ (365) $ (405)
=========== ============ =========== ============ =============
Share Data (4):
Earnings (Loss) per common share from:
Continuing operations before extraordinary
items and cumulative effect of a change
in accounting principle................ $ (0.42) $ 0.44 $ 0.29 $ (0.19) $ (1.00)
Discontinued operations................ -- -- -- (0.17) 0.36
Extraordinary items.................... 0.58 (0.22) (0.21) -- --
Cumulative effect of a change in
accounting for deferred income
taxes................................ -- -- -- -- 0.24
----------- ---------- ---------- ------------ ------------
Net earnings (loss) ................... $ 0.16 $ 0.22 $ 0.08 $ (0.36) $ (0.40)
=========== ============ =========== ============ =============
Supplemental Earnings per share (5).......... N/A N/A $ 0.34 N/A N/A
=========== ============ =========== ============ =============
Dividends paid............................... -- -- -- -- --
Weighted average common shares
outstanding................................ 3,935 3,946 3,443 1,008 1,008
Year Ended December 31,
------------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Balance Sheet Data (1) (2):
Working Capital.............................. $ 6,420 $ 10,883 $ 8,212 $ 4,808 $ 4,071
Total assets................................. $ 44,558 $ 49,914 $ 41,520 $ 43,888 $ 43,857
Long-term debt............................... $ 4,512 $ 9,948 $ 6,055 $ 29,924(6) $ 30,124(6)
Stockholders' equity......................... $ 30,439 $ 29,814 $ 28,958 $ 3,904 $ 4,270
</TABLE>
<PAGE> 12
(1) A plan was adopted, effective April 1, 1991, to dispose of the
Company's restaurant operations and on October 31, 1991, the Company
completed disposition of the restaurants. All financial data have been
restated to reflect the restaurant operations, as a discontinued business.
(2) All financial data have been restated to reflect the adoption of FASB
Statement 109.
(3) At December 31, 1994, the Company had approximately $6,615,000 ofnet
operating loss carryforwards available for federal income tax purposes.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Income Taxes and Net Operating Loss
Carryforwards" regarding limitations on the usage of these
carryforwards.
(4) Common Stock data are restated to reflect a one for fourteen reverse
stock split effective on February 26, 1992.
(5) The supplemental earnings per share is computed assuming the public
stock offering had been effective on January 1, 1992 (See Note J to
Financial Statements).
(6) Includes long-term obligations (less current maturities), subordinated
note payable and common stock warrants of ASI subject to put options, which
were exchanged for Company warrants in 1992 in conjunction with the common
stock offering. See Notes C, D and E to Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL. This discussion should be read in conjunction with the information
contained in the Financial Statements and Notes thereto of the Company
contained elsewhere in this Report.
In December, 1992, the Company experienced a non-chemical fire at its
Macedonia, Ohio facility. The fire has adversely effected production
capabilities, which adverse effect continued through 1993 and into 1994. Since
the first quarter of 1994, the Company's Macedonia facility has been fully
operational.
All financial data have been restated to reflect the adoption of FASB
Statement 109.
Page 12 of 60
<PAGE> 13
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
net sales of certain items included in the Company's Statement of Operations.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Net Sales.......................... 100.0% 100.0% 100.0%
Cost of goods sold................. 84.7% 78.1% 79.6%
------ ------ ------
Gross profit..................... 15.3% 21.9% 20.4%
Selling, general and administrative
expenses......................... 15.6% 13.4% 12.8%
Amortization of intangibles........ 1.9% 1.8% 1.8%
Restructuring charge............... 2.1% - -
----- ----- -----
Operating profit................. (4.3%) 6.7% 5.8%
Interest and amortization of debt
issuance expense................. 1.2% 1.1% 2.3%
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO 1993
Net sales of $44,931,000 for the year ended December 31, 1994 were
$2,341,000 or 5.1% below the prior year. The decrease is due to softness in
the markets for the Company's automotive and industrial maintenance products in
the early part of the year and production inefficiencies as a result of fire
related replacement equipment and operating procedures in the latter half of
the year.
Cost of goods sold for the year ended December 31, 1994 increased by
$1,078,000 or 2.9% as compared to the prior year. As a percentage of net
sales, cost of goods increased form 78.1% to 84.7%. This increase is due to
production inefficiencies associated with the functioning of new equipment
throughout 1994, coupled with a reduction in sales dollars for the year ended
December 31, 1994 as compared to the same period in 1993.
Selling, general, and administrative expenses increased from $6,327,000
for the year ended December 31, 1993 to $6,995,000 for the year ended December
31, 1994. As a percentage of net sales these expenses were 13.4% for
the year ended December 31, 1993 and 15.6% for the year ended December 31,
1994. The increase was due principally to higher freight changes as well as
increased charges for medical insurance, professional fees and commissions
related to the sale of branded products.
Interest expense and amortization of debt issuance expense for the year
ended December 31, 1994 was 1.2% of net sales versus 1.1% for the comparable
period in the prior year. Interest expense was $560,000 for the year ended
December 31, 1994, an increase of $29,000, from the year ended December 31,
1993.
In the fourth quarter of 1994, the Company's Board of Directors approved a
plan to reduce the Company's cost structure and to improve operations through
the consolidation of facilities and reductions in the number of employees. The
Plan provides for the Company to accrue $941,000 of restructuring charges which
are comprised of the following: $168,000 related to the abandonment of
lease-hold improvements and lease termination costs; $457,000 for the
abandonment of certain property and equipment; $254,000 related to the
discontinuation of a product line and $62,000 for employee termination
benefits. During 1994, the Company also expended approximately $13,000 for
employee termination benefits under the Plan. The Company anticipates the
Restructuring Plan will be completed by August 1995.
Page 13 of 60
<PAGE> 14
During 1993 and 1994, in conjunction with the fire, the Company incurred
an aggregate extraordinary loss of $3,801,000 which is comprised of $2,208,000,
representing the write-off of the net book value of the machinery and equipment
destroyed by the fire, and $1,593,000 of expenses related to restoration,
property damage and unreimbursed expenditures by the Company. Additionally,
the Company recognized an aggregate extraordinary gain of $5,888,000 related to
the insurance replacement value of machinery and equipment. For financial
reporting, the Company recorded, based upon the above transactions, an
extraordinary loss of $1,338,000 ($884,000 net of tax benefits) for the year
ended December 31, 1993 and an extraordinary gain of $3,245,000 ($2,265,000 net
of taxes) for the year ended December 31, 1994.
FISCAL YEAR ENDED DECEMBER 31, 1993 AS COMPARED TO 1992
Net sales of $47,362,000 for the year ended December 31, 1993 were
$565,000, or 1.2% below the prior year. The December, 1992 fire adversely
effected the Company's production capacity throughout 1993. These adverse
effects were reflected in three successive quarters of reduced sales in 1993 as
compared to the same periods in 1992. Net sales in the fourth quarter of 1993
were $13,138,000, and increase of $2,560,000, or 24.2%, when compared to the
fourth quarter of 1992. This increase is due to restored production capacity
during the fourth quarter of 1993 versus reduced sales during the fourth
quarter of 1992 resulting from the fire.
Cost of goods sold for the year ended December 31, 1993 decreased by
$1,160,000 or 3.0% as compared to the prior year, caused by decreased sales.
Cost of goods sold decreased as a percentage of net sales from 79.6% to 78.1%
for the year ended December 31, 1993 as compared to the same period in the
prior year. This decrease is primarily due to the Company's sales mix being
weighted towards higher margin products in 1993 period, as well as fourth
quarter 1992 expenses related the December, 1992 fire. Cost of goods sold as a
percentage of net sales for the three months ended December 31, 1993 decreased
from 80.6% to 78.1% as compared to the same period in the prior year. The
decrease was caused by fourth quarter 1992 expenses related to the December,
1992 fire.
Selling, general, and administrative expenses increased from $6,128,000
for the year ended December 31, 1992 to $6,327,000 for the year ended December
31, 1993. As a percentage of net sales these expenses were 12.8% for the year
ended December 31, 1992 and 13.4% for the year ended December 31, 1993. The
increase was due principally to salaries for additional staff totalling
$168,000 as well as other administrative expenses related to the December, 1992
fire not covered by insurance.
Interest expense and amortization of debt issuance expense for the year
ended December 31, 1993 was 1.1% of net sales versus 2.3% for the comparable
period in the prior year. Interest expense was $531,000 for the year ended
December 31, 1993, a decrease of $520,000, or 49.5%, from the year ended
December 31, 1992. This decrease principally resulted from the repayment of
substantially all of the company's long-term debt with the proceeds of the
public offering in February 1992.
During 1993, the Company recorded an extraordinary charge in the amount of
$884,000 (net of a tax benefit of $455,000). The extraordinary charge reflects
the loss on property damaged and expenses incurred as a result of the 1992
fire, net of proceeds recognized from the insurance carrier through December
31, 1993.
Page 14 of 60
<PAGE> 15
During the year 1992, the Company incurred an extraordinary charge of
$714,000 related to write-offs, consisting of deferred financing costs of
$915,000 and original issue discount of $184,000 (net of income taxes of
$385,000), applicable to indebtedness that was repaid during the first quarter
of 1992 with the proceeds of the public offering.
INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS
The income tax provision of $320,000 for the year ended December 31, 1994
consists of $1,040,000 of current federal income taxes and $720,000 of deferred
federal income taxes. The income tax provision of $489,000 for the year ended
December 31, 1993 consisted of $29,000 of current federal alternative minimum
tax and local taxes and $460,000 of deferred federal income tax. The income
tax provision of $775,000 for the year ended December 31, 1992 consisted
principally of current federal income tax. The Company recognized $2,664,000,
$248,000, and $309,000 of tax benefits from the utilization of net operating
loss carryforwards ("NOLs") for book purposes during the years ended December
31, 1994, 1993 and 1992 respectively. See Note J to Financial Statements.
As of December 31, 1994, the Company's NOLs were approximately $6,615,000.
The NOLs arose primarily from the operations of the Company prior to the
acquisition of ASI. Except as discussed below, and subject to limitations of
the Internal Revenue Code of 1986, as amended (the "Code"), the NOLs should be
available to offset future income of the Company. Use of the NOLs to reduce
future taxable income may subject the Company to an alternative minimum tax.
Section 382 of the Code limits the amount of a corporation's taxable income
which can be offset by NOLs arising prior to an "ownership change". An
ownership change occurs when, for example, shares comprising more than 50
percent of a corporation's stock are sold to new public shareholders. As a
result of the public offering in February 1992 and the ownership change that
occurred in connection therewith, the limitation on the utilization of the NOLs
imposed by Section 382 of the Code will apply. Under the limitation, the
amount of the Company's taxable income that each year can be offset by NOLs
attributable to periods before the ownership change cannot exceed the product
of (i) the fair market value of the stock of the Company immediately prior to
the ownership change and (ii) the long-term tax-exempt rate prescribed by the
IRS. The limitation imposed by the change in ownership may result in the
Company paying income taxes in excess of the amount payable in the absence of a
change in ownership.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1994, the Company's ratio of current assets to current
liabilities was 1.83 to 1 and the quick ratio (cash, cash equivalents, and
accounts receivable, divided by current liabilities) was .90 to 1. As of
December 31, 1993, the Company's ratio of current assets to current liabilities
was 2.42 to 1 and the quick ratio (described above) was 1.57 to 1. The
decrease in liquidity is due primarily to losses from operations during 1994
and reduction in Receivables - other, a result of proceeds received from the
insurance company, used to pay off a portion of long term debt and purchase
additional new equipment.
During the twelve months ended December 31, 1994, the Company incurred
$560,000 in interest expense and made interest payments totaling $556,000.
Accrued interest at December 31, 1994, was $62,000.
Page 15 of 60
<PAGE> 16
The Company, as borrower, is a party to a credit agreement (the Credit
Agreement") that provides for a $10,000,000 revolving line of credit at an
interest rate equal to the prime rate or the London Inter-Bank Offered Rate
(LIBOR), at the Company's election. The Credit Agreement, entered into on
March 30, 1992 and expiring on May 31, 1996, is a facility that allows for
borrowings based upon a formula comprised of inventory, accounts receivable and
fixed assets, less an environmental compliance reserve, if any. No compliance
reserve has been required.
Under the terms of the Credit Agreement, the Company is required to comply
with various covenants, the most restrictive of which relate to restrictions on
distributions from the Company to its stockholders, maintenance of certain
financial ratios and levels of tangible net worth and limits on capital
expenditures. As a result of the foregoing, as of December 31, 1994,
approximately $5,500,000 was unused and available under the Credit Agreement.
On January 4, 1994, the Company entered into a 90 day $1,500,000 note at an
interest rate equal to the prime rate with its senior lender to fund operations
until insurance proceeds become available. On June 24, 1994, the note was
repaid in full with a portion of the proceeds received from the Company's
insurance carrier as final settlement of all claims relating to the December,
1992 fire.
The Company spent $16,385,000 for property damage, cleanup, and business
interruption costs during the year ended December 31, 1993 that were related to
the December 1992 fire; $7,300,000 of which were reimbursed in 1993 and
$8,400,000 were reimbursed in 1994 with insurance proceeds as final settlement.
The Company expects to spend an aggregate of approximately $2,300,000 on
capital improvements during 1995. Such expenditures are expected to be funded
from cash generated by operations and/or borrowings under the Credit Agreement.
Net cash provided by operating activities was $1,735,000 for 1994, as
compared to $5,032,000 for 1993 and $1,908,000 for 1992. Net capital
expenditures were $612,000, $6,084,000, and $513,000 respectively, for the
three years 1994, 1993 and 1992. The decreased cash flow in 1994 compared to
1993 is due to 1992 year end accounts payable balance being abnormally low from
the substantial reduction of purchasing as a result of the December 1992 fire.
Growth of accounts payable during 1993, as operations were recommenced, created
a significant cash source.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page 16 of 60
<PAGE> 17
PART IV
ITEM 14. EXHIBITS; FINANCIAL STATEMENT SCHEDULES;
REPORTS ON FORM 8-K
The Index to Financial Statements and Financial Statement
Schedules is listed below.
The Company filed no reports on Form 8 - K during the quarter
ending December 31, 1994.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Pg No.
-----
Report of Independent Certified Public Accountants............... F-1
Balance Sheets
December 31, 1994 and 1993.............................. F-2 & F-3
Statements of Operations
December 31, 1994, 1993 and 1992.............................. F-4
Statements of Stockholders' Equity
December 31, 1994, 1993, and 1992............................. F-5
Statements of Cash Flows
December 31, 1994, 1993, and 1992....................... F-6 & F-7
Notes to Financial Statements............................. F-8 - F-20
Report of Independent Certified Public Accountants
on Schedules................................................. F-21
Schedule II - Valuation and Qualifying Accounts
December 31, 1994, 1993 and 1992................ F-22
Page 17 of 60
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, this 29th day of March, 1995.
SPECIALTY CHEMICAL RESOURCES, INC.
By:/s/ EDWIN M. ROTH
---------------------------------
Edwin M. Roth, Chairman of
the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed by the following persons in the
capacities, on the date indicated. This Report may be signed in multiple
counterparts, all of which taken together shall constitute one document.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ EDWIN M. ROTH President and Chairman March 29, 1995
--------------------- of the Board (principal
Edwin M. Roth executive officer)
/s/ COREY B. ROTH Vice President, Treasurer March 29, 1995
--------------------- and Director (principal
Corey B. Roth financial and accounting
officer
Director March 29, 1995
---------------------
George N. Aronoff
/s/ VICTOR GELB Director March 29, 1995
---------------------
Victor Gelb
Director March 29, 1995
---------------------
Norton W. Rose
/s/ LIONEL N. STERLING Director March 29, 1995
----------------------
Lionel N. Sterling
</TABLE>
Page 18 of 60
<PAGE> 19
Index to Exhibits
Exhibit Page
Number
------
Number
------
3.01 The Amended and Restated Bylaws of the Company were
filed as Exhibit 3.03 to the Company's Form S-1 Registra-
tion Statement (Registration No. 2-78134) and are incorp-
orated herein by reference....................................
3.02 The Restated Certificate of Incorporation of the Company
was filed as an exhibit to Company's Second Modified Plan
of Reorganization which was filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated December 9,
1986, and is incorporated herein by reference.................
3.03 Amendment, effective December 12, 1991, to the Company's Restated
Certificate of Incorporation was filed as Exhibit 3.03 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991 and is incorporated herein by reference..................
3.04 Amendment, effective February 26, 1992, to the Company's Restated
Certificate of Incorporation was filed as Exhibit 3.04 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991 and is incorporated herein by reference..................
4.01 Credit Agreement, dated as of March 30, 1992, between ASI
and National City Bank was filed as Exhibit 4(a) to the Company's
Current Report on Form 8-K dated April 8, 1992, and is incorporated
herein by reference...........................................
4.02 Guaranty, dated as of March 30, 1992, executed by the Company
for National City Bank was filed as Exhibit 4(b) to the
Company's current Report on Form 8-K dated April 8, 1992,
and is incorporated herein by reference.......................
4.03 Amendment to Credit Agreement, dated as of March 5, 1993, between
the Company and National City Bank was filed as exhibit 4.03 to the
company's Annual Report on Form 10 - K for the year ended December 31,
1992 and is incorporated herein by reference..................
4.04 Specimen Stock Certificate of the Company was filed as Exhibit 4.5
to the Company's Registration Statement on Form S-2, File No. 33-43092,
and is incorporated herein by reference.......................
4.05 $1,500,000 Time Commercial Note dated January 4, 1994 between the
Company and National City Bank was filed as Exhibit 4.05 on the
Company's Annual Report on Form 10-K for the year ended December 31,
1993 and is incorporated by reference herein..................
4.06 Extension Agreement dated as of November 15, 1993 by and between
the Company and National City Bank was filed as Exhibit 4.06 on the
Company's Annual Report on Form 10-K for the year ended December 31,
1993 and is incorporated by reference herein..................
4.07 Extension Agreement dated as of December 2, 1994 by/and between
the Company and National City Bank............................
-Ex 1-
<PAGE> 20
Exhibit Page
Number
------
Number
------
10.01 Lease between ASI and 9150 Group, dated September 30, 1977 and amended
January 1, 1989 was filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the year ended January 1, 1989 and is
incorporated herein by reference.......
10.02 Lease between ASI and 9150 Group, dated September 25, 1977 and amended
January 1, 1989, was filed as Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended January 1, 1989 and is
incorporated herein by reference...............
10.03 1989 Non-Qualified and Incentive Stock Option Plan of the Company was
filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the year ended January 1, 1989 and is incorporated herein by
reference..............................
10.04 Form of option agreement pursuant to 1989 Incentive Stock
Option Plan of the Company was filed as Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the year ended
January 1, 1989 and is incorporated herein by reference.......
10.05 1989 Outside Directors' Stock Option Plan of the Company was filed as
Exhibit 10.5 to the Company's Registration Statement on Form S-2,
File No. 33-43092 and is incorporated by reference
herein........................................................
10.06 First Amendment to 1989 Non-Qualified and Incentive Stock Option Plan
of the Company, adopted October 3, 1991, was filed as Exhibit
10.12 to the Company's Registration Statement on Form S-2, File No.
33-43092 and is incorporated by reference herein...............
10.07 Second Amendment to 1989 Non-Qualified and Incentive Stock Option Plan of
the Company, dated February 26, 1992, was filed as Exhibit 10.12 to the
Company's Registration Statement on Form S-2, File No. 33-43092 and is
incorporated by reference herein...............................
10.08 First Amendment to 1989 Outside Directors' Stock Option Plan of the
Company, adopted October 3, 1991, was filed as 10.9 to the Company's
Registration Statement on Form S-2, File No. 33-43092 and is
incorporated by reference herein...............................
10.9 Second Amendment to the 1989 Outside Directors' Stock Option Plan, dated
February 26, 1992, was filed as Exhibit 10.13 to the Company's
Registration Statement on Form S-2, File No. 33-43092 and is
incorporated by reference herein...............................
10.10 Agreement between ASI and Teamsters Local Union No. 416, dated November
17, 1993 and effective as of August 15, 1993 was filed as Exhibit 10.10
on the Company's Annual Report on Form 10-K for the year ended December
31, 1993 and is incorporated by reference herein...............
-Ex 2-
<PAGE> 21
Exhibit Page
Number
------
Number
------
10.11 Agreement between ASI and Teamsters Local Union No. 416, dated
January 12, 1992, and effective as of December 23, 1991 was filed as
Exhibit 10.11 to the Company's Registration Statement on Form S-2,
File No. 33-43092 and is incorporated by reference
herein........................................................
10.12 Lease between ASI and Dutton Company, dated October 7, 1987
as amended May 4, 1989, was filed as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 2-78134, and is incorporated
herein by reference...........................................
10.13 Lease amendment between Specialty Chemical Resourses, Inc.
(assignee of ASI) and the 9150 Group dated July 25, 1994......
23 Independent Auditor's Report..................................
27 Financial Data Schedule.......................................
-Ex 3-
<PAGE> 22
EXHIBIT 23
INDEPENDENT AUDITORS' REPORT
Stockholders of
SPECIALTY CHEMICAL RESOURCES, INC.
We have audited the accompanying balance sheets of Specialty Chemical
Resources, Inc. as of December 31, 1994 and 1993, and the related statements of
earnings, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these 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 audit 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 financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Specialty Chemical
Resources, Inc. as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Cleveland, Ohio
February 8, 1995
F-1
<PAGE> 23
<TABLE>
Specialty Chemical Resources, Inc.
BALANCE SHEETS
December 31
ASSETS
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 15,025 $ 32,691
Accounts receivable - trade, less
allowance for doubtful accounts of
$123,000 and $113,000, respectively
(note C) 6,873,256 6,824,594
Receivables - other (note L) - 4,308,481
Inventories (notes A, B and C) 6,832,213 6,342,379
Prepaid expenses 383,084 165,731
Refundable income taxes 51,898 853,783
----------- -----------
Total current assets 14,155,476 18,527,659
PROPERTY AND EQUIPMENT - AT COST
(notes A, C and L)
Leasehold improvements 763,660 733,117
Office equipment and furniture 470,706 449,454
Machinery and equipment 9,579,336 9,005,334
----------- -----------
10,813,702 10,187,905
Less accumulated depreciation
and amortization 2,739,671 1,956,503
----------- -----------
8,074,031 8,231,402
OTHER ASSETS
Goodwill (note A) 20,970,474 21,586,547
Product formulation (note A) 1,164,379 1,411,925
Other 194,092 156,283
----------- -----------
22,328,945 23,154,755
----------- -----------
$44,558,452 $49,913,816
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 24
<TABLE>
Specialty Chemical Resources, Inc.
BALANCE SHEETS -- CONTINUED
December 31
LIABILITIES
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 5,764,259 $ 6,660,088
Deferred income taxes (notes A and J) 242,219 326,345
Accrued liabilities
Compensation and payroll taxes 341,278 257,299
Taxes - other 34,500 171,322
Interest 62,106 58,815
Accrued costs related to Restructuring
Plan (note I) 941,460 -
Other 349,449 171,160
----------- -----------
1,728,793 658,596
----------- -----------
Total current liabilities 7,735,271 7,645,029
LONG-TERM OBLIGATIONS (note C) 4,512,247 9,948,000
DEFERRED INCOME TAXES (notes A and J) 1,871,586 2,507,018
COMMITMENTS AND CONTINGENCIES (note F) - -
STOCKHOLDERS' EQUITY (notes E and H)
Preferred stock - $.01 par value;
authorized 2,000,000 shares - -
Common stock - $.10 par value;
authorized 13,000,000 shares;
issued and outstanding 3,932,776
and 3,932,780 shares, respectively 393,277 393,278
Additional paid-in capital 41,878,575 41,878,574
Accumulated deficit (11,832,504) (12,458,083)
----------- -----------
30,439,348 29,813,769
----------- -----------
$44,558,452 $49,913,816
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 25
<TABLE>
Specialty Chemical Resources, Inc.
STATEMENTS OF EARNINGS
For the year ended December 31
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $44,931,250 $47,362,420 $47,927,067
Cost of goods sold 38,066,017 36,988,528 38,148,590
----------- ----------- -----------
Gross profit 6,865,233 10,373,892 9,778,477
Selling, general and administrative
expenses 6,995,505 6,326,516 6,127,766
Amortization of intangibles 874,101 862,597 865,123
Restructuring charges (note I) 954,000 - -
----------- ----------- -----------
Operating profit (loss) (1,958,373) 3,184,779 2,785,588
Other income (expense)
Interest expense (559,793) (531,151) (1,051,579)
Debt issuance expenses - - (30,000)
Other 38,593 29,542 69,553
----------- ----------- -----------
(521,200) (501,609) (1,012,026)
----------- ----------- -----------
Earnings (loss) before income
taxes and extraordinary items (2,479,573) 2,683,170 1,773,562
Income taxes (benefits)
(notes A and J) (840,000) 944,000 775,000
----------- ----------- -----------
Earnings (loss) before
extraordinary items (1,639,573) 1,739,170 998,562
Extraordinary items
Gain (loss) due to fire (net of
income tax of $1,160,000 in 1994
and income tax benefit of
$455,000 in 1993) (note L) 2,265,152 (883,772) -
Write-off of deferred financing costs
and original issue discount (net of
income tax benefit of $385,000)
(notes A and D) - - (714,452)
----------- ----------- -----------
NET EARNINGS $ 625,579 $ 855,398 $ 284,110
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE (note K)
Earnings (loss) before extraordinary
items $(.42) $ .44 $ .29
Earnings (loss) from extraordinary
items .58 (.22) (.21)
----- ----- ----
$ .16 $ .22 $.08
===== ===== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 26
<TABLE>
Specialty Chemical Resources, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
COMMON STOCK
$.10 PAR VALUE ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 14,115,755 $1,411,575 $16,090,304 $(13,597,591) $ 3,904,288
1-for-14 reverse stock split (13,107,601) (1,310,760) 1,310,760 - -
Issuance of common stock 2,760,000 276,000 24,493,973 - 24,769,973
Net earnings for the year - - - 284,110 284,110
---------- ---------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1992 3,768,154 376,815 41,895,037 (13,313,481) 28,958,371
Issuance of common stock in
conjunction with warrants
exercised 164,635 16,464 (16,464) - -
Retirement of fractional
shares received from
prior reverse stock split (9) (1) 1 - -
Net earnings for the year - - - 855,398 855,398
---------- ---------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1993 3,932,780 393,278 41,878,574 (12,458,083) 29,813,769
Retirement of fractional
shares received from
prior reverse stock split (4) (1) 1 - -
Net earnings for the year - - - 625,579 625,579
---------- ---------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1994 3,932,776 $ 393,277 $41,878,575 $(11,832,504) $30,439,348
========== ========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 27
<TABLE>
Specialty Chemical Resources, Inc.
STATEMENTS OF CASH FLOWS
For the year ended December 31
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 625,579 $ 855,398 $ 284,110
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 783,168 504,661 679,416
Amortization of debt issuance
expenses and intangibles 874,101 862,597 2,002,075
Deferred income taxes (benefits) (719,558) 460,000 -
Loss on destroyed assets - 2,208,452 -
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (48,662) (1,460,704) 1,030,761
Increase in inventories (489,834) (656,972) (104,440)
(Increase) decrease in prepaid
expenses (217,353) (36,458) 94,696
(Increase) decrease in refundable
income taxes 801,885 (853,783) -
Increase in other assets (48,291) (36,960) (98,438)
Increase (decrease) in accounts
payable (895,829) 3,468,409 (2,156,379)
Increase (decrease) in accrued
liabilities 1,070,197 (282,617) 176,487
---------- ---------- ----------
Total adjustments 1,109,824 4,176,625 1,624,178
---------- ---------- ----------
Net cash provided by
operating activities 1,735,403 5,032,023 1,908,288
</TABLE>
(CONTINUED ON NEXT PAGE)
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 28
<TABLE>
Specialty Chemical Resources, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
For the year ended December 31
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets $ - $ 100,000 $ 100,000
Expenditures for property and
equipment - net (611,797) (6,083,890) (513,475)
Expenditures related to fire
damage (663,179) (10,301,341) (1,421,598)
Proceeds from insurance claim,
net of cash gain 4,971,660 7,314,458 -
----------- ----------- -----------
Net cash provided by (used in)
investing activities 3,696,684 (8,970,773) (1,835,073)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock - - 27,600,000
Payments of subordinated debt - - (13,643,333)
Payments on other long-term
obligations (1,753) - (6,012)
Payments on term note - - (8,866,664)
Proceeds on revolver 12,167,000 19,970,000 13,044,525
Payments on revolver (17,615,000) (16,077,330) (15,861,842)
Payments of offering costs - - (2,554,136)
----------- ----------- -----------
Net cash (used in) provided by
financing activities (5,449,753) 3,892,670 (287,462)
----------- ----------- -----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (17,666) (46,080) (214,247)
Cash and cash equivalents at beginning
of year 32,691 78,771 293,018
----------- ----------- -----------
Cash and cash equivalents at end
of year $ 15,025 $ 32,691 $ 78,771
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 29
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Specialty Chemical Resources, Inc. (SCR, Inc.) formulates, blends, and
packages pressurized specialty chemical products for sale to marketers,
distributors, and retailers. Its largest markets are the automotive
aftermarket and industrial/maintenance.
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows.
INVENTORIES
-----------
Inventories are stated at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for raw materials and the
first-in, first-out (FIFO) method for finished goods.
PROPERTY AND EQUIPMENT
----------------------
Depreciation is provided for in amounts sufficient to relate the costs of
depreciable assets to operations over their estimated service lives on a
straight-line basis. Leasehold improvements are amortized on a
straight-line basis over the lease term or the service lives of the
improvements, whichever is shorter.
INTANGIBLES
-----------
In conjunction with the repayment of debt from the proceeds of the public
offering (see note H), the Company recorded an extraordinary charge of
$915,451 (net of $321,000 of taxes) for the year ended December 31, 1992, to
write off the remaining balance of the unamortized debt issuance expense
related to the senior and subordinated debt (see notes C and D).
Goodwill, resulting from the excess of the purchase price over the fair
value of net assets acquired is being amortized over 40 years. The Company
evaluates potential impairment of goodwill on the basis of whether
goodwill is recoverable from the projected undiscounted profit from
operations before goodwill amortization of the related assets. Purchased
product formulations are being amortized on a straight-line basis over 10
years, and all research and development costs are being expensed as
incurred.
Accumulated amortization for intangibles amounted to $5,102,000 and
$4,227,000 for the years ended December 31, 1994 and 1993, respectively.
F-8
<PAGE> 30
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
INCOME TAXES
------------
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement 109, which requires an asset and liability
approach to accounting for income taxes. The asset and liability method
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 assets and liabilities.
STATEMENTS OF CASH FLOWS
------------------------
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or
less to be cash equivalents.
Cash payments for interest amounted to $556,000, $512,000 and $1,346,000 in
the years ended December 31, 1994, 1993 and 1992, respectively. Cash
payments for income taxes amounted to $228,000, $1,216,000 and $74,000 for
the years ended December 31, 1994, 1993 and 1992, respectively.
F-9
<PAGE> 31
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE B - INVENTORIES
<TABLE>
Inventories consist of the following at:
<CAPTION>
================================
December 31,
--------------------------------
1994 1993
--------------------------------
<S> <C> <C>
Raw materials $4,368,396 $4,181,837
Finished goods 3,049,421 2,734,315
--------------------------------
7,417,817 6,916,152
Less excess of FIFO over
LIFO cost 585,604 573,773
--------------------------------
$6,832,213 $6,342,379
================================
</TABLE>
Had the Company historically followed the FIFO cost method for raw material
inventories, the net earnings for the years ended December 31, 1994, 1993
and 1992 would have been increased by approximately $8,000, $37,000 and
$98,000, respectively.
NOTE C - LONG-TERM OBLIGATIONS
<TABLE>
Long-term obligations consist of the following at:
<CAPTION>
================================
December 31,
--------------------------------
1994 1993
--------------------------------
<S> <C> <C>
Revolver $4,500,000 $9,948,000
Other 12,247 --
--------------------------------
$4,512,247 $9,948,000
================================
</TABLE>
F-10
<PAGE> 32
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE C - LONG-TERM OBLIGATIONS -- CONTINUED
On January 12, 1989, the Company entered into a loan and security agreement
with a bank which provided a credit facility of up to $22,000,000 comprised
of a revolving credit agreement and two term loans, one for $10,000,000 and
one for $2,000,000. During the year ended December 31, 1992, in conjunction
with the proceeds from the public offering as described in note H, SCR, Inc.
retired the obligation.
In March 1992, the Company entered into a revolving credit agreement with a
bank. The revolver provides for maximum borrowings of $10,000,000 through
May 31, 1996 with any amounts then outstanding payable in full at that date.
In certain circumstances, the maximum borrowings under the agreement are
reduced pursuant to a formula based upon the amount of SCR, Inc.'s
receivables, inventory and fixed assets. In addition, the lender can reduce
the maximum borrowings under the revolver by establishing an environmental
compliance reserve in certain circumstances. No compliance reserves have
been required as of December 31, 1994. Borrowings are collateralized by
substantially all of the Company's assets and interest is payable monthly at
the lender's prime rate (8-1/2% at December 31, 1994).
Under the terms of the revolver, SCR, Inc. is required to comply with
various covenants, the most restrictive of which relate to restrictions on
dividends, maintenance of certain financial ratios and levels of net worth
and limits on capital expenditures.
NOTE D - SUBORDINATED NOTE PAYABLE
During 1989, the Company entered into an agreement to sell to a bank
(Subordinated Noteholder) a $13,000,000 note which was subordinate to the
senior debt described above. During 1992, in conjunction with the proceeds
from the public offering, SCR, Inc. retired the subordinated note and
recorded an extraordinary charge of $184,001 (net of $64,000 of taxes) to
write-off the unamortized portion of the original issue discount related to
this debt.
F-11
<PAGE> 33
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE E - COMMON STOCK WARRANTS
In connection with the subordination agreement, the Subordinated Noteholder
was granted warrants to acquire 168,555 shares of the Company's common stock
at an exercise price of $.14 per share pursuant to a Warrant Purchase
Agreement. During 1993, the subordinated noteholder, upon the exercise of
its warrants, was issued 164,635 shares. The value of the remaining shares,
in conjunction with the warrants, was used to offset the $.14 per share
exercise price.
NOTE F - COMMITMENTS AND CONTINGENCIES
The Company's operations are conducted in leased facilities under
noncancellable operating leases which expire at various dates through 1997.
Certain of the leases, all of which relate to the manufacturing facilities,
can be extended at the option of the Company to the year 2009.
The following table details scheduled minimum rental payments.
<TABLE>
<CAPTION>
RENTAL
YEAR ENDING DECEMBER 31, COMMITMENT
------------------------ ----------
<S> <C>
1995 . . . . . . . . . . . . . $340,000
1996 . . . . . . . . . . . . . 254,000
1997 . . . . . . . . . . . . . 162,000
--------
$756,000
========
</TABLE>
Rent expense for the years ended December 31, 1994, 1993 and 1992 was
approximately $606,000, $545,000 and $485,000, respectively.
The Company is currently involved in litigation and investigations
pertaining to environmental concerns by the State of Ohio in connection with
several potential problems at its Macedonia, Ohio manufacturing plant.
F-12
<PAGE> 34
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE F - COMMITMENTS AND CONTINGENCIES -- CONTINUED
With respect to the environmental concerns at its Macedonia plant, in 1990
the Company entered into a Consent Order with the State of Ohio. The
Company was required to submit to the Ohio Environmental Protection Agency
(Ohio EPA), a closure plan to address contamination identified at the
property. The Company submitted the closure plan as required. Ohio EPA
also requested, in the event the remedial measures in the proposed closure
plan are not successful within a two-year period, that at that time the
Company provide supplemental or alternative measures to clean up the
remaining contamination.
On May 17, 1994, the Ohio EPA approved the revised closure plan which
included unilateral modifications as deemed necessary by the Ohio EPA. On
June 17, 1994, the Company appealed the Ohio EPA's action on the grounds
that the unilateral modifications were unreasonable and unlawful. On
January 6, 1995, the Company and the State of Ohio entered into a settlement
agreement. The Company anticipates that, under this agreement, the Ohio EPA
will issue a supplemental closure plan approval letter that will establish
certain deadlines and further identify the scope of certain tasks. Upon
issuance of the supplemental closure plan approval letter by the Ohio EPA,
the Company will withdraw its appeal and the litigation will be terminated.
Technical consultants to the Company have estimated the cost of implementing
the proposed closure plan to be approximately $670,000, substantially all of
which will be paid by former owners of the Company from funds that have been
deposited in a trust account with Ohio EPA for that purpose. As of December
31, 1994, the trust contained approximately $786,000. Additionally, there
is approximately $227,000 available to the Company in an environmental
escrow established by the former owners of the Company (the "Environmental
Escrow"). The Environmental Escrow requires the Company to participate in
38% of the costs incurred. The terms of the trust have no such
participation requirement. If the remediation techniques proposed in the
closure plan are not successful, or if supplemental or alternative
technologies are required to be used, then the Company may incur costs in
excess of the amounts in such trust and in the "Environmental Escrow". The
Company believes, based on discussions with technical consultants, that the
cost of the additional testing requested by Ohio EPA will be approximately
$120,000 and that the cost of the supplemental or alternative clean up
measures, if determined to be necessary, will not exceed $2,000,000.
F-13
<PAGE> 35
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE G - EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) profit-sharing plan (the Plan)
covering certain salaried employees with one year of credited service. The
Company's profit-sharing contributions are at the discretion of the Board of
Directors and are credited to each participant's account based on a
percentage of gross compensation subject to a maximum contribution for each
participant. The Company is also required under the 401(k) provisions to
match employee contributions equal to 50% of each such participant's
deferred compensation up to a maximum of 4% of the participant's annual
compensation. Contributions by the Company under the 401(k) provisions for
1994, 1993 and 1992 were approximately $35,400, $32,900 and $26,400,
respectively. The Company did not make any profit-sharing contributions to
the Plan for the years ended December 31, 1994, 1993 and 1992.
The Company has a Retirement Savings Trust and Plan covering full-time
hourly employees who have completed six months of service. The Company's
contributions are made on an annual basis and are credited to each
participant's account at an amount equal to 10 cents per hour of
compensation (maximum of 48 hours per week). In addition, qualified
employees are eligible to make voluntary contributions to the Retirement
Savings Trust and Plan which are fully vested and nonforfeitable.
Contributions by the Company for the years ended December 31, 1994, 1993 and
1992 approximated $36,700, $14,000 and $21,300, respectively.
NOTE H - STOCKHOLDERS' EQUITY
The Board of Directors and the stockholders of the Company approved an
amendment to the Company's Certificate of Incorporation to authorize
13,000,000 shares of common stock, $.10 par value, and 2,000,000 shares of
preferred stock, $.01 par value. The amendment was effective February 26,
1992. The Board of Directors and the stockholders also approved a 1-for-14
reverse common stock split. The reverse common stock split was also
effective February 26, 1992. All share and per share data contained in
these financial statements are presented giving effect to the reverse stock
split.
On February 27, 1992, the Company's Registration Statement filed with the
Securities and Exchange Commission for the sale of 2,760,000 shares of the
Company's common stock was declared effective. The offering resulted in net
proceeds to the Company of $24,470,000 which was net of $3,130,000 for
underwriters' commissions and offering expenses. The purpose of the
offering was to repay a substantial portion of the Company's long-term debt.
During January 1994, the Company's Registration Statement, filed with the
SEC for the registration of the shares issued in connection with the
warrants exercised, was declared effective (see note E).
F-14
<PAGE> 36
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE H - STOCKHOLDERS' EQUITY -- CONTINUED
The Company has a Nonqualified and Incentive Stock Option Plan (the Plan)
under which 650,000 shares of common stock have been reserved. The Plan
provides for grants to officers and key employees of the Company of both
nonqualified and incentive stock options. The exercise price for options
granted under the Plan must be at least equal to fair market value of the
shares on the date of grant. The Plan will terminate in January 1999 but
will not affect any outstanding options previously granted. Such options
granted may be exercised after one year from the date of grant for not more
than one-third of the shares originally subject to the option and an
additional one-third for each of the two years thereafter. The options
granted under the Plan expire five years from the date of grant.
The Company also has an Outside Directors' Stock Option Plan (Directors'
Plan) under which 150,000 shares of common stock have been reserved. Under
the Directors' Plan, each outside director will be granted an option to
purchase 10,000 shares of common stock and an additional option to purchase
5,000 shares of common stock every two years thereafter as long as the
individual remains on the Company's Board of Directors and remains an
"outside" director. The exercise price for options granted shall be the
fair market value of the shares on the date of grant. Directors vest in
their options in 25% annual increments commencing one year after the date of
grant. Options granted, to the extent the director has vested, shall be
exercisable for a term of ten years from the date of grant. In addition,
the Directors' Plan calls for the exercising of options by directors upon
their termination and by their beneficiaries upon their death for a
designated period of time. The Directors' Plan will terminate in January
1999 but will not affect any outstanding options previously granted.
F-15
<PAGE> 37
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE H - STOCKHOLDERS' EQUITY -- CONTINUED
<TABLE>
Transactions for both stock option plans for 1994, 1993 and 1992 are as
follows:
<CAPTION>
=========================================
1994 1993 1992
-----------------------------------------
<S> <C> <C> <C>
Options outstanding January 1 341,786 254,286 27,143
Granted 105,500 94,000 243,500
Exercised -- -- --
Cancelled (41,571) (6,500) (16,357)
-----------------------------------------
OPTIONS OUTSTANDING AT DECEMBER 31 405,715 341,786 254,286
=========================================
Option price range at December 31 $3.75 to $5.11 to $5.11 to
$10.00 $10.00 $10.00
-----------------------------------------
OPTIONS EXERCISABLE AT DECEMBER 31 174,547 95,548 18,450
-----------------------------------------
OPTIONS AVAILABLE FOR GRANT AT
DECEMBER 31 394,285 458,214 247,714
=========================================
</TABLE>
As of December 31, 1994, no incentive stock options have been granted.
NOTE I - RESTRUCTURING CHARGES
In the fourth quarter of 1994, the Company's Board of Directors approved a
plan to reduce the Company's cost structure and to improve operations
through the consolidation of facilities and reductions in the number of
employees.
The Plan provides for the Company to accrue $941,000 of restructuring
charges which are comprised of the following: $168,000 related to the
abandonment of leasehold improvements and lease termination costs; $457,000
for the abandonment of certain property and equipment; $254,000 related to
the discontinuation of a product line and $62,000 for employee termination
benefits. During 1994, the Company has also expended approximately $13,000
for employee termination benefits under the Plan. The Company anticipates
the Restructuring Plan will be completed by August 1995.
F-16
<PAGE> 38
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE J - INCOME TAXES
As of December 31, 1994, the Company had approximately $6,615,000 of net
operating loss and $51,000 of investment tax credit carryforwards. However,
due to the change in percentage ownership related to the public stock
offering, the Company has an annual limitation of approximately $850,000 in
the utilization of its net operating loss and investment tax credit
carryforwards. In addition, due to the realization of built in gains
related to the fire, approximately $2,500,000 of the carryforwards may be
utilized beyond the annual limitation to offset future taxable income. The
net operating loss carryforward and investment tax credit carryforwards, to
the extent unused, will expire as follows:
<TABLE>
<CAPTION>
==================================
NET INVESTMENT
OPERATING LOSS TAX CREDIT
----------------------------------
FISCAL YEAR ENDING
DECEMBER 31,
<S> <C> <C>
1997 $ -- $47,000
1998 -- 3,000
1999 3,079,000 --
2000 2,477,000 1,000
2001 919,000 --
2003 1,000 --
2004 139,000 --
----------------------------------
$6,615,000 $51,000
==================================
</TABLE>
The above-mentioned carryforwards gave rise to a deferred tax asset of
approximately $2.6 million at December 31, 1994 which is an increase of $.5
million over the previous year. Due to the uncertainty of the ultimate
realization of the deferred tax asset, a valuation allowance for the entire
amount was recorded annually by the Company.
F-17
<PAGE> 39
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE J - INCOME TAXES -- CONTINUED
The provision for income taxes is different from that which would be
obtained by applying the statutory federal income tax rate due to
amortization of goodwill and the utilization of net operating loss
carryforwards.
<TABLE>
The following temporary differences gave rise to the deferred tax
liabilities at:
<CAPTION>
===================================
DECEMBER 31, DECEMBER 31,
1994 1993
-----------------------------------
<S> <C> <C>
LONG-TERM LIABILITY:
Depreciation of equipment $1,406,000 $1,942,000
Amortization of product
formulation costs 466,000 565,000
-----------------------------------
$1,872,000 $2,507,000
===================================
NET CURRENT LIABILITY:
Excess of book inventory
over tax inventory $ 337,000 $ 421,000
Other (95,000) (95,000)
-----------------------------------
$ 242,000 $ 326,000
===================================
</TABLE>
The income tax provision of $320,000 for the year ended December 31, 1994
consists principally of $1,040,000 of current federal income taxes and
$720,000 of deferred tax benefits. The income tax provision of $489,000 for
the year ended December 31, 1993 consisted of $29,000 of current federal
alternative minimum taxes and local taxes and $460,000 of deferred federal
income tax. The income tax provision of $775,000 for the year ended
December 31, 1992 consisted principally of current federal income tax.
F-18
<PAGE> 40
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE K - EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Net earnings (loss) per share of common stock has been computed based upon
the weighted average number of common shares and common share equivalents
outstanding for each year as follows: 3,935,431 for the year ended December
31, 1994, 3,946,167 for the year ended December 31, 1993 and 3,443,027 for
the year ended December 31, 1992. Common share equivalents include dilutive
employee stock options and the shares exercisable under the common stock
warrants (less the number of treasury shares assumed to be repurchased).
The Company's supplementary earnings per share for the year ended December
31, 1992 from continuing operations would have been $.34 per share assuming
the Public Stock Offering had been effective on January 1, 1992 (see note
H). Under this assumption, the Company's interest expense and amortization
of deferred financing costs and original issue discount would have been
reduced by $369,000, net of applicable taxes. The Company would also have
had 3,908,929 weighted average common shares and common share equivalents
outstanding for the year ended December 31, 1992.
NOTE L - INSURANCE CLAIM
On December 13, 1992, a portion of the Macedonia, Ohio plant, machinery and
equipment, and inventory was damaged by a non-chemical fire. The Company
carried (and continues to carry) replacement cost insurance and business
interruption insurance and had notified the insurance company. The Company had
incurred various expenditures related to the repair and restoration of the fire
damaged property as well as business interruption costs. The replacement cost
portion of the claim for property and restoration costs has been settled with
the insurance company for approximately $7.6 million, of which approximately
$5.8 million was received during 1993 and an additional $1.8 million was
received during 1994. The business interruption portion of the claim for
reimbursement of expenses incurred and lost sales experienced was settled with
the insurance company for approximately $8.1 million, of which $1.5 million was
received during 1993 and an additional $6.6 million was received during 1994.
F-19
<PAGE> 41
Specialty Chemical Resources, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994, 1993 and 1992
NOTE L - INSURANCE CLAIM -- CONTINUED
The Receivables - other in the amount of $4,308,000 as reported on the
December 31, 1993 balance sheet was due from the insurance company related
to the fire claim. This amount was paid in full during 1994 as part of the
overall proceeds received as discussed above.
During 1993 and 1994, in conjunction with the fire, the Company incurred an
aggregate extraordinary loss of $3,801,000 which is comprised of $2,208,000,
the write-off of the net book value of the machinery and equipment destroyed
by the fire, and $1,593,000 of expenses related to restoration, property
damage and unreimbursed expenditures by the Company. Additionally, the
Company recognized an aggregate extraordinary gain of $5,888,000 related to
the insurance replacement value of machinery and equipment. For financial
reporting, the Company recorded, based upon the above transactions, an
extraordinary loss of $1,338,000 ($884,000 net of tax benefits) for the year
ended December 31, 1993 and an extraordinary gain of $3,425,000 ($2,265,000
net of taxes) for the year ended December 31, 1994.
F-20
<PAGE> 42
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS ON SCHEDULES
Stockholders of
SPECIALTY CHEMICAL RESOURCES, INC.
In connection with our audit of the financial statements of Specialty Chemical
Resources, Inc. referred to in our report dated February 8, 1995, we have also
audited Schedule II for each of the three years in the period ended December
31, 1994. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
GRANT THORNTON LLP
Cleveland, Ohio
February 8, 1995
F-21
<PAGE> 43
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SPECIALTY CHEMICAL RESOURCES, INC.
For the years ended December 31, 1994, 1993 and 1992
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
ADDITIONS
-------------------------------------
BALANCE AT (1) (2) BALANCE AT
BEGINNING OF CHARGED TO CHARGED TO END OF
YEAR DESCRIPTION PERIOD COSTS AND EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
---- ------------- ------------ ------------------ -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1992 Allowance for doubtful
accounts $ 40,000 $328,750 $ - $(292,750) $ 76,000
1993 Allowance for doubtful
accounts $ 76,000 $120,000 $ - $ (83,000) $113,000
1994 Allowance for doubtful
accounts $113,000 $120,300 $ - $(110,300) $123,000
</TABLE>
F-22
<PAGE> 1
EXHIBIT 4.07
EXTENSION AGREEMENT
-------------------
This Extension Agreement made as of 12-2-94, 1994 by and between SPECIALTY
CHEMICAL RESOURCES, INC. fka Aerosol Systems, Inc. ("Borrower") and
National City Bank ("Bank"):
Reference is made to the Credit Agreement between the parties dated as of March
30, 1992 (as the same has been amended from time to time, the "Credit
Agreement") which provides for, among other things, a $10,000,000 subject
commitment available to Borrower, upon certain terms and conditions, on a
revolving basis until May 31, 1995 (the "expiration date" now in effect),
subject, however, to earlier reduction or termination pursuant to the Credit
Agreement.
The parties agree that the Credit Agreement is hereby amended by
deleting the date May 31, 1995 from subsection 2A.02 (captioned "TERM") and by
substituting for that deleted date the date "May 31, 1996".
In all other respects the Credit Agreement shall remain in full effect.
Borrower acknowledges and agrees that, as of the date hereof, all of Borrower's
outstanding loan obligations to Bank are owed without any offset, defense or
counterclaim of any nature whatsoever.
SPECIALTY CHEMICAL RESOURCES, INC.
(fka Aerosol Systems, Inc.)
By: /s/ Corey B. Roth
--------------------------------
Printed Name: Corey B. Roth
----------------------
Title: V.P.
-----------------------------
NATIONAL CITY BANK
By: /s/ Anthony J. Dimare
-------------------------------
Printed Name: Anthony J. Dimare
----------------------
Title: Vice President
----------------------------
<PAGE> 1
Exhibit 10.13
SECOND AMENDMENT TO LEASE
-------------------------
This Second Amendment to Lease made as of the dates hereinafter set
forth by and between 9150 GROUP, an Ohio limited partnership, herein referred
to as "Lessor", and SPECIALTY CHEMICAL RESOURCES, INC., a Delaware corporation
(assignee of AEROSOL SYSTEMS, INC., a Delaware corporation, effective December
31, 1992), herein referred to as "Lessee,"
PREAMBLE
--------
A. Lessor and Aerosol Systems, Inc., as original Lessee, entered into
a lease for the premises located at 9150 Valley View Road, Macedonia, Ohio,
which lease is dated September 30, 1977 (the "Lease").
B. Subsequently, by a Lease Amendment dated as of January 1, 1989,
Lessor and Aerosol Systems, Inc. amended the Lease.
C. Subsequently, Aerosol Systems, Inc., did sell, assign, transfer,
and convey all of its right, title and interest in and to the Lease to
Specialty Chemical Resources, Inc., effective December 31, 1992. (Any
reference to Lessee in this Lease, or any amendment thereto, including the
within Second Amendment to Lease, shall be deemed to mean Specialty Chemical
Resources, Inc.)
D. Lessee intends to improve the premises in the manner and to the
extent hereinafter provided.
D. Lessor and Lessee desire to further amend the Lease, which (as
amended and extended) is incorporated herein by reference, in certain respects
and in the manner hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, Lessor and Lessee hereby agree that the Lease shall be amended and
modified as follows:
1. Pursuant to Section 18 of the Lease, Lessee shall, at its sole cost
and expense, make the following improvements to the premises:
a. Installing a sprinkler system in the mixing and drum
storage areas;
b. Relocating the existing southern-most tank farm; and
c. Expanding the drum storage area by approximately
10,000 sguare feet.
This work is collectively known as the "Lessee Improvements." Prior to
commencement of any of the Lessee Improvements, Lessee shall obtain
Lessor's written approval of the specifications and plans for the
Lessee Improvements.
<PAGE> 2
2. Section 4 (Term) of the Lease shall be amended to read as follows:
The term of this Lease shall be ten (10) years, commencing on the
first day of the calendar month following completion of the Lessee
Improvements (the "New Commencement Date") and ending on the last day
of the one hundred twentieth (120th) calendar month thereafter (the
"Amended Term"). The parties shall enter into a supplemental agreement
in recordable form, setting forth the New Commencement Date. Lessee's
obligation to pay the rent specified for the Amended Term shall begin
on the New Commencement Date.
3. Section 3 (Rent) of the Lease shall be amended to read as follows:
During the Amended Term of this Lease, without deduction or setoff,
the rental shall be and is hereby fixed at Two Hundred Sixteen Thousand
Two Hundred Sixty and 88/100 Dollars ($216,260.88) per annum, payable
in equal monthly installments of Eighteen Thousand Twenty-One and
74/100 Dollars ($18,021.74) each, payable in advance to Lessor on or
before the first day of each and every calendar month during the
Amended Term. Rental for any partial month at the end of the term
shall be prorated on a per diem basis, using the monthly rent then in
effect.
4. Section 44 (Options to Renew) of the Lease shall be amended to
read as follows:
<TABLE>
Provided this Lease is in full force and effect and Lessee is not in
default hereunder, Lessee shall have the right and option to renew this
Lease for four (4) additional periods of five (5) years each, upon all
of the terms and conditions provided in this Lease except that the
fixed annual rent payable monthly for each of the said five-year
renewal periods shall be as follows:
<CAPTION>
Annual Rent Monthly Rent
----------- ------------
<S> <C> <C>
First Option Period $232,480.45 $19,393.37
Second Option Period $249,916.48 $20,826.37
Third Option Period $268,660.22 $22,388.35
Fourth Option Period $288,809.74 $24,067.48
</TABLE>
The renewal options, to be effective, must be exercised by Lessee by
written notice received by Lessor at least six (6) months prior to the
commencement date of each such renewal term.
5. Section 7 (Indemnification for Liens) of the Lease shall be
amended to read as follows:
2
<PAGE> 3
Lessee will save harmless and indemnify Lessor from the payment of all
liens, legal costs and charges, including attorney fees, lawfully and
reasonably incurred or expended by Lessor in or about the prosecution
or defense of any suit or other proceedings, in discharging the
Premises or any part thereof from any liens, judgments or encumbrances
created by or arising from the action or inaction of Lessee upon or
against the Premises or against Lessee's leasehold estate.
6. Section 11 (Bankruptcy or Insolvency) of the Lease shall be amended to
read as follows:
If at any time during the term hereof Lessee shall file a petition in
bankruptcy or be adjudicated a bankrupt, or file any petition or
answer seeking reorganization, arrangements, composition,
readjustment, liquidation, dissolution or similar relief for itself
under any present or future federal, state or other statute, law or
regulation, or make an assignment for the benefit of creditors, or any
trustee, receiver or liquidator of Lessee or of any substantial part of
its assets or of the Demised Premises shall be appointed in any action,
suit or proceedings by or against Lessee, and such proceeding or action
shall not have been dismissed within thirty (30) days after such
appointment, or if any sheriff, marshal or constable, take possession
of the Premises or assets located thereon by virtue of any attachment
or execution proceedings and offers same for sale publicly, and such
attachment, execution proceeding or public sale is not suspended or
dismissed within thirty (30) days after such ordered attachment,
execution, or public sale, then Lessor may, at its option, in any of
such events, immediately take possession of the Demised Premises and
terminate this Lease. Upon such termination all installments of rent,
and other charges due hereunder and earned to the date of termination
and unpaid shall at once become due and payable, and in addition
thereto Lessor shall have all rights provided by the bankruptcy laws
relative to the proof of claims of an anticipatory breach of an
executory contract.
7. Section 12 (Insurance; Damages) of the Lease shall be amended to read
as follows:
(a) At all times during the term of this Lease, including any
period of reconstruction of any buildings, if any, Lessee
at its sole cost and expense will keep the building or buildings
on the premises insured against damage or destruction by fire
and other hazards covered by the standard form of "fire and
extended coverage" policy and against vandalism and malicious
mischief and against war risks as and when such insurance is
obtainable, with responsible insurance companies satisfactory
3
<PAGE> 4
to Lessor, legally authorized to do business in the State of
Ohio; such fire and extended coverage insurance shall be in the
amount of the full replacement value of said building or
buildings. Said value may be determined at the instance of
Lessor, at Lessor's cost, not more frequently than at annual
intervals by an architect, contract appraiser, and appraisal
company, provided the method is approved by the Lessee's
insurer, and shall exclude such values as are not insured by the
standard form insurance policy, viz, excavation, underground
foundations and piping and architects' fees, and the amount of
the insurance shall be adjusted accordingly. Lessor and Lessee
shall be named as insureds in the policies, as their interests
may appear, and said policies of insurance shall, at Lessor's
request, also contain an endorsement recognizing the interest of
any mortgagee or mortgagees, which interest of said mortgagee or
mortgagees shall be evidenced by a standard mortgagee's form of
endorsement. Lessor shall be furnished with the original
policies thereof, and thereafter, not less than fifteen (15)
days prior to the expiration dates of the expiring policies,
Lessee shall deliver to Lessor new original policies or original
certificate of renewal of existing policies together with
evidence of the payment of the premiums, whereupon such
insurance shall be deemed to be in compliance with the terms of
this Lease, unless Lessee is notified to the contrary, in
writing, by Lessor. In the event of such notice Lessor and
Lessee shall agree on the insurable value, or in the absence of
agreement, such value shall be determined by an insurance
appraiser agreed to by the parties or, in the absence of
agreement, by an insurance appraiser which may be appointed by
the Chief Justice of the Court of Common Pleas of Cuyahoga
County, Ohio. Said policies of insurance shall include a
provision for thirty (30) days' advance written notice for
Lessor in the event of any modification or cancellation of such
insurance.
In the event Lessee shall fail to provide such insurance,
Lessor, at its option, may obtain such insurance at Lessee's
expense (but Lessor shall be under no obligation to do so), and
the cost thereof shall be treated as additional rental
hereunder. Lessee may procure, in place of separate policies,
blanket policies of insurance having the same coverage and
provisions as are herein required
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<PAGE> 5
with respect to separate policies. If such blanket
insurance is furnished, Lessee shall deliver to Lessor evidence
of such insurance meeting the requirements as aforesaid, which
evidence shall be in form satisfactory to Lessor and to any
mortgagee of Lessor.
(b) Lessor and Lessee agree that if any improvements located in or
upon the Premises, including without limitation, the buildings
located upon the Premises, shall be damaged by fire or other
casualty covered by policies of fire and extended coverage, and
such damage or destruction could reasonably be repaired within
one hundred fifty (150) days from the date of such happening,
then Lessor shall proceed with all reasonable speed to repair
such damage and restore the improvements as nearly as
practicable to their condition immediately preceding such damage
or destruction within the said 150-day period. Lessor shall
notify Lessee at least fifteen (15) days following the
occurrence of such damage or destruction whether or not the
buildings can be reasonably restored within the said 150-day
period, and if they cannot be reasonably restored within the
said 150-day period, Lessor's estimated time period required to
restore the improvements as nearly as practicable to their
condition immediately preceding such damage or destruction. If
the buildings cannot be repaired or restored within the said
150-day period, then in such event either Lessor or Lessee shall
have the right to terminate this Lease by giving the other at
least fifteen (15) days notice of its intention to terminate
this Lease; provided, however, that if lessee or Lessor does not
timely elect to terminate this Lease as hereinabove provided,
then, in such event, Lessor shall proceed with all reasonable
speed to repair and restore such damage or destruction within
the estimated time period set forth in Lessor's 15-day notice to
Lessee, and if Lessor does not reasonably repair and restore the
improvements to their condition immediately preceding such
damage or destruction within Lessor's estimated time period for
completing such repairs and restoration, then, in such event,
Lessee shall have the right to terminate this Lease by giving
Lessor at least fifteen (15) days
5
<PAGE> 6
notice of its intention to terminate this Lease.
Notwithstanding anything to the contrary, Lessor shall not be
required to repair or restore the improvements within the
foregoing 150-day period or its foregoing estimated time period,
whichever the case may be, if the unexpired portion of the then
current term of this Lease is less than two (2) years, and
either party hereto shall have the right to terminate this Lease
upon giving the other party at least thirty (30) days notice
after the happening of such damage or destruction, unless,
within the said 30-day notice period Lessee shall notify Lessor
of its intention to extend the term or renew this Lease in
accordance with any option or right to do so which it may have,
in which case, this Lease shall not be terminated although
notice of termination may previously have been given, and Lessor
shall be obligated to proceed to timely repair and restore the
improvements as hereinabove provided.
Any termination of this Lease as herein provided shall be
effective as of the date of such damage or destruction and both
parties shall be released from further liability hereunder,
without prejudice, however, to any rights accruing to either
party prior to the date of such damage or destruction. If, in
any case, this Lease is not terminated, Lessee shall be entitled
to the proportionate abatement of its rent corresponding to the
area and the time during which Lessee is directly or indirectly
unable to use and/or occupy all or any part of the building on
the Premises or improvements located thereon; provided, however,
that if the damage resulted from or was contributed to by the
act, fault, omission, or neglect of Lessee, its employees,
invitees, or agents, there shall be no abatement of rent.
If this Lease is not terminated as hereinbefore described, then
subject to the rights and requirements of any bona fide
mortgagee, the parties agree that all such insurance proceeds,
when and if collected according to the terms of any such
insurance policies, shall be deposited in a separate
6
<PAGE> 7
bank account maintained by Lessor, and that such insurance
proceeds shall be used, to the extent necessary, for the
restoration, or reconstruction of the building, buildings,
improvement or improvements, on the Demised Premises, all such
proceeds being pledged and dedicated by Lessor for that purpose
to the extent necessary therefor; provided, however, that Lessor
may agree in any indenture executed by and between Lessor and
any mortgagee or trustee in an indenture securing any lender who
has loaned money to Lessor on said premises, for the renewal or
extension of any such indebtedness, to the effect that such
lender shall be permitted to cause (or supervise to the extent
and in the manner that such indenture may provide) the
expenditure of such insurance funds to the extent necessary for
the restoration or reconstruction of the building, buildings,
improvement or improvements, on the Premises.
In the event that the proceeds of the insurance are insufficient
to complete such repairs, then Lessee shall deposit within
thirty (30) days with Lessor sufficient additional funds to
complete such repairs and Lessor shall proceed to make such
repairs as hereinafter provided. If Lessee does not deposit
such additional finds with Lessor for that purpose, Lessor may,
but shall not be required to, repair such damage in which event
the amount so paid by Lessor for repairs which is in excess of
such insurance proceeds shall be paid by Lessee to Lessor on
demand, together with interest thereon at the rate of eight
percent (8%) per annum from the date of payment thereof by
Lessor, and if not so paid by Lessee, may be collected by Lessor
as additional rent.
(c) Lessor and Lessee each hereby waive all causes and rights of
recovery against the other, their respective agents, officers
and employees for any loss occurring to the buildings and
improvements located on the Demised Premises resulting from any
of the perils insured against under the aforesaid insurance
policies, regardless of cause or origin, including the
negligence of Lessee and/or Lessor, their respective agents,
officers, and employees, to the extent that
7
<PAGE> 8
any recovery under such policy or policies of insurance shall
not he invalidated in whole or in part by reason thereof.
8. Section 13 (Assignment and Subletting) of the Lease shall be amended
to read as follows:
This Lease shall not be assigned, mortgaged, pledged, encumbered or in
any other manner transferred by Lessee, voluntarily or involuntarily,
by operation of law or otherwise nor shall the premises or any part
thereof be sublet, licensed, granted to a concessionaire or used
or ocoupied by anyone other than Lessee, without the prior written
consent of Lessor. Any consent by Lessor to any assignment, subletting,
licensing, grant to a concessionaire or use or occupation by anyone
other than Lessee, shall not constitute a waiver of the necessity for
such consent under any subsequent assignment, subletting, licensing,
grant to a concessionaire or use or occupation by anyone other than
Lessee.
If Lessee shall at any tine during the term of this Lease sublet all or
any part of said premises or assign this Lease either with or without
the consent of Lessor, Lessee shall nevertheless remain fully liable
under all of the terms, covenants and conditions of this Lease. If
this Lease be assigned or if the premises or any part thereof be
subleased or occupied by anyone other than Lessee, Lessor may collect
from the assignee, sublessee or occupant any rent or other charges
payable by Lessee under this Lease and apply the amount collected to
the rent and other charges herein reserved but such collection by
Lessor shall not be deemed an acceptance of the assignee, sublessee or
occupant as a tenant nor a release of Lessee from the performance by
Lessee under this Lease.
A change of the control of a Lessee which is a corporation, partnership
or business trust, whether said change of control shall consist of the
transfer of stock, partnership interests or beneficial interests in
trust, the sale of assets, or any agreement creating a right in anyone
other than the original shareholders, partners or holders of beneficial
interest of said Lessee to conduct the Lessee's business without the
prior consent in writing of Lessor to said change in control or
operation shall constitute an attempted assignment or subletting in
violation of this Section and shall be null and void and of no effect.
Notwithstanding the foregoing, Lessee shall have the right, without the
prior written consent of Lessor, to sell, assign or otherwise transfer
this Lease or any interest therein or sublet the Premises or any part
thereof or permit the Premises or any part thereof to be occupied by
any affiliate of Lessee,
8
<PAGE> 9
including without limitation, any corporation or other person or
entity in control of, controlled by, or in common control with Lessee,
or any corporation which is the survivor of a merger or other
consolidation involving Lessee, or any corporation listed upon any
recognized public stock exchange.
9. Section 16 (Remedies on Default) of this Lease shall be amended to
read as follows:
This Lease is made upon the condition that Lessee shall punctually and
faithfully perform all of the covenants and agreements by it to be
performed as herein set forth, and if any of the following events of
default shall occur, to-wit: (1) any installment of rent, or any other
sums required to be paid by Lessee hereunder, or any part thereof,
shall at any time be in arrears and unpaid for ten (10) days after
Lessee's receipt of written notice of such default (provided, however,
that Lessor shall be required to provide such notice no more than twice
in any twelve month period), or (b) there be any default on the part of
Lessee in the observance or performance of any of the other covenants,
agreements, or conditions of this Lease on the part of Lessee to be
kept and performed and said default shall continue for a period of ten
(10) days after Lessee's receipt of written notice of such default
(unless such default cannot reasonably be cured within said ten (10)
days and Lessee shall have commenced to cure said default within said
ten (10) days and continues diligently to pursue the curing of the
same), or (c) Lessee shall file a petition in bankruptcy or be
adjudicated a bankrupt, or file any petition or answer seeking any
reorganization, arrangements, composition, readjustment, liquidation,
dissolution or similar relief for itself under any present or future
federal, state or other statute, law or regulation, or make an
assignment for the benefit of creditors, or (d) any trustee, receiver
or liquidator of Lessee or of all or any substantial part of its
properties or of the Demised Premises shall be appointed in any action,
suit or proceeding by or against Lessee and such proceeding or action
shall not have been dismissed within thirty (30) days after such
appointment or (e) the leasehold estate hereby created shall be taken
on execution or by other process of law, or (f) Lessee shall vacate or
abandon the Demised Premises (but not if Lessee is not in default of
rent or other payments required under this Lease to be paid by Lessee),
then and in any of said cases, Lessor, at its option, may immediately
terminate this Lease and re-enter upon the demises premises and take
possession thereof with full right to sue for and collect all damages
Lessor may incur by reason of such default, including the cost of
recovering the Demised Premises, reasonable attorneys' fees, and the
amount of rent and other charges reserved in this Lease for the
remainder of the term herein, all of which shall be immediately due and
payable from Lessee to Lessor.
9
<PAGE> 10
Lessor may, if it elects to do so, bring suit for the collection of
such rents and damages without entering into possession of the Demised
Premises or voiding this Lease.
In addition to, but not in limitation of, any of the remedies set forth
in this Lease or given to Lessor by law or in equity, Lessor shall
also have the right and option, in the event of any default by Lessee
under this Lease and the continuance of such default after the period
above provided, to retake possession of the Demised Premises from
Lessee by summary proceedings or otherwise, and it is agreed that the
commencement and prosecution of any action by Lessor in forcible
entry and detainer, ejectment or otherwise, or any execution of any
judgment or decree obtained in any action to recover possession of the
Demised Premises, shall not be construed as an election to terminate
this Lease unless Lessor expressly exercises its option hereinbefore
provided to declare the term hereof ended, whether or not such entry or
re-entry be had or taken under summary proceedings or otherwise, and
shall not be deemed to have absolved or discharged Lessee from any of
its obligations and liabilities for the remainder of the term of this
Lease, and Lessee shall, notwithstanding such entry or re-entry,
continue to be liable for the payment of the rent and the performance
of the other covenants and conditions hereof. If in the event of such
ouster, Lessor rents or leases the Demised Premises to some other
person, firm or corporation (whether for a term greater, less than or
equal to the unexpired portion of the term of the Lease) for an
aggregate rent, including any option periods (the "Aggregate Rent"),
provided in such new lease, which is less than the rent and other
charges which Lessee would be required to pay during the unexpired term
of this Lease, Lessor may immediately upon the making of such new lease
or the creation of such new tenancy sue for and recover the difference
between the aggregate rent provided for in said new lease and the rent
which Lessee would pay hereunder during the unexpired term of the
Lease, together with any expense to which Lessor may be put for
brokerage commission and placing the demised premises in tenantable
condition. Notwithstanding the foregoing, in no event shall Lessee be
liable to Lessor for any amount exceeding the fixed rent for the
unexpired term of the Lease.
The remedies of Lessor hereunder shall be cumulative and not exclusive
of any other remedy hereunder or to which Lessor may be lawfully
entitled. The failure of Lessor to insist upon strict performance of
any of the covenants of this Lease or to exercise any option herein
contained shall not be construed as a waiver or relinquishment for the
future of such or any other covenant or option, nor shall the receipt
by Lessor of rent with knowledge of any default by Lessee nor any other
action of Lessor except a waiver expressed in writing signed by
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<PAGE> 11
Lessor, be deemed a waiver of such default, nor shall the acceptance by
Lessor of any sum of rental less than the sum provided for by this
Lease alter the rental terms hereof nor absolve Lessee from its
obligations to pay the full rental herein.
10. Section 24 (Condemnation) of the Lease shall be amended to read as
follows:
If all or any portion of the Premises, or of any buildings or additions
constructed after commencement of the term hereof, is (or are)
appropriated or taken under power of eminent domain or by paramount
authority as to make the Premises unfit for the use by Lessee as
hereinafter defined, either Lessor or Lessee shall have the option to
terminate this Lease subject to the limitations and in the manner
hereinafter set forth. The Premises shall be deemed to be unfit for use
by Lessee if the area of the building or buildings remaining after such
taking is less than seventy-five percent (75%) of the area of the
building or buildings prior to such taking.
If either party elects to terminate this Lease as provided above, it
shall give written notice to the other within thirty (30) days after
the entry of the final order of court authorizing the taking or
appropriation.
In the event this Lease is not terminated, Lessor shall proceed to
enclose, repair and restore said building or buildings to the maximum
extent reasonably possible and to a condition as reasonably suitable as
possible under existing circumstances at such time, and such
restoration shall be completed with all reasonable speed. During
such construction and repair, rent shall be abated prorata based on the
floor area of which Lessee is deprived (either permanently or
temporarily) from using. After the restoration of said building or
buildings, the monthly rent shall be reduced in the proportion that the
area of said building or buildings so appropriated or taken bears to
the total area of said building or buildings prior to the said
appropriation or taking. During such period of restoration, this Lease
shall remain in full force and effect and Lessee shall pay each month,
as rental for such part of the Demised Premises as shall, in the
judgment of Lessor and Lessee, be reasonably fit for use and occupancy
by Lessee until the building or buildings be repaired, in amount in the
same proportion to the rent reserved herein as the area of the building
or buildings reasonably fit for use and occupancy by Lessee bears to
the total area of the building or buildings.
Any compensation award as a result of any appropriation or taking
under power of eminent domain or by paramount authority shall inure to
the benefit of and be the sole property of
11
<PAGE> 12
Lessor whether or not this Lease is terminated. Lessor shall also be
entitled to any proceeds which shall be awarded for damages suffered by
the Demised Premises although no part of such Premises is taken.
Notwithstanding anything to the contrary contained in this Lease,
Lessee shall have the right, at its sole cost and expense, to assert a
separate claim in any condemnation proceeding for its personal property
and improvements and moving expenses.
11. Section 25a (Subordination; Attornment) of this Lease shall be
amended to read as follows:
(a) Lessor reserves the right to demand and obtain from Lessee
a waiver of priority, in recordable form, of Lessee's leasehold estate
subordinating Lessee's Lease in favor of any mortgage loan or
underlying or ground lease, including, without limitation, any
refinancing, replacement, renewal, modification, extension or
consolidation thereof which is placed upon the Premises from time to
time by the Lessor; provided that Lessor shall procure from any such
mortgagee or Lessor an agreement providing in substance that so long as
Lessee shall faithfully discharge the obligations on its part to be
kept and performed under the terms of this Lease, Lessee's tenancy will
not be disturbed nor this Lease affected by any default under such
mortgage or underlying or ground lease.
12. Section 29 (Indemnity for Litigation) of this Lease shall be amended to
read as follows:
Lessee covenants and agrees that in case Lessor shall without fault on
its part be made a party to any litigation commenced by or against
Lessee, then Lessee shall pay all reasonable litigation costs and
expenses, including reasonable attorneys' fees, incurred by or imposed
on Lessor by or in connection with such litigation; and also shall pay
all reasonable litigation costs and expenses, including reasonable
attorneys' fees, which may be incurred by Lessor, if successful, in
enforcing any of the covenants and agreements of this Lease, and all
such costs, expenses and reasonable attorneys' fees shall, if
reimbursable to Lessor as herein provided, be so much additional rent
due on the next rent date after such payment or payments, together with
interest at eight percent (8%) per annum from the date of payment.
13. Section 33 (Remedies) of this Lease shall be amended to read as follows:
It is further covenanted and agreed that the various rights, powers,
options, elections and remedies of Lessor or Lessee contained in this
Lease shall be construed as cumulative and no one of them shall be
deemed exclusive of the others or
12
<PAGE> 13
exclusive of the others or exclusive of any rights or remedies allowed
by law to the Lessor or Lessee consistent with any provisions of this
instrument, and that no waiver of a breach of any of the covenants of
this Lease by Lessor or Lessee shall be construed as a waiver of any
other or succeeding breach of the same or any other covenant.
14. Section 36 (Applicable Laws and Construction) of this Lease shall be
amended to read as follows:
The laws of the State of Ohio shall govern the validity, performance
and enforcement of this Lease. Any provision of this Lease which is
contrary to a law which the parties cannot legally waive or contract
against (such, for example, as labor laws and anti-trust laws) is and
shall be void and not binding on either party hereto; provided,
however, that the invalidity or unenforceability of any provision of
this Lease shall not affect or impair any other provision. The
submission of this document for examination does not constitute an
offer to lease or a reservation of or option for the premises and
becomes effective only upon execution and delivery thereof by Lessor
and Lessee. All negotiations, considerations, representations and
understandings between the parties are incorporated herein and may be
modified or altered only by agreement in writing between the parties.
Lessee shall have no right to quit the Premises or cancel or rescind
this Lease except as said right is expressly granted herein. The
headings of the several articles contained herein are for convenience
only and do not define, limit or construe the contents of such
articles. This Lease has been negotiated by Lessor and Lessee and the
Lease, together with all of the terms and provisions hereof, shall not
be deemed to have been prepared by either Lessor or Lessee but by both
equally. Time is declared to be of the essence in all provisions of
this Lease.
15. Section 5 (Taxes) of the Lease shall be amended to read as follows:
Lessee covenants and agrees to pay, as additional rent, before the same
shall become delinquent, all taxes, assessments, excises and imposts,
general, ordinary and extraordinary, special or otherwise, and all
other charges of every kind and character that may be levied,
assessed, charged or imposed on account of this Lease, upon the
Premises, upon any buildings or improvements thereon, upon rents
thereof or therefrom, and the estate hereby created, as of the
Commencement Date of this Lease as provided hereinabove, and will at
all times save harmless Lessor from payment thereof and from any and
all liens, and penalties in connection therewith. Lessee shall not be
required to pay any inheritance, estate or succession tax under any
existing or future laws of the United States of America or any other
country or the State of Ohio, or any
13
<PAGE> 14
other state, or any subdivision thereof, that may be payable by reason
of the devolution by descent or testamentary provision of Lessor's
estate in said Premises, and Lessee shall not pay any income, gift or
capital levy tax that may be payable by Lessor under any existing or
future tax law of the United States, or the State of Ohio, or any
subdivision thereof. It is hereby agreed by and between Lessor and
Lessee that the taxes shall be prorated between them as of the last day
of the last year in which Lessee is in occupancy as of the date of
termination. In addition, Lessee shall be required to pay its pro rata
share of installments of assessments which may become due during the
period of occupancy, and these shall be prorated on the same basis as
the taxes. Upon the written application of Lessor, Lessee shall
furnish to Lessor for inspection and such use as may be proper for the
protection of Lessor's interest in said premises written evidence, duly
certified, that any and all such claims are duly satisfied or otherwise
discharged.
Upon written notice from Lessee to Lessor, Lessee shall at all times
have the right to contest in good faith, in any proper proceedings, in
the name of Lessor if necessary, the payment or satisfaction of any
such taxes, assessments, charges, liens, penalties or claims, so agreed
to be paid by Lessee; if the validity thereof, or the right to assess
or levy the same against or collect the same from the said premises or
improvements or estate of Lessee shall be disputed by Lessee, Lessee
shall, in any and all such proceedings, protect and save harmless
Lessor from all costs, losses or damages resulting from any such
proceedings or from the failure of Lessee to make any such payments,
and shall institute or prosecute with all reasonable diligence such
suit or suits or other proper legal proceedings as may be necessary and
proper to contest the validity of any such disputed tax, assessment or
other charge, and shall thereafter do or cause to be done all things
which may be necessary or proper to be done properly to decide and
determine finally and in a lawful manner the validity or invalidity of
any such disputed tax, assessment or other charge. During any contest
as aforesaid, Lessee will prevent any divesting of Lessor's title
reversion or other interest in or to the Demised Premises.
16. Section 35 (Net Lease) of this Lease shall be retitled "Net Net Net
Lease" and shall be amended to read as follows:
This Lease is a net, net, net lease, imposing upon Lessee the
obligation to pay the rent, real estate taxes, insurance premiums, and
costs of repairs and maintenance relating to the Premises as required
in this Lease. Lessor shall not be required to provide any services or
do any acts in connection with the premises except as specifically
provided in this Lease.
14
<PAGE> 15
17. The following Section 45 shall be added to the Lease:
45. CONSENT AND APPROVAL
It is expressly understood and agreed that wherever and whenever the
consent or approval of the Lessor or Lessee is required under the
Lease, such consent or approval shall not be unreasonably conditioned,
delayed or withheld.
It is expressly understood and agreed between the parties hereto that this
Second Amendment is contingent upon and subject to Lessee's commencing and
substantially completing all of the Lessee Improvements on or before January 1,
1996. If, for any reason whatsoever, Lessee does not commence construction of
the Lessee Improvements and/or complete the Lessee Improvements on or before
January 1, 1996 (which date may be extended by the subsequent written agreement
of the parties), then, in such event, notwithstanding anything contained in
this Second Amendment, this Second Amendment shall be null and void, of no
legal effect, and not binding upon the parties hereto, and the Lease dated
September 30, 1977, as amended effective January 1, 1989, shall remain in full
force and effect as though this Second Amendment had never been entered into by
the parties hereto.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Amendment
to be executed as of the date first above written.
WITNESS 9150 GROUP
By:
--------------------------------- --------------------------------
Its:
--------------------------------- -------------------------------
SPECIALTY CHEMICAL RESOURCES, INC.
By:
--------------------------------- --------------------------------
Its:
--------------------------------- -------------------------------
And By:
----------------------------
Its:
-------------------------------
15
<PAGE> 16
THE STATE OF OHIO )
--------------------- )
) SS:
COUNTY OF SUMMIT )
------------------------- )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above named SPECIALTY CHEMICAL RESOURCES, INC., a Delaware
Corporation, by Corey B. Roth , its Vice President
--------------------------- ----------------------------
and by , its , who
------------------------------- ---------------------------
acknowledged that they did sign the foregoing instrument and that the same is
the free act and deed of said Corporaiton, and the free act and deed of each of
them personally and as such officers.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
Macedonia , Ohio , this 25th day of July , 1994.
------------------- -------------- --------- ------------
/s/ Lois Brake
----------------------------------
Notary Public
THE STATE OF OHIO )
--------------------- )
) SS:
COUNTY OF SUMMIT )
------------------------- )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above named 9150 GROUP, an Ohio General Partnership, by Irving
Sands, a General Partner, who acknowledges that he did sign the foregoing
instrument and that the same is the free act and deed of said Corporation, and
the free act and deed of said Partnership, and the free act and deed of him
personally and as such partner.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
Fairlawn , Ohio , this 25th day of July , 1994.
------------------- ------------- --------- -----------
/s/ Jeffrey M. Kahn
---------------------------------
Notary Public
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF EARNINGS CONTAINED WITHIN THE FORM 10K (ANNUAL REPORT)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 15,025
<SECURITIES> 0
<RECEIVABLES> 6,873,256
<ALLOWANCES> 0
<INVENTORY> 6,832,213
<CURRENT-ASSETS> 14,155,476
<PP&E> 10,813,702
<DEPRECIATION> 2,739,671
<TOTAL-ASSETS> 44,558,452
<CURRENT-LIABILITIES> 7,735,271
<BONDS> 4,512,247
<COMMON> 393,277
0
0
<OTHER-SE> 30,046,071
<TOTAL-LIABILITY-AND-EQUITY> 44,558,452
<SALES> 44,931,250
<TOTAL-REVENUES> 44,931,250
<CGS> 38,066,017
<TOTAL-COSTS> 6,995,505
<OTHER-EXPENSES> (38,593)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 559,793
<INCOME-PRETAX> (2,479,573)
<INCOME-TAX> (840,000)
<INCOME-CONTINUING> (1,639,573)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,265,152
<CHANGES> 0
<NET-INCOME> 625,579
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
