<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1996
Registration No. 33-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
SPECIALTY CHEMICAL RESOURCES, INC.
(Exact name of registrant as specified in charter)
DELAWARE 34-1366838
(State of Incorporation) (I.R.S. Employer Identification No.)
9100 VALLEY VIEW ROAD, MACEDONIA, OHIO 44056, (216) 468-1380
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
EDWIN M. ROTH Copy to:
CHAIRMAN OF THE BOARD AND PRESIDENT IRA C. KAPLAN, ESQ.
9100 VALLEY VIEW ROAD Benesch, Friedlander, Coplan &
MACEDONIA, OHIO 44056 Aronoff P.L.L.
(216) 468-1380 2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
----------------------
If the only securities being registered on this form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box: |_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), other than securities
offered only in connection with dividend or interest reinvestment plans, check
the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH AMOUNT MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
____% Convertible Subordinated Notes $4,000,000 100% $4,000,000 $1,379
Due 2006
- --------------------------------------------------------------------------------------------------------------------------------
Subscription Rights 40,000 N/A N/A
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Common Stock, par value $.10 per share [ ](2) N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee -- -- -- $1,379
================================================================================================================================
<FN>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Issuable upon conversion of the Notes. Pursuant to Rule 416, this
Registration Statement also relates to an indeterminate number of
additional shares of Common Stock issuable upon conversion of the Notes
pursuant to anti-dilution provisions contained therein, which shares of
Common Stock are registered hereunder. Pursuant to Rule 457(i), no
additional registration fee is required.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 9, 1996
PROSPECTUS
- ----------
$4,000,000
SPECIALTY CHEMICAL RESOURCES, INC.
____% CONVERTIBLE SUBORDINATED NOTES DUE 2006
Specialty Chemical Resources, Inc., a Delaware corporation (the
"Company"), is distributing to the record holders of shares of its Common Stock,
par value $.10 per share (the "Common Stock"), subscription rights (the
"Rights") to subscribe for and purchase an aggregate principal amount of
$4,000,000 (the "Underlying Notes") of the Company's ____% Convertible
Subordinated Notes Due 2006 (the "Notes"). Such stockholders will receive one
Right for each 100 shares of Common Stock held by them as of the close of
business on [ ], 1996 (the "Record Date"). The number of Rights distributed by
the Company to each holder of Common Stock will be rounded up to the nearest
whole number, and no fractional Rights or cash in lieu thereof will be
distributed or paid by the Company. The Rights are nontransferable.
RIGHTS: Each Right will entitle the holder thereof (the "Rights
Holder") to receive, upon payment of $100 in cash (the "Subscription Price"),
$100 principal amount of Notes at par (the "Basic Subscription Privilege"). Each
Rights Holder who exercises all of the Rights held by such holder may subscribe,
at the Subscription Price, for any principal amount of Underlying Notes
available after satisfaction of all subscriptions pursuant to Basic Subscription
Privileges (the "Oversubscription Privilege"). If an insufficient principal
amount of Notes is available to satisfy fully all subscriptions pursuant to the
Oversubscription Privilege, then the available principal amount of Notes will be
prorated among those who subscribe pursuant to the Oversubscription Privilege,
based upon the respective numbers of Rights exercised by such holders pursuant
to the Basic Subscription Privilege, provided that if such pro rata allocation
results in any such Rights Holder being allocated a greater principal amount of
Notes than subscribed for pursuant to the Oversubscription Privilege, then such
Rights Holder shall only receive the principal amount of Notes subscribed for
and any remaining principal amount will be further allocated. See "The Rights
Offering -- Subscription Privileges -- Oversubscription Privilege."
Messrs. Edwin M. Roth, Corey B. Roth and John H. Ehlert and CEW
Partners and Martin Trust (the "Stockholders Group") have advised the Company
that they intend to acquire from the Company, at the Subscription Price, the
principal amount of all Underlying Notes subject to their Basic Subscription
Privileges and, pursuant to their Oversubscription Privileges, any and all of
the principal amount of the Underlying Notes remaining after the satisfaction of
all Basic Subscription Privileges. As of [ ], 1996, the Stockholders Group
beneficially owned an aggregate of approximately [ ]% of the outstanding Common
Stock, and Mr. Edwin M. Roth owned 100% of the Company's existing and
outstanding cumulative convertible preferred stock, par value $.01
<PAGE> 3
per share (the "Cumulative Convertible Preferred Stock"). The Company intends to
repurchase the Cumulative Convertible Preferred Stock upon the consummation of
the Rights Offering. See "The Rights Offering -- Intent of Certain Persons" and
"The Allocation Agreement."
The Rights will expire at 5:00 p.m., Cleveland, Ohio local time, on
[ ], 1996 (such date and time being referred to herein as the "Expiration
Date"). Rights Holders should consider carefully the exercise of the Rights
prior to the Expiration Date. Stockholders who do not exercise their rights in
full may experience dilution in their percentage ownership in the Company. See
"Risk Factors -- Dilution."
The net proceeds from the Rights Offering will be used to repay a
portion of the Company's existing indebtedness. See "Use of Proceeds."
NOTES: The Notes (or portions thereof in denominations of $100 or any
integral multiple of $100) are convertible into shares of Common Stock at a
conversion ratio of [ ] shares of Common Stock for each $100 in principal amount
of the Notes: (i) any time after December 31, 2001, (ii) in the event of a
Change in Control of the Company (as hereinafter defined), or (iii) in the event
of any filing pursuant to Rule 14a-11 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), by any person or group of persons for the
purpose of opposing a solicitation by the Company with respect to the election
of directors of the Company. In addition, if a Note is called for redemption
(upon a Change of Control or otherwise), it is convertible at any time prior to
the redemption date. The conversion rate will be adjusted for, among other
things, stock splits, non-cash dividends and distributions, recapitalizations or
similar transactions.
The Notes are unsecured obligations of the Company and are subordinated
in right of payment to the Company's senior indebtedness, which amounted to
approximately $10.1 million as of August 8, 1996. The Company's Senior Debt (as
hereinafter defined) includes any amounts outstanding under the Company's bank
revolving credit agreement, which provides for extensions of credit up to $10
million. Under the terms of the Indenture (as hereinafter defined), the Company
may not incur any indebtedness for borrowed money that would rank senior to the
Notes except (i) indebtedness existing on the date of the Indenture or under the
Company's existing credit facility, including any renewals, refinancings,
extensions or refundings of the foregoing, (ii) indebtedness secured by purchase
money security interests, (iii) any other senior bank or other institutional
indebtedness, (iv) any indebtedness of a subsidiary to another subsidiary, and
(v) certain indebtedness incurred in connection with a merger with or into, or
the acquisition of the stock or assets of, another entity. See "Description of
the Notes."
Interest on the Notes will accrue semi-annually in arrears, at the rate
of [ ]% per annum commencing on the first business day following the Expiration
Date. The interest on the Notes will be payable along with the principal amount
of the Notes in cash on the first business day following the maturity date of
the Notes. There will be no sinking fund or other mandatory prepayment of
principal of the Notes.
Subject to the holders' rights to convert the Notes, the Notes may be
redeemed at the option of the Company at any time commencing three years from
the date of issuance
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of the Notes, in whole or in part, at premiums declining ratably to par value
at the end of eight years from the date of issuance, plus an amount equal to
accrued and unpaid interest. See "Description of the Notes."
The Common Stock is traded on the American Stock Exchange, Inc. (the
"AMEX") under the symbol "CHM." There is presently no public market for the
Notes, and it is not anticipated that a market will develop. The Company does
not intend to apply for listing of the Notes on any securities exchange or for
quotation of the Notes through the National Association of Securities Dealers
Automated Quotation System, and there can be no assurance that purchasers of the
Notes will be able to resell the Notes at any price or at all. On August 8,
1996, the closing sale price for the Common Stock on the American Stock Exchange
Composite Transactions Tape (the "AMEX Composite Tape") was $[ ] per share.
---------------
THE PURCHASE OF THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
INVESTMENT RISK. SEE "RISK FACTORS AT PAGES 15 THROUGH 20."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note..................... 100% None 100%
Total........................ $4,000,000 None $4,000,000
=============================================================================================================================
<FN>
(1) Before deduction of expenses payable by the Company estimated to be $[ ].
</TABLE>
The Notes are being offered directly by the Company and are not the
subject of an underwriting agreement.
----------------------
THE DATE OF THIS PROSPECTUS IS [ ], 1996.
3
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and, in accordance therewith, files reports and other information
with the Securities and Exchange Commission (the "Commission"). Copies of
reports, proxy and information statements and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judicial Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, Seven World Trade Center, Suite 1300,
New York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common
Stock is listed on the AMEX, and reports, proxy and information statements and
other information concerning the Company are available for inspection at the
offices of the AMEX located at 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits thereto, copies of which are on file at the offices of the
Commission and may be obtained upon payment of the fee prescribed by the
Commission, or may be examined without charge at the offices of the Commission.
Statements contained in this Prospectus or in any document incorporated in this
Prospectus by reference as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, filed with or furnished to the Commission, and
the information included therein, are incorporated herein by reference and shall
be deemed a part hereof: (i) the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, filed with the Commission on March 29, 1996
(File No. 1-11013); (ii) the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders, filed with the Commission on May 3, 1996; (iii) the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
filed with the Commission on August 8, 1996; (iv) the description of the
Company's Common Stock contained in its Registration Statement on Form S-2,
filed with the Commission on February 27, 1992 (Reg. No. 33-43092); and (v) all
documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of this offering. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide, without charge, to each
person to whom a copy of this Prospectus has been delivered, upon the written or
oral request of any such person, a copy of any or all of the documents referred
to above that have been incorporated in this Prospectus by reference, other than
exhibits to such documents that are incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates. Requests for such copies should be directed to
David F. Spink, Vice President, Specialty Chemical Resources, Inc., 9100 Valley
View Road, Macedonia, Ohio 44056, telephone (216) 468-1380. Persons requesting
copies of exhibits that were not specifically incorporated by reference in such
documents will be charged the costs of reproduction and mailing.
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<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus and the documents
incorporated herein by reference. Certain of the information contained in this
summary and elsewhere in this Prospectus are forward looking statements. Rights
Holders should carefully consider the information set forth under the heading
"Risk Factors."
THE COMPANY
The Company is a leading custom formulator and packager of
specialty chemical products, primarily for the automotive service and industrial
maintenance markets. The Company's proprietary products and formulations,
manufacturing expertise, customer support and strong technical capabilities are
key elements in the Company's operating strategy. 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
1,000 "proprietary" chemical formulations, substantially all of which are
packaged in aerosol containers. These proprietary formulations represent
know-how of the Company developed through the skill and experience of its
employees. These proprietary formulations are not generally patented.
In 1995, the Company sold approximately 35 million units.
Approximately 84% 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, antistatics 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 16% of the Company's sales are of its branded
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 selection;
marketing program development; labeling 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 can fill aerosol cans for a fee but do not
provide the same range of services. The Company believes that it is one of the
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 net sales. The Company provides
customers with prompt shipment, normally within six weeks
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after receipt of an order, and will accept short production run orders (as few
as 100 cases) thereby reducing the inventory requirements of its customers.
Approximately 90% of the Company's aggregate sales are to customers in the
automotive service and 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 relies heavily on its pre-sale
consultation and ongoing involvement with customers to establish long-term
relationships. 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, offers delivery
within six weeks and routinely produces as few as 100 cases of a product.
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 through 1993 and 1994.
The Company is a Delaware corporation with its principal
executive offices located at 9100 Valley View Road, Macedonia, Ohio 44056; its
telephone number is (216) 468-1380.
<TABLE>
THE RIGHTS OFFERING
<S> <C>
Securities Offered............... $4,000,000 principal amount of ____% Convertible
Subordinated Notes Due 2006 (the "Notes").
TERMS OF THE RIGHTS
Rights........................... Each holder of Common Stock will receive one Right
for each 100 shares of Common Stock held of record on
[ ], 1996 (the "Record Date"). The number
of Rights distributed by the Company to each holder of
Common Stock will be rounded up to the nearest whole
number. An aggregate of approximately 40,000 Rights
will be distributed pursuant to the Rights Offering.
Each Right will be exercisable for $100 principal
amount of Notes at par. An aggregate principal amount
of $4,000,000 of Notes (the "Underlying Notes") will be
sold upon exercise of the Rights and pursuant to the
Oversubscription Privilege described below. The
distribution of the Rights and sale of Notes upon the
exercise of the Rights or pursuant to the
Oversubscription Privilege are referred to herein as the
"Rights Offering." The Rights Offering and the
</TABLE>
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<TABLE>
<S> <C>
purchase of Notes pursuant to the Allocation Agreement
(as hereinafter defined) are referred to herein as the
"Transaction." See "The Rights Offering -- The Rights"
and "The Allocation Agreement."
Record Date...................... [ ], 1996.
Expiration Date.................. [ ], 1996, 5:00 p.m., Cleveland, Ohio local
time.
Nontransferability of Rights..... The Rights will be nontransferable.
Basic Subscription Privilege..... Rights Holders are entitled to purchase for the
Subscription Price $100 principal amount of Notes at
par for each Right held (the "Basic Subscription
Privilege"). See "The Rights Offering -- Subscription
Privileges -- Basic Subscription Privilege."
Oversubscription Privilege....... Each Rights Holder who exercises all of the Rights held
by such holder may also subscribe at the Subscription
Price for any principal amount of additional Underlying
Notes (the "Oversubscription Privilege"). If an
insufficient principal amount of Underlying Notes is
available to satisfy fully all subscriptions pursuant to the
Oversubscription Privilege, the available principal
amount of Underlying Notes will be prorated among all
Rights Holders who subscribe pursuant to the
Oversubscription Privilege, based upon the respective
numbers of Rights exercised by such holders pursuant
to the Basic Subscription Privilege. Each member of
the Stockholders Group has indicated his or its intention
to exercise his or its Basic Subscription Privilege in full.
In addition, members of the Stockholders Group have
advised the Company that they intend to subscribe for
the maximum principal amount of Notes that they are
entitled to purchase pursuant to their Oversubscription
Privileges. See "The Rights Offering -- Subscription
Privileges -- Oversubscription Privilege."
Subscription Price............... $100, in cash, per $100 principal amount of Notes
purchased pursuant to the Basic Subscription Privilege
or the Oversubscription Privilege (the "Subscription
Price"). See "The Rights Offering -- Determination of
Subscription Price."
</TABLE>
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<TABLE>
<S> <C>
Procedure for Exercising Rights.. The Basic Subscription Privilege may be exercised and
the Oversubscription Privilege may be subscribed for by
properly completing the Subscription Certificate
evidencing the Rights (a "Subscription Certificate") and
forwarding such Subscription Certificate, with payment
of the Subscription Price for the principal amount of
each Underlying Note purchased pursuant to the Basic
Subscription Privilege and subscribed for pursuant to the
Oversubscription Privilege, to the Subscription Agent
for receipt by the Subscription Agent on or prior to the
Expiration Date. If the mail is used to forward
Subscription Certificates, it is recommended that
insured, registered mail be used.
If the aggregate Subscription Price paid by an exercising
Rights Holder is insufficient to purchase the principal
amount of Underlying Notes that such holder indicates
on the Subscription Certificate are being purchased or
subscribed for, or if no principal amount of Underlying
Notes to be purchased or subscribed for is specified,
then the Rights Holder will be deemed to have exercised
the Basic Subscription Privilege to purchase the
principal amount of Underlying Notes to the full extent
of the payment tendered. If the aggregate Subscription
Price paid by an exercising Rights Holder exceeds the
amount necessary to purchase the principal amount of
Underlying Notes for which the Rights Holder has
indicated on the Subscription Certificate an intention to
purchase, then the Rights Holder will be deemed to
have subscribed pursuant to the Oversubscription
Privilege to the full extent of the excess payment
tendered. If any Rights Holder is allocated a lower
principal amount of Notes than such Rights Holder
subscribed for pursuant to the Oversubscription
Privilege, then the excess funds paid by that holder will
be returned without interest or deduction. See "The
Rights Offering -- Exercise of Rights."
9
</TABLE>
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<TABLE>
<S> <C>
No Revocation................... ONCE A RIGHTS HOLDER HAS EXERCISED THE BASIC
SUBSCRIPTION PRIVILEGE AND/OR SUBSCRIBED PURSUANT TO
THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE OR
SUBSCRIPTION MAY NOT BE REVOKED BY SUCH RIGHTS
HOLDER. SEE "THE RIGHTS OFFERING -- NO
REVOCATION."
Amendments and Termination...... The Company reserves the right to amend the terms and
conditions of the Rights Offering.
The Company may terminate the Rights Offering at any
time prior to delivery of the Underlying Notes. See
"The Rights Offering -- Amendments and Termination."
Persons Holding Shares, or
Wishing to Exercise Rights,
Through Others.................. Persons holding shares of Common Stock, and receiving
the Rights distributable with respect thereto, through a
broker, dealer, commercial bank, trust company or other
nominee, as well as persons holding certificates of
Common Stock personally who would prefer to have
such institutions effect transactions relating to the Rights
on their behalf, should contact the appropriate institution
or nominee and request it to effect the transactions for
them. See "The Rights Offering -- Exercise of Rights."
Subscription Agent.............. National City Bank. See "The Rights Offering --
Subscription Agent."
TERMS OF THE NOTES
Notes........................... Upon exercise of the Basic Subscription Privilege and
the Oversubscription Privilege, the Company will issue
$4,000,000 principal amount of ______% Convertible
Subordinated Notes Due 2006.
</TABLE>
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<TABLE>
<S> <C>
Trustee; Indenture.............. The Notes will be issued pursuant to an indenture (the
"Indenture") between the Company and ___________
______________, as trustee (the "Trustee").
Maturity Date................... ___________________, 2006.
Interest........................ Interest will accrue on the Notes semi-annually in
arrears at a rate of [ ]% commencing on the first
business day following the Expiration Date. Interest on
the Notes will be paid along with the principal amount
of the Notes in cash on the first business day following
the Maturity Date.
Conversion...................... Each $100 principal amount of the Notes will be
convertible into [ ] shares of Common Stock at the
earliest of (i) any time after December 31, 2001, (ii) in
the event of a Change in Control of the Company (as
hereinafter defined), or (iii) in the event of any filing
pursuant to Rule 14a-11 under the Exchange Act by any
person or group of persons for the purpose of opposing
a solicitation by the Company with respect to the
election of directors of the Company. In addition, if a
Note is called for redemption (upon a Change of
Control or otherwise), it is convertible at any time prior
to the redemption date. The conversion rate will be
adjusted for, among other things, stock splits, non-cash
dividends and distributions, recapitalizations or similar
transactions. See "Description of the Notes."
A Change in Control of the Company shall be deemed
to occur upon the acquisition (or the announcement of
an intent to acquire), directly or indirectly, by any
individual, corporation, partnership, limited liability
corporation, joint venture, association, joint-stock
company, trust, or unincorporated organization acting
together, other than the Stockholders Group (the
"Acquiring Entity"), of control of the Company.
"Control" of the Company shall mean the acquisition of,
or the formation of a group whose members beneficially
own, shares of capital stock of the Company, which
</TABLE>
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<TABLE>
<S> <C>
after giving effect thereto, shall permit the Acquiring
Entity to vote 25% or more of the aggregate voting
power, as measured by all voting stock of the Company
then outstanding, in the election of directors of the
Company.
Redemption....................... Subject to the holders' rights to convert the Notes, the
Notes will be redeemable at the option of the Company
at any time and from time to time after three years from
the date of issuance, in whole or in part, at premiums
declining ratably to par value at the end of eight years
from the date of issuance, plus accrued and unpaid
interest, as set forth below:
[ ], 1999 110%
[ ], 2000 108%
[ ], 2001 106%
[ ], 2002 104%
[ ], 2003 102%
[ ], 2004 100%
Subordination.................... The Notes will be unsecured and subordinated in right
of payment to all existing and future Senior Debt (as
hereinafter defined) of the Company. As of August 8,
1996, approximately $10.1 million aggregate amount of
Senior Debt was outstanding. The Indenture (as
hereinafter defined) will not prohibit or limit the ability
of the Company to incur additional Senior Debt or other
indebtedness.
OTHER INFORMATION
Use of Proceeds.................. The net proceeds available to the Company from the
Transaction will be approximately $[ ]. Such net
proceeds will be used to repay a portion of the
Company's existing indebtedness and to redeem all of
its outstanding Cumulative Convertible Preferred Stock.
In addition, a portion of the net proceeds may be used
by the Company to acquire businesses or product lines.
See "Use of Proceeds."
</TABLE>
12
<PAGE> 14
<TABLE>
<S> <C>
The Allocation Agreement......... Messrs. Edwin M. Roth, Corey B. Roth and John H.
Ehlert and CEW Partners and Martin Trust (the
"Stockholders Group") and Mr. David F. Spink have
entered into the Allocation Agreement, pursuant to
which they will re-allocate among themselves, in
accordance with the Allocation Agreement, the Notes
purchased through the Rights Offering. See "The
Allocation Agreement." As of August 8, 1996, the
members of the Stockholders Group owned beneficially
an aggregate of approximately [ ]% of the
outstanding Common Stock, and Mr. Edwin M. Roth
owned 100% of the outstanding Cumulative Convertible
Preferred Stock, which the Company intends to purchase
upon the consummation of the Rights Offering. Certain
members of the Stockholders Group also have entered
into the Voting Agreement. See "Risk Factors --
Control of the Company by Certain Stockholders." The
members of the Stockholders Group have expressed a
present intent to acquire from the Company the
principal amount of all Underlying Notes subject to
their Basic Subscription Privileges. In addition, each
member of the Stockholders Group has advised the
Company that he or it intends to subscribe for the
maximum principal amount of Notes that he or it is
entitled to purchase pursuant to the Oversubscription
Privilege.
Risk Factors..................... For a discussion of factors that should be considered in
evaluating an investment in the Notes through the
Rights Offering, see "Risk Factors."
</TABLE>
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<PAGE> 15
SELECTED FINANCIAL DATA
The following selected financial information is qualified in its
entirety by reference to the detailed information and financial statements,
including the notes thereto, incorporated herein by reference. The information
at June 30, 1996 and for the six months ended June 30, 1996 is derived from
unaudited financial data, but, in the opinion of management, reflects all
adjustments (which consist only of normal recurring accruals) necessary for a
fair presentation of the financial position and results of operations at such
date and for the period then ended. Results of operations for the six months
ended June 30, 1996 may not be indicative of the results of operations for the
entire fiscal year.
<TABLE>
<CAPTION>
Six Months Ended Fiscal Year Ended December 31,
---------------- ---------------------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................................. $ 19,409 $ 43,419 $ 44,931 $ 47,363 $ 47,927 $43,937
Cost of goods sold ........................................ 16,158 39,123 38,066 36,989 38,149 34,222
-------- -------- -------- -------- -------- -------
Gross profit ....................................... 3,251 4,296 6,865 10,374 9,778 9,715
Selling, general and administrative expenses ............. 2,996 7,648 6,996 6,327 6,128 5,001
Amortization of intangibles ............................. 434 869 874 863 865 865
Restructuring charges .................................... -- -- 954 -- -- --
-------- -------- -------- -------- -------- -------
Operating profit (loss) ............................. (180) (4,221) (1,959) 3,184 2,785 3,849
Interest expense ......................................... 509 779 560 531 1,051 3,836
Amortization of debt issuance expenses .................. -- -- -- -- 30 180
Other income (expense) ................................... -- 10 39 30 69 2
-------- -------- -------- -------- -------- -------
Earnings (loss) before income taxes and extraordinary items (689) (4,990) (2,480) 2,683 1,773 (165)
Income taxes (benefits) .................................. -- (2,981) (840) 944 775 31
-------- -------- -------- -------- -------- -------
Earnings (loss) before extraordinary items ............... (689) (2,009) (1,640) 1,739 998 (196)
Earnings (loss) from discontinued operations ............ -- -- -- -- -- (169)
Extraordinary item gain (loss) due to fire (net of income tax -- -- 2,265 (884) -- --
$1,160,000 in 1994 and income tax benefit of $455,000 in 1993)
Extraordinary item deferred financing cost and original issue
discount (net of income tax) ............................. -- -- -- -- (714) --
-------- -------- -------- -------- -------- ------
Net earnings (loss) ................................. $ (689) $ (2,009) $ 625 $ 855 $ 284 $ (365)
======== ======== ======== ======== ======== ======
SHARE DATA:
Earnings (loss) per common share before extraordinary items $ (.17) $ (.51) $ (.42) $ .44 $ .29 $ (.19)
Discontinued operations .................................. -- -- -- -- -- (.17)
Earnings (loss) per common share from extraordinary items -- -- .58 (.22) (.21) --
-------- -------- -------- -------- -------- ------
Earnings (loss) per common share .................... $ (.17) $ (.51) $ .16 $ .22 $ .08 $ (.36)
======== ======== ======== ======== ======== ======
Weighted average common shares outstanding................ 3,948 3,939 3,935 3,946 3,443 1,008
Ratio of earnings to fixed charges1 ...................... $ -- $ -- $ -- $ 4.76 $ 2.43 $ --
Earnings (deficiency of earnings) over fixed charges...... $ (689) $ (4,990) $ (2,479) $ 2,683 $ 1,773 $ (165)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital .......................................... $ 6,724 $ 7,142 $ 6,420 $ 10,883 $ 8,212 $4,608
Total assets ............................................. 44,684 47,272 44,558 49,914 41,520 43,888
Long-term obligations .................................... 10,135 10,399 4,512 9,948 6,055 29,924
Redeemable preferred stock ............................... 350 350 -- -- -- --
Stockholders' equity ..................................... 27,742 28,444 30,439 29,814 28,958 3,904
</TABLE>
- --------
The ratios of earnings to fixed charges were computed by dividing the sum
of earnings before income taxes (benefits), extraordinary items and fixed
charges.
14
<PAGE> 16
RISK FACTORS
Rights Holders should carefully consider the specific risk factors set
forth below as well as the other information set forth in this Prospectus before
purchasing the Notes offered hereby.
ABSENCE OF PROFITABLE OPERATIONS IN RECENT PERIODS
The Company recorded a net loss for the fiscal year ended December 31,
1995 of $2,008,606, or $.51 per share on weighted average shares outstanding of
3,939,348. This compared to a fiscal 1994 net loss (before an extraordinary
gain) of $1,639,573, or $.42 per share on weighted average shares outstanding of
3,935,431. The net loss for the year ended December 31, 1995 was partially the
result of (i) expenses totaling $650,000 related to the Company's defense of an
unsuccessful proxy contest to remove the then-current Board of Directors and to
replace them with a slate of new directors and (ii) the effects of both the
start-up of a new manufacturing information system and the consolidation of the
Company's principal manufacturing facilities in Macedonia and Twinsburg, Ohio
into an expanded Macedonia facility. Net earnings for the fiscal year ended
December 31, 1994 were $625,579, or $.16 per share on 3,935,431 weighted average
shares outstanding, after an extraordinary gain of $2,265,152 (net of taxes).
The extraordinary gain in fiscal 1994 resulted from the insurance settlement on
the property and business interruption claims related to the December 1992 fire
at the Macedonia, Ohio plant.
In the fourth quarter of fiscal 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. Pursuant to the restructuring plan, the Company accrued $941,000 of
restructuring charges at December 31, 1994. During fiscal 1995, the Company
completed substantially all of the spending associated with the restructuring
reserve established in fiscal 1994. The actual costs related to the
restructuring are comprised of the following: $148,000 related to the
abandonment of leasehold improvements and lease termination costs; $468,000 for
the abandonment of certain property and equipment; $260,000 related to the
discontinuation of a product line; and $65,000 for employee termination
benefits. Operations streamlining activities have continued through the first
quarter of fiscal 1996. Management believes that completion of these activities
will result in cost savings throughout the remainder of fiscal 1996. In
addition, management has taken steps to improve the new manufacturing
information system in the first fiscal quarter of 1996. Although the Company
believes that it has taken steps to improve operations and that as a result of
such steps, including the restructuring, that the Company can operate
profitably, there can be no assurance that the Company will be able to achieve
profitability or to pay cash dividends on the Common Stock in the foreseeable
future.
DILUTION
Stockholders who exercise their Rights will preserve, and through the
Oversubscription Privilege may increase, their proportionate interest in their
equity ownership and voting power of the Company. Because the Notes are
convertible into Common Stock, stockholders of the
15
<PAGE> 17
Company who do not exercise all of their Rights may experience a reduction in
equity ownership and percentage voting interests in the Company.
LOSS OF INVESTMENT OPPORTUNITY
The Company believes that it has taken steps to improve operations and
that as a result of such steps, including the restructuring plan, it can operate
profitably. Although there can be no assurance that the improvements will result
in these anticipated benefits, stockholders who do not exercise their Rights
will relinquish any value inherent in the Rights, including the right to
participate in appreciation, if any, in the Common Stock into which the Notes
are convertible.
The conversion price of the Notes reflects a material discount from the
price at which the Common Stock is being quoted and from the stockholders'
equity. This discount is intended to provide stockholders with a strong
incentive to exercise their Subscription Rights and, thereby, suffer no dilution
in their interest in the Company and its equity. Stockholders who do not
exercise their right to subscribe in full may suffer a material dilution in
their interest in the Company and its equity.
CONTROL OF THE COMPANY BY CERTAIN STOCKHOLDERS
The members of the Stockholders Group have expressed a present intent
to acquire from the Company the principal amount of all Underlying Notes subject
to their Basic Subscription Privilege and Oversubscription Privilege. As of
August 8, 1996, the Stockholders Group beneficially owned an aggregate of [ ]%
of the outstanding Common Stock, and Mr. Edwin M. Roth owned 100% of the
Cumulative Convertible Preferred Stock, which the Company intends to purchase
upon the consummation of the Rights Offering. Depending on the unsubscribed
principal amount of the Notes available pursuant to the Oversubscription
Privilege, one or more members of the Stockholders Group could substantially
increase his or its controlling equity position in the Company and would thereby
increase his or its ability to exert significant control over corporate policy.
The concentration of ownership may also have an adverse effect on the market for
remaining shares of Common Stock. See "The Allocation Agreement."
In addition, CEW Partners, Martin Trust, Edwin M. Roth, the Chairman
and President of the Company, and Corey B. Roth, Vice President and a director
of the Company ("the Roths"), have entered into a voting agreement (expiring
after December 31, 2001) pursuant to which CEW Partners and Martin Trust have
agreed, among other things, (i) to vote, with certain exceptions, all shares
of voting stock of the Company owned by each of them in connection with any
action to be taken by the Company's stockholders in accordance with the
recommendation of the Roths or, absent such recommendation, in accordance with
the recommendation of the Board of Directors; (ii) to vote all shares of their
voting stock in favor of the election to the Board of Directors of the nominees
for the Board recommended by the Roths or, absent such recommendation, for the
Company's nominees to the Board, and no others; (iii) not to conduct,
encourage, solicit or in any way participate in, any solicitation of proxies or
any election contest with respect to the Company; and (iv) not to encourage,
solicit or in any way participate in the formation of any "person" (as defined
in Section 13(d)(3) of the Exchange Act) which owns, or seeks to acquire
beneficial
16
<PAGE> 18
ownership of the Company's voting stock. Further, the Roths have agreed to vote
their Common Stock for two persons designated by CEW Partners and Martin Trust
and reasonably satisfactory to the Roths for election to the Company's Board of
Directors. CEW Partners and Martin Trust have named ____________________ and
___________ as such designees.
ABSENCE OF TRADING MARKET FOR THE NOTES
No market currently exists for the Notes and it is not anticipated that
there will be a market for the Notes after the completion of this Rights
Offering. The Notes will not be listed on any exchange or national quotation
system and current market quotations may not be available. There can be no
assurance that purchasers of the Notes will be able to resell the Notes at any
price or at all.
The Notes are convertible into Common Stock of the Company after
December 31, 2001, subject to the right to convert earlier under certain
conditions. The Common Stock is traded on the AMEX. Rights Holders may be
required to convert their Notes into shares of the Company's Common Stock in
order to dispose of their Notes. Rights Holders should therefore consider the
potentially illiquid nature of the Notes and should only subscribe for the Notes
with a long-term investment intent. See "Description of the Notes" and "Price
Range of Common Stock."
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and
intends to follow a policy of retaining earnings in order to finance combined
growth and development of its business. In addition, the Company's current debt
instruments 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. In the event the Company incurs net losses for any fiscal year, such
restrictions would prohibit the payment of cash dividends with respect to such
year. It is not presently anticipated that cash dividends will be paid on the
Common Stock in the foreseeable future. See "Dividend Policy."
UNCERTAINTY OF AVAILABILITY OF NET OPERATING LOSS CARRYOVERS
As of December 31, 1995, the Company had approximately $7,998,000 of
net operating loss carryovers ("NOLs") for federal income tax purposes. As the
result of an "ownership change" of the Company (within the meaning of Section
382 of the Internal Revenue Code of 1986, as amended (the "Tax Code"), that
occurred during 1992, the Company's ability to utilize the portion of such NOLs
attributable to periods before the ownership change is subject to an annual
limitation of approximately $850,000. Due, in part, to the Company's recognition
of certain "built-in gains" during 1994, and losses sustained in periods
subsequent to the 1992 ownership change, approximately $4,847,000 of the NOLs
may be utilized beyond the current annual limitation to offset future taxable
income. If the Company were to undergo another ownership change, its ability to
utilize its NOLs on a current basis would be severely limited. In this regard,
the consummation of the transactions contemplated herein will increase the risk
that another ownership change will occur in the future. See "Certain Federal
Income Tax
17
<PAGE> 19
Considerations -- Net Operating Loss Carryovers." Use of the NOLs to reduce
future taxable income may subject the Company to an alternative minimum tax.
ORIGINAL ISSUE DISCOUNT
The Notes will be issued at an original issue discount. Consequently,
holders of the Notes will be required to recognize interest income in advance of
the receipt of the cash payments at maturity to which such income is
attributable. The tax basis of each Note in the hands of the holder thereof will
be increased by the amount of original issue discount on the Note that is
included in the holder's gross income. See "Certain Federal Income Tax
Considerations -- Original Issue Discount."
MARKET CONSIDERATIONS
The Notes are not convertible until after December 31, 2001 except in
the event of a Change in Control (as hereinafter defined) or in the event of any
filing pursuant to Rule 14a-11 under the Exchange Act by any person or group of
persons for the purpose of opposing a solicitation by the Company with respect
to the election of directors of the Company. See "Description of the Notes."
There can be no assurance that the market price of the Common Stock will not
decline prior to any conversion of the Notes purchased in the Rights Offering
into Common Stock or that, following the issuance of the Rights and the sale of
the Underlying Notes upon exercise of the Rights or pursuant to the Allocation
Agreement, a subscribing Rights Holder will be able to sell the Notes purchased
in the Rights Offering at a price equal to or greater than the Subscription
Price. THE ELECTION OF A RIGHTS HOLDER TO EXERCISE RIGHTS IN THE RIGHTS OFFERING
IS IRREVOCABLE. MOREOVER, UNTIL THE NOTES ARE DELIVERED, SUBSCRIBING RIGHTS
HOLDERS MAY NOT BE ABLE TO SELL THE NOTES THAT THEY HAVE PURCHASED IN THE RIGHTS
OFFERING. NOTES REPRESENTING THE PRINCIPAL AMOUNT OF THE NOTES PURCHASED
PURSUANT TO THE BASIC SUBSCRIPTION PRIVILEGE OR THE OVERSUBSCRIPTION PRIVILEGE
WILL BE DELIVERED AS SOON AS PRACTICABLE AFTER ALL PRORATIONS AND ADJUSTMENTS
CONTEMPLATED BY THE TERMS OF THE RIGHTS OFFERING HAVE BEEN EFFECTED.
No interest will be paid to Rights Holders on funds delivered to the
Subscription Agent pursuant to the exercise of Rights pending delivery of
Underlying Shares.
ANTI-TAKEOVER PROVISIONS; ADDITIONAL ISSUANCES OF PREFERRED STOCK
The Company's Board of Directors has the authority to issue 2,000,000
shares of preferred stock in one or more series and to fix the designation and
relative powers, preferences and rights and qualifications, limitations or
restrictions of all shares of each such series, including, without limitation,
dividend rates, conversion rights, voting rights, redemption and sinking fund
provisions, liquidation preferences and the number of shares constituting each
such series, without any further vote or action by the stockholders. Mr. Edwin
M. Roth currently owns 3,500 shares of Cumulative Convertible Preferred Stock,
which is 100% of the outstanding preferred stock, which the Company intends to
purchase upon consummation of the Rights Offering.
18
<PAGE> 20
Although the Company has no present intention to issue shares of
another series of preferred stock, because the Board of Directors has the power
to establish the rights, preferences and powers of each series of preferred
stock, it may afford the holders of any preferred stock rights, preferences and
powers (including voting rights) senior to the rights of the holders of Common
Stock (including holders of the Notes who elect to convert the Notes into Common
Stock). The issuance of additional shares of preferred stock could further
decrease the amount of earnings and assets available for distribution to holders
of Common Stock (including holders of the Notes who elect to convert the Notes
into Common Stock) or adversely affect the rights, preferences and powers of the
holders of Common Stock (including holders of the Notes who elect to convert the
Notes into Common Stock). The issuance of the preferred stock could have the
effect of delaying, deferring or preventing a change in control of the Company
without further action by the stockholders. See "Description of Capital Stock --
Preferred Stock."
SUBORDINATION
The indebtedness evidenced by the Notes is subordinate to the prior
payment when due of the principal of, and interest on, and any other amount due
in respect of all Senior Debt. Upon maturity of any Senior Debt by lapse of
time, acceleration or otherwise, all principal of and premium, if any, and
interest on all such matured Senior Debt shall first be paid in full before any
payment is made on, or in respect of, the Notes. Upon any distribution of
assets of the Company, payment of the principal of and premium, if any, and
interest on the Notes will be subordinated to the extent and in the manner set
forth in the Indenture to the prior payment in full of all Senior Debt. By
reason of such subordination, in the event of insolvency, holders of Notes may
recover less, ratably, than the general creditors of the Company or the holders
of Senior Debt. Under the terms of the Indenture, the Company may not incur any
indebtedness for borrowed money that would rank senior to the Notes except (i)
indebtedness existing on the date of the Indenture or under the Company's
existing credit facility, including any renewals, refinancings, extensions or
refundings of the foregoing, (ii) indebtedness secured by purchase money
security interests, (iii) any other senior bank or other institutional
indebtedness, (iv) any indebtedness of a subsidiary to another subsidiary, (v)
certain indebtedness incurred in connection with a merger with or into, or the
acquisition of the stock or assets of, another entity, and (vi) indebtedness to
holders of the Notes.
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, operation and facilities currently are being operated in
substantial compliance in all material respects with applicable environmental
and health and safety laws and regulations. However, management of the Company
cannot predict the effect upon earnings or the competitive position of the
Company, if any, of environmental laws that may be enacted in the future.
19
<PAGE> 21
Moreover, the Company currently is involved in certain litigation and
investigations pertaining to environmental concerns. See "The Company -- Legal
Proceedings."
THE COMPANY
OVERVIEW
The Company is a leading custom formulator and packager of specialty
chemical products, primarily for the automotive service and industrial
maintenance markets. The Company's proprietary products and formulations,
manufacturing expertise, customer support and strong technical capabilities are
key elements in the Company's operating strategy. 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
1,000 "proprietary" chemical formulations, substantially all of which are
packaged in aerosol containers. These proprietary formulations represent
know-how of the Company developed through the skill and experience of its
employees. These proprietary formulations are not generally patented.
In 1995, the Company sold approximately 35 million units. Approximately
84% 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, antistatics 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 16% of the Company's sales are of its branded products. See
"Prospectus Summary -- The Company."
The Company is a Delaware corporation with its principal executive
offices located at 9100 Valley View Road, Macedonia, Ohio 44056; its telephone
number is (216) 468-1380.
LEGAL PROCEEDINGS
The Company continues to be involved in implementing a settlement
reached pursuant to a Consent Order entered into between the State of Ohio and
Aerosol Systems, Inc. ("ASI") on July 9, 1990 (the "Consent Order"), pertaining
to environmental concerns at the Company's Macedonia facility that preceded the
Company's acquisition of ASI in 1988. ASI is now operated as a division of the
Company.
Pursuant to the Consent Order, the Company had submitted a closure plan
for its facility located at 9150 Valley View Road in Macedonia, Ohio to the Ohio
Environmental Protection Agency ("OEPA"). On January 6, 1995, Aerosol Systems, a
division of Specialty Chemical Resources, Inc. v. Donald R. Schregardus,
Director, Ohio Environmental Protection Agency (Environmental Board of Review,
Case No. EBR 773188), was resolved through a settlement
agreement.
20
<PAGE> 22
On May 3, 1995, OEPA issued a supplemental closure plan approval letter
that established certain deadlines with regard to the Company's implementation
of a Groundwater Extraction and Treatment System, a Soil Vapor Extraction System
and certain other closure plan tasks. On February 12, 1996, the Company
submitted a revised closure cost estimate to address closure costs anticipated
at the Macedonia facility. Based on an estimate of closure costs received from
the Company's environmental consultant, the closure cost estimate totalled
$975,000. As of February 8, 1996, approximately $981,534 was available in an
OEPA trust fund, comprised of funds deposited by former owners of the Company,
to meet these expenses (the "OEPA Trust Fund"). Further, as of February 12,
1996, the Company had paid $810,000 toward closure activities.
Pursuant to the Ohio Administrative Code, the Company requested
reimbursement from the OEPA Trust Fund of those expenses which the Company had
paid directly. As of March 21, 1996, the Director of OEPA has approved
reimbursement to the Company in the amount of $620,800 from the OEPA Trust Fund.
Therefore, approximately $361,000 remains in the OEPA Trust Fund to complete
closure activities. It is difficult to predict at this time when remaining funds
in the OEPA Trust Fund will be released. However, the Company does expect
additional reimbursement of approximately $140,000 during 1996.
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 $975,000 closure cost
estimate. The Company believes, based on discussions with its technical
consultants, that the cost of additional testing and operation of the proposed
remedial systems will be approximately $150,000 and that the costs of the
supplemental or alternative cleanup measures, if determined to be necessary,
will not exceed a total of $2,000,000.
On January 31, 1996, the Company received a Notice of Violation ("NOV")
from OEPA in association with an inspection conducted by OEPA on June 23, 1995
regarding operations at the Macedonia facility. Thirty-six violations were
alleged by OEPA. At this time the Company does not know whether these violations
had in fact occurred or for what time period the alleged violations lasted. A
majority of the alleged violations will be addressed by the completion of the
closure activities described above. Other alleged violations have been addressed
through negotiations with the OEPA. Discussions with the OEPA to resolve certain
of these issues are ongoing. The Company is subject to stipulated penalties
provided in the July 9, 1990 Consent Order. The stipulated penalties section of
the Consent Order provides penalties for each day of violation of the Consent
Order of $1,000 per day for up to 30 days, $2,000 per day for days 31-60, $3,000
per day for days 61-90 and $5,000 per day for each day over 90 days. The Company
cannot predict whether the OEPA will seek penalties or, if it does so, what the
extent of those penalties as a result of the NOV will be. While there can be no
assurances regarding the outcome of negotiations with the OEPA, based on the
progress made to date the Company does not expect that penalties sought by the
OEPA, if any, will have a material adverse effect on the financial condition of
the Company.
21
<PAGE> 23
THE RIGHTS OFFERING
THE RIGHTS
The Company is distributing nontransferable Rights to the record
holders of its outstanding Common Stock as of the close of business on [ ], 1996
(the "Record Date"). The Company will distribute, at no cost to the record
holders, one Right for each 100 shares of Common Stock held on the Record Date.
The Rights will be evidenced by nontransferable subscription certificates (the
"Subscription Certificates").
No fractional Rights or cash in lieu thereof will be issued or paid,
and the number of Rights distributed to each holder of Common Stock will be
rounded up to the nearest whole number. No Subscription Certificate may be
divided in such a way as to permit the holders of Common Stock to receive a
greater number of Rights than the number to which such Subscription Certificate
entitles its holder, except that a depository, bank, trust company and
securities broker or dealer holding shares of Common Stock on the Record Date
for more than one beneficial owner may, upon proper showing to the Subscription
Agent, exchange its Subscription Certificate to obtain a Subscription
Certificate for the number of Rights to which all such beneficial owners in the
aggregate would have been entitled had each been a holder on the Record Date.
The Company reserves the right to refuse to issue any such Subscription
Certificate if such issuance would be inconsistent with the principle that each
beneficial owner's holdings will be rounded up to the nearest whole Right.
Because the number of Rights distributed to each record holder will be
rounded up to the nearest whole number, beneficial owners of Common Stock who
are also the record holders of such shares might receive more Rights under
certain circumstances than beneficial owners of Common Stock who are not the
record holder of their shares and who do not obtain (or cause the record owner
of their shares of Common Stock to obtain) a separate Subscription Certificate
with respect to the shares beneficially owned by them, including shares held in
an investment advisory or similar account. To the extent that record holders of
Common Stock or beneficial owners of Common Stock who obtain a separate
Subscription Certificate receive more Rights, they will be able to subscribe for
additional principal amount of Notes pursuant to the Basic Subscription
Privilege and pursuant to the Oversubscription Privilege.
EXPIRATION DATE
The Rights will expire at 5:00 P.M., Cleveland, Ohio local time, on
[ ], 1996. After the Expiration Date, unexercised Rights will be null and
void. The Company will not be obligated to honor any purported exercise of
Rights received by the Subscription Agent after the Expiration Date, regardless
of when the documents relating to such exercise were sent.
22
<PAGE> 24
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege
Each Right will entitle the holder thereof to receive, upon payment of
the Subscription Price, $100 principal amount of Notes at par (the "Basic
Subscription Privilege"). Notes representing the principal amount of Notes
purchased pursuant to the Basic Subscription Privilege will be delivered to
subscribers as soon as practicable after the Expiration Date.
Oversubscription Privilege
Subject to the allocation described below, each Right also carries the
right to subscribe, at the Subscription Price, for additional principal amount
of Notes (the "Oversubscription Privilege"). Only Rights Holders who exercise
the Basic Subscription Privilege in full will be entitled to subscribe pursuant
to the Oversubscription Privilege. The members of the Stockholders Group have
expressed their present intent to acquire the principal amount of Underlying
Notes subject to their Basic Subscription Privileges. In addition, the members
of the Stockholders Group have advised the Company that they intend to subscribe
for the maximum principal amount of Notes that they are entitled to purchase
pursuant to the Oversubscription Privilege.
Principal amounts of Underlying Notes will be available for
subscription pursuant to the Oversubscription Privilege only to the extent that
any principal amounts of Underlying Notes are not purchased through the Basic
Subscription Privilege. If the aggregate principal amount of the Underlying
Notes not purchased through the Basic Subscription Privilege (the "Remaining
Notes") is not sufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the aggregate principal amount of the Remaining
Notes will be allocated pro rata among those Rights Holders subscribing pursuant
to the Oversubscription Privilege, in proportion, not to the principal amount of
Notes subscribed for pursuant to the Oversubscription Privilege, but to the
principal amount of Notes each beneficial holder subscribing pursuant to the
Oversubscription Privilege has purchased pursuant to the Basic Subscription
Privilege; provided, however, that if such pro rata allocation results in any
Rights Holder being allocated a greater principal amount of Remaining Notes than
such holder subscribed for pursuant to such holder's Oversubscription Privilege,
then such holder will be allocated only such principal amount of Remaining Notes
as such holder subscribed for. If a proration of the principal amount of
Remaining Notes results in any Rights Holder being allocated a principal amount
of Remaining Notes less than such holder subscribed for pursuant to the
Oversubscription Privilege, then the excess funds paid by that holder as the
Subscription Price for Notes not issued will be returned without interest or
deduction. All beneficial holders who exercise the Basic Subscription Privilege
in full, including the Stockholders Group, will be entitled to subscribe
pursuant to the Oversubscription Privilege. Notes representing the principal
amount of Notes purchased pursuant to the Oversubscription Privilege will be
delivered to subscribers as soon as practicable after the Expiration Date and
after all prorations have been effected.
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Banks, brokers and other nominee Rights Holders who exercise the Basic
Subscription Privilege and subscribe pursuant to the Oversubscription Privilege
on behalf of beneficial owners of Rights will be required to certify to the
Subscription Agent and the Company, in connection with the subscription pursuant
to the Oversubscription Privilege, as to the aggregate number of Rights that
have been exercised and the principal amount of Underlying Notes that are being
subscribed for pursuant to the Oversubscription Privilege by each beneficial
owner of Rights on whose behalf such nominee holder is acting.
SUBSCRIPTION PRICE
The Subscription Price is $100, in cash, per $100 principal amount of
Notes purchased pursuant to the Basic Subscription Privilege or the
Oversubscription Privilege. See " -- Determination of Subscription Price."
EXERCISE OF RIGHTS
Rights may be exercised by delivering to National City Bank (the
"Subscription Agent"), on or prior to 5:00 p.m., Cleveland, Ohio local time, on
the Expiration Date, the properly completed and executed Subscription
Certificate evidencing such Rights with any required signature guaranties,
together with payment in full of the Subscription Price for the principal amount
of Underlying Notes purchased pursuant to the Basic Subscription Privilege and
subscribed for pursuant to the Oversubscription Privilege. Such payment in full
must be by check or bank draft drawn upon a U.S. bank or postal, telegraphic or
express money order payable to National City Bank, as Subscription Agent. The
Subscription Price will be deemed to have been received by the Subscription
Agent only upon (i) clearance of any uncertified check or (ii) receipt by the
Subscription Agent of any certified check or bank draft drawn upon a U.S. bank
or of any postal, telegraphic or express money order. IF PAYING BY UNCERTIFIED
PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY MAY TAKE AT LEAST FIVE
BUSINESS DAYS TO CLEAR. ACCORDINGLY, RIGHTS HOLDERS WHO WISH TO PAY THE
SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE
PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH
PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER PAYMENT BY
MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
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The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered, as well as the address to which a DTC
Participant Oversubscription Subscription Form must be delivered, is:
If by mail: National City Bank, Subscription Agent
Corporate Trust Operations
P.O. Box 94720
Cleveland, Ohio 44101-4720
If by overnight courier
or hand delivery: National City Bank, Subscription Agent
Corporate Trust Operations
3rd Floor - North Annex
4100 West 150th Street
Cleveland, Ohio 44135-1385
If an exercising Rights Holder does not indicate the number of Rights
being exercised, or does not forward full payment of the aggregate Subscription
Price for the number of Rights that the Rights Holder indicates are being
exercised, then the Rights Holder will be deemed to have exercised the Basic
Subscription Privilege with respect to the maximum number of Rights that may be
exercised for the aggregate Subscription Price payment delivered by the Rights
Holder, and to the extent that the aggregate Subscription Price payment
delivered by the Rights Holder exceeds the product of the Subscription Price
multiplied by the number of Rights evidenced by the Subscription Certificates
delivered by the Rights Holder (such excess being the "Subscription Excess"),
the Rights Holder will be deemed to have subscribed pursuant to the
Oversubscription Privilege to purchase, to the extent available, that principal
amount of Remaining Notes equal to the quotient obtained by dividing the
Subscription Excess by the Subscription Price up to a maximum principal amount
of Notes that such Rights Holder is entitled to purchase pursuant to the
Oversubscription Privilege. Any amount remaining after such division will be
returned to the Rights Holder by mail without interest or deduction as soon as
practicable after the Expiration Date.
Funds received in payment of the Subscription Price for Remaining Notes
subscribed for pursuant to the Oversubscription Privilege will be held in a
segregated account pending issuance of such Remaining Notes. If a Rights Holder
subscribing pursuant to the Oversubscription Privilege is allocated less than
all of the principal amount of Remaining Notes that such holder wished to
subscribe for pursuant to the Oversubscription Privilege, the excess funds paid
by such holder in respect of the Subscription Price for Notes not issued will be
returned by mail without interest or deduction as soon as practicable after the
Expiration Date.
Unless a Subscription Certificate (i) provides that the Notes to be
issued pursuant to the exercise of Rights represented thereby are to be
delivered to the holder of such Rights or (ii) is submitted for the account of
an Acceptable Institution, signatures on such Subscription Certificate must be
guaranteed by a participant in the Securities Transfer Agents Medallion Program,
the
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Stock Exchange Medallion Program or the American Stock Exchange, Inc. Medallion
Signature Program.
Persons who hold shares of Common Stock for the account of others, such
as brokers, trustees or depositaries for securities, should notify the
respective beneficial owners of such shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
the Rights. If the beneficial owner so instructs, the record holder of such
Right should complete Subscription Certificates and submit them to the
Subscription Agent with the proper payment. In addition, beneficial owners of
Rights held through such a holder should contact the holder and request the
holder to effect transactions in accordance with the beneficial owners'
instructions.
The instructions accompanying the Subscription Certificates should be
read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
THE COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., CLEVELAND,
OHIO LOCAL TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY
TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights or subscriptions pursuant to the Oversubscription
Privilege will be determined by the Company, whose determinations will be final
and binding. The Company in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right or
subscription pursuant to the Oversubscription Privilege. Subscriptions will not
be deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Company determines in its sole
discretion. Neither the Company nor the Subscription Agent will be under any
duty to give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or subscribing pursuant to the Oversubscription Privilege or
requests for additional copies of this Prospectus or the Instructions as to Use
of Subscription Certificates should be directed to the Subscription Agent,
National City Bank, at one of its addresses set forth under "Subscription Agent"
(telephone (800) 622-6757).
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NO REVOCATION
ONCE A RIGHTS HOLDER HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE
AND/OR SUBSCRIBED PURSUANT TO THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE OR
SUBSCRIPTION MAY NOT BE REVOKED BY SUCH RIGHTS HOLDER.
RIGHTS OF SUBSCRIBERS
Subscribers have no rights as stockholders of the Company with respect
to the shares of Common Stock into which the Notes are convertible until shares
of Common Stock are issued upon conversion of the Notes.
PROCEDURES FOR DTC PARTICIPANTS
The Company anticipates that the exercise of the Basic Subscription
Privilege (but not the Oversubscription Privilege) may be effected through the
facilities of The Depository Trust Company ("DTC"; Rights exercised through DTC
are referred to as "DTC Exercised Rights"). The holder of a DTC Exercised Right
may subscribe pursuant to the Oversubscription Privilege in respect of such DTC
Exercised Right by properly executing and delivering to the Subscription Agent,
at or prior to 5:00 pm., Cleveland, Ohio local time, on the Expiration Date, a
DTC Participant Oversubscription Subscription Form, together with payment of the
appropriate Subscription Price for the number of Underlying Notes subscribed for
pursuant to the Oversubscription Privilege. Copies of the DTC Participant
Oversubscription Subscription Form may be obtained from the Subscription Agent.
AMENDMENTS AND TERMINATION
The Company reserves the right to amend the terms and conditions of the
Rights Offering, whether the amended terms are more or less favorable to Rights
Holders. If the Company amends the terms of the Rights Offering, the
Registration Statement of which this Prospectus forms a part will be amended,
and a new definitive Prospectus will be distributed to all Rights Holders who
have theretofore exercised Rights and to holders of record of unexercised Rights
on the date the Company amends such terms. In addition, all Rights Holders who
have theretofore exercised Rights, or who exercise Rights within four (4)
business days after the mailing of the new definitive Prospectus, shall be
provided with a form of Consent to Amended Rights Offering Terms, on which they
can confirm their exercise of Rights and their subscriptions under the terms of
the Rights Offering as amended by the Company; any Rights Holder who has
theretofore exercised any Rights, or who exercises Rights within four (4)
business days after the mailing of the new definitive Prospectus, and who does
not return such Consent within ten (10) business days after the mailing of such
Consent by the Company will be deemed to have canceled his or her exercise of
Rights, and the full amount of the Subscription Price theretofore paid by such
Rights Holder will be returned promptly by mail, without interest or deduction.
Any completed Subscription Certificate received by the Subscription Agent five
(5) or more business days after
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<PAGE> 29
the date of the amendment will be deemed to constitute the consent of the Rights
Holder who completed such Subscription Certificate to the amended terms.
The Company reserves the right at any time prior to delivery of the
Underlying Notes purchased in the Rights Offering to terminate the Rights
Offering. Such termination would be effected by the Company by giving oral or
written notice of such termination to the Subscription Agent and making a public
announcement thereof. If the Rights Offering is so terminated, the Subscription
Price will be promptly returned by mail to exercising Rights Holders, without
interest or deduction. The Company will have no obligation to a Rights Holder,
whether such purchase was made through the Subscription Agent or otherwise, in
the event that the Rights Offering is terminated.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price was determined by the Company, based on a number
of factors, including the current market price of the Common Stock and
negotiations with the members of the Stockholders Group. The Company believes
that the Subscription Price reflects the Company's objective of achieving the
maximum net proceeds obtainable from the Rights Offering while providing the
holders of Common Stock with an opportunity to make an additional investment in
the Company, and thus avoid a dilution of their ownership position in the
Company.
[The offering price of the Notes, interest rate and the conversion
ratio and other terms and conditions thereof were determined by the Company
without any valuation by an independent securities dealer or investment banker.
The Company's Board of Directors through its Pricing Committee set the offering
price, interest rate and the conversion ratio after taking into consideration
the needs of the Company, recent trading prices and the terms of similar
securities issued by similar companies to the extent such information was
available.]
SUBSCRIPTION AGENT
The Company has appointed National City Bank as Subscription Agent for
the Rights Offering. The Subscription Agent's address, which is the address to
which the Subscription Certificates and payment of the Subscription Price must
be delivered, is:
If by mail: National City Bank, Subscription Agent
Corporate Trust Operations
P.O. Box 94720
Cleveland, Ohio 44101-4720
If by overnight courier or hand: National City Bank, Subscription Agent
Corporate Trust Operations
3rd Floor - North Annex
4100 West 150th Street
Cleveland, Ohio 44135-1385
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<PAGE> 30
The Subscription Agent's telephone number is (800) 622-6757, and the
telecopier number is (216) 476-8367.
The Company will pay the fees and expenses of the Subscription Agent
and has also agreed to indemnify the Subscription Agent from certain liability
which it may incur in connection with the Rights Offering. The Company has been
informed by the Subscription Agent that it is a bank within the meaning of
Section 3(a)(6) of the Exchange Act.
INTENT OF CERTAIN PERSONS
The stockholders comprising the Stockholders Group have indicated their
intention to exercise their respective Basic Subscription Privileges in full. In
addition, the members of the Stockholders Group have advised the Company that
they intend to subscribe for the maximum principal amount of Notes that they are
entitled to purchase pursuant to the Oversubscription Privilege. As of August 8,
1996, the members of the Stockholders Group owned beneficially an aggregate of
[ ] shares of Common Stock, or approximately [ ]% of the outstanding Common
Stock. See "The Allocation Agreement."
NO BOARD RECOMMENDATION
An investment in the Common Stock must be made pursuant to each Rights
Holder's evaluation of his, her or its best interests. ACCORDINGLY, THE BOARD OF
DIRECTORS OF THE COMPANY DOES NOT MAKE ANY RECOMMENDATION TO ANY RIGHTS HOLDER
OR PROSPECTIVE INVESTOR REGARDING THE EXERCISE OF HIS, HER OR ITS RIGHTS.
USE OF PROCEEDS
The net proceeds available to the Company from the Transaction will be
approximately $[ ] million. Such net proceeds will be utilized to (i) repay
$_________ of the approximately $9.5 million in borrowings under the Company's
$10 million revolving credit agreement (the "Revolving Credit Facility"), and
(ii) redeem all of the Company's Cumulative Convertible Preferred Stock for
$350,000. The Revolving Credit Facility has a maturity date of May 31, 1997.
Borrowings under the Revolving Credit Facility accrue interest at prime rate
plus 2 1/4%. In addition, a portion of the net proceeds may be used by the
Company to acquire businesses or product lines.
DESCRIPTION OF CAPITAL STOCK
The following general summary of the Company's capital stock is
qualified in its entirety by reference to the Company's Restated Certificate of
Incorporation, a copy of which is on file with the Commission. See "Available
Information."
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<PAGE> 31
The authorized capital stock of the Company consists of 13,000,000
shares of Common Stock, $.10 par value, and 2,000,000 shares of preferred
stock, $.01 par value. As of August 8, 1996, 3,932,602 shares of Common Stock
were issued and outstanding, and [ ] shares were reserved for issuance
pursuant to the exercise of options granted and which may be granted by the
Company under the Company's stock option plans. As of such date, there were
577 record holders of Common Stock. As of August 8, 1996, 3,500 shares of
Cumulative Convertible Preferred Stock were issued and outstanding, and there
was one record holder of Cumulative Convertible Preferred Stock. The Company
intends to purchase all of the outstanding shares of Cumulative Convertible
Preferred Stock upon consummation of the Rights Offering. Shares of the
Company's Common Stock will be reserved for issuance upon the conversion of
the Notes issued pursuant to this Rights Offering.
COMMON STOCK
General. The holders of the Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of stockholders;
holders may not cumulate their votes for the election of directors. Subject to
any preferential right held by holders of the Cumulative Convertible Preferred
Stock, the holders of the Common Stock are entitled to share ratably in any
dividends that may be declared, from time to time, by the Board of Directors out
of funds legally available therefor. However, it is not presently anticipated
that dividends will be paid on the Common Stock in the foreseeable future and
certain of the debt instruments to which the Company is a party prohibit or
restrict the payment of cash dividends to stockholders in excess of 20% of the
Company's net income for such fiscal year. See "Risk Factors -- Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of the Common Stock will be entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
the Cumulative Convertible Preferred Stock. Holders of the Common Stock do not
have preemptive rights. All of the issued and outstanding shares of Common Stock
are, and the shares of Common Stock offered by the Company hereby will upon
issuance be, fully paid and nonassessable.
Trading Market. The Common Stock is traded on the AMEX under the symbol
CHM. The Transfer Agent for the Company's Common Stock is National City Bank,
Cleveland, Ohio.
PREFERRED STOCK
General. The Company's Board of Directors has the authority to issue
2,000,000 shares of preferred stock in one or more series and to fix the
designation and relative powers, preferences and rights and qualifications,
limitations or restrictions of all shares of each such series, including,
without limitation, dividend rates, conversion rights, voting rights, redemption
and sinking fund provisions, liquidation preferences and the number of shares
constituting each such series, without any further vote or action by the
stockholders.
Outstanding Cumulative Convertible Preferred Stock. On October 6,
1995, the Company issued 3,500 shares of Cumulative Convertible Preferred Stock
(designated as such by the Board of Directors) to Edwin M. Roth, the Company's
Chairman and President, at a price of $100 per
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<PAGE> 32
share, or an aggregate purchase price of $350,000. The Cumulative Convertible
Preferred Stock pays quarterly dividends of $1.875 per share. The Cumulative
Convertible Preferred Stock is nonvoting stock.
Each share of the Cumulative Convertible Preferred Stock may be
converted, at the option of the holder, into 20 shares of Common Stock at an
effective conversion price of $5.00 per share. The Company may redeem the
Cumulative Convertible Preferred Stock, in whole or in part, after October 6,
1998, for $100 per share plus accrued and unpaid dividends. Mandatory redemption
of all outstanding Cumulative Convertible Preferred Stock is required on
November 6, 2000 at $100 per share plus accrued and unpaid dividends. In the
event of a dissolution, liquidation or winding up of the Company, the holders of
outstanding Cumulative Convertible Preferred Stock shall be entitled to receive
a distribution of $100 per share plus accrued and unpaid dividends. The
Cumulative Convertible Preferred Stock ranks senior in priority to the Common
Stock with respect to cash dividends and liquidating distributions. The Company
intends to purchase all of the outstanding shares of Cumulative Convertible
Preferred Stock from Mr. Edwin M. Roth upon consummation of the Rights Offering.
Further Issuances. Although the Company has no present intention to
issue shares of another series of preferred stock, because the Board of
Directors has the power to establish the rights, preferences and powers of each
series of preferred stock, it may afford the holders of any preferred stock
rights, preferences and powers (including voting rights) senior to the rights of
the holders of Common Stock (including holders of Common Stock to be issued upon
conversion of the Notes). The issuance of additional shares of preferred stock
could further decrease the amount of earnings and assets available for
distribution to holders of Common Stock (including holders of Common Stock to be
issued upon conversion of the Notes) or adversely affect the rights, preferences
and powers of the holders of Common Stock (including holders of Common Stock to
be issued upon conversion of the Notes). The issuance of the preferred stock
could have the effect of delaying, deferring or preventing a change in control
of the Company without further action by the stockholders.
DESCRIPTION OF THE NOTES
The Company will issue the Notes under an Indenture (the "Indenture")
between the Company and _________________________, as trustee (the "Trustee").
Holders of the Notes (the "Noteholders") are referred to the Indenture and the
Trust Indenture Act of 1939, as amended (the "1939 Act"), as if the Indenture
were governed by the same, for a statement of the terms of the Notes. The
following summary of the provisions of the Notes is qualified in its entirety by
reference to the Indenture, which has been filed as an exhibit to the
Registration Statement. Capitalized terms not otherwise defined herein have the
meanings assigned to them in the Indenture.
GENERAL. Interest on the Notes will begin to accrue on the first
business day following the Expiration Date at the rate of _______% per annum.
The Notes mature ___________, 2006,
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and unless converted, repurchased or redeemed, all principal and interest due
thereon will be paid on the first business day following the Maturity Date of
the Notes.
The Notes are general unsecured obligations of the Company. The Notes
are in registered form in denominations of $100 and multiples of $100. They are
subordinate in right of payment to Senior Debt of the Company, as described
under "-- Subordination." The Company may not incur any indebtedness for
borrowed money that would rank senior to the Notes except (i) indebtedness
existing on the date of the Indenture or under the Company's existing credit
facility, including any renewals, refinancings, extensions or refundings of the
foregoing, (ii) indebtedness secured by purchase money security interest, (iii)
any other senior bank or other institutional indebtedness, (iv) any indebtedness
of a subsidiary to another subsidiary, (v) certain indebtedness incurred in
connection with a merger with or into, or the acquisition of the stock or assets
of, another entity, and (vi) any indebtedness to holders of the Notes.
Initially, the Trustee will act as Paying Agent, Conversion Agent,
Registrar and agent for service of notices and demands. The Company may change
the Paying Agent, Conversion Agent, Registrar and agent for service of notices
and demands without notice.
CONVERSION. The Notes (or portions thereof in denominations of $100 or
any integral multiple of $100) are convertible into shares of Common Stock (i)
at any time after December 31, 2001, (ii) in the event of a Change in Control of
the Company (as hereinafter defined), or (iii) in the event of any filing
pursuant to Rule 14a-11 under the Exchange Act, by any person or group of
persons for the purpose of opposing a solicitation by the Company with respect
to election of directors of the Company, at a conversion ratio of [ ] shares of
Common Stock for each $100 in principal amount of the Notes, plus accrued
interest thereon, subject to adjustment as described below. In addition, if a
Note is called for redemption (upon a Change of Control or otherwise), it is
convertible at any time prior to the redemption date. Instead of issuing
fractional shares upon conversion, if any, the Company will round fractional
shares to be issued upon conversion up to the nearest whole share. If the Notes
are called for redemption, conversion rights with respect to such Notes expire
at the close of business on the day prior to the Redemption Date.
The conversion ratio is subject to adjustment as set forth in the
Indenture in certain events, including: the issuance of stock of the Company as
a dividend or distribution on the Common Stock; subdivisions and combinations of
the Common Stock; certain reclassifications of the Common Stock; a dividend of
securities convertible into Common Stock; or consolidations, mergers and sales
of property of the Company. No adjustment in the conversion ratio is required
unless such adjustment causes a change of at least one percent in the number of
shares of Common Stock for which the Notes may be converted; any adjustment that
would be required to be made but for the preceding statement will be carried
forward and taken into account in any subsequent adjustment. If the Company
consolidates with, merges into, or transfers or leases all or substantially all
of its assets to any person, or is a party to a merger that reclassifies or
changes its outstanding Common Stock, the right to convert a Note into Common
Stock may be changed into a right to convert it into securities, cash or other
assets of the Company or another entity into which the Common Stock was
reclassified or changed.
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<PAGE> 34
A Change in Control of the Company shall be deemed to occur upon the
acquisition (or the announcement of an intent to acquire), directly or
indirectly, by any individual, corporation, partnership, limited liability
corporation, joint venture, association, joint-stock company, trust, or
unincorporated organization acting together, other than the Stockholders Group
(the "Acquiring Entity"), of control of the Company. "Control" of the Company
shall mean the acquisition of, or the formation of a group whose members
beneficially own, shares of capital stock of the Company, which after giving
effect thereto, shall permit the Acquiring Entity to vote 25% or more of the
aggregate voting power, as measured by all voting stock of the Company then
outstanding, in the election of directors of the Company.
REDEMPTION. Subject to the Noteholders' rights to convert the Notes,
the Notes may be redeemed at the option of the Company at any time commencing
three years from the date of issuance of the Notes, in whole or in part, on not
less than 30 days notice, mailed by first class mail to each Noteholder's last
address as it appears on the Note register, at premiums declining ratably to par
value at the end of eight years from the date of issuance, plus an amount equal
to accrued and unpaid interest, as set forth below:
[ ], 1999 110%
[ ], 2000 108%
[ ], 2001 106%
[ ], 2002 104%
[ ], 2003 102%
[ ], 2004 100%
If less than all of the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed pro rata or by lot or in such other manner as the Trustee
deems fair to Noteholders.
SINKING FUND
There is no sinking fund or other similar mandatory prepayments of
principal on the Notes.
SUBORDINATION
The indebtedness evidenced by the Notes is subordinate to the prior
payment when due of the principal of, interest on, and any amount due in respect
of, all Senior Debt. Upon maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all principal of and premium, if any, interest on and
any amount due in respect of, all such matured Senior Debt shall first be paid
in full before any payment is made on, or in respect of, the Notes. Upon any
distribution of assets of the Company, payment of the principal of and premium,
if any, interest on, and any amount due in respect of, the Notes will be
subordinated to the extent and in the manner set forth in the Indenture to the
prior payment in full of all Senior Debt. By reason of such subordination, in
the event of insolvency, Noteholders may recover less, ratably, than the general
creditors of the Company or the holders of Senior Debt. The Company may not
incur any indebtedness for borrowed money that would rank senior to the Notes
except (i) indebtedness existing on the date
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<PAGE> 35
of the Indenture or under the Company's existing credit facility, including any
renewals, refinancings, extensions or refundings of the foregoing, (ii)
indebtedness secured by purchase money security interests, (iii) any other
senior bank or other institutional indebtedness, (iv) any indebtedness of a
subsidiary to another subsidiary, (v) certain indebtedness incurred in
connection with a merger with or into, or the acquisition of the stock or assets
of, another entity, and (vi) any indebtedness to holders of the Notes.
"Senior Debt" means all principal of and interest on and any other
payment due pursuant to the terms of instruments or agreements creating or
evidencing indebtedness of the Company (other than the Notes), whether
outstanding on the date of the Indenture or created, incurred, assumed or
guaranteed by the Company for money borrowed from another or in connection with
an acquisition, and any renewals, extensions, refinancings or refundings
thereof, after the date of the Indenture but prior to the maturity of the Notes,
by lapse of time, acceleration or otherwise. Unless indebtedness of the Company
is expressly subordinate to the indebtedness represented by the Notes, it
generally will constitute "Senior Debt" for purposes of the Indenture. "Senior
Debt" does not include indebtedness or liability for compensation to employees,
for goods or materials purchased in the ordinary course of business or for
services and any indebtedness of the Company to or from a subsidiary. As of
August 8, 1996, the Senior Debt of the Company was approximately $10.1 million,
consisting of amounts borrowed by the Company under its bank revolving credit
agreement which provides for extensions of credit up to $10 million and amounts
borrowed by the Company under its mortgage.
CERTAIN COVENANTS
Mergers, Consolidations, Sales of Assets
The Company will not consolidate with, merge with or into, or transfer
or lease all or substantially all of its assets (in one transaction or a series
of related transactions), to any other person unless (i) the resulting or
surviving person (if other than the Company) or transferee or lessee expressly
assumes, by a supplemental indenture executed and delivered to the Trustee, in a
form satisfactory to the Trustee, all of the obligations of the Company under
the Notes and the Indenture, (ii) such person, transferee or lessee is organized
and existing under the laws of the United States, a State thereof or the
District of Columbia, (iii) immediately after giving effect to such transaction,
no Default (as defined therein) has occurred and is continuing, and (iv)
immediately after giving effect to such transaction on a pro forma basis, the
Consolidated Net Worth of the surviving entity is at least equal to the
Consolidated Net Worth of the Company immediately prior to such transaction.
"Consolidated Net Worth" means at any date the total amount of
non-redeemable preferred stock and common stockholders' equity (excluding
amounts attributable to securities which are exchangeable for or convertible
into securities, other than non-redeemable preferred stock or common stock)
which would appear on a consolidated balance sheet of any Person as at such date
prepared in accordance with generally accepted accounting principles.
34
<PAGE> 36
DEFAULTS AND REMEDIES
An Event of Default is a Default for 10 days in payment of either
interest on or principal of the Notes, whether due upon maturity, acceleration,
redemption, repurchase or otherwise; failure by the Company for 30 days after
notice to it to comply with any of its other agreements in the Indenture or the
Notes; certain Defaults on other Indebtedness of the Company or any subsidiary
of the Company in the amount of $1,000,000 or more, individually or in the
aggregate resulting in the acceleration thereof; and certain events of
bankruptcy, insolvency or reorganization.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a Default, give the Holders of the Notes notice of all uncured
Defaults known to it; provided that, except in the case of a Default in the
payment of principal, premium, if any, or interest on the Notes, the Trustee
will be protected in withholding such notice if it in good faith determines that
the withholding of such notice is in the interest of the Holders (as defined
therein) of the Notes.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization) has occurred and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the Notes by
notice to the Trustee and the Company in writing may declare the principal of,
and accrued interest on, the Notes to be due and payable immediately (but
payment thereof will be subordinated to payment in full of the Senior Debt as
described above). If an Event of Default results from certain events of
bankruptcy, insolvency or reorganization, the principal amount of the Notes will
be due and payable without any declaration or any act on the part of the Trustee
or the Holders of the Notes. Such declaration may be annulled and past Defaults
may be waived (except, unless previously cured, a default in payment of
principal, premium, if any, or interest) by the Holders of a majority in
principal amount of the Notes upon conditions provided in the Indenture. Except
to enforce the right to receive payment of principal or interest when due, no
Holder of a Note may institute any proceeding with respect to the Indenture or
for any remedy thereunder unless such Holder has previously given to the Trustee
written notice of a continuing Event of Default and the Holders of at least 25%
of the outstanding principal amount of the Notes have requested the Trustee to
institute proceedings in respect of such Event of Default, have offered the
Trustee reasonable indemnity against loss, liability and expense which may be
incurred, and the Trustee has failed so to act for 60 days after receipt of the
same, provided no inconsistent direction has been given to the Trustee during
such 60 day period.
The Indenture requires the Company to file annually with the Trustee a
statement regarding compliance by the Company with the Indenture, specifying any
Defaults or Events of Default of which the signers may have knowledge.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes, and any past Default or compliance with any
provisions may be waived with the consent of the Holders
35
<PAGE> 37
of a majority in principal amount of the Notes. Without the consent of
Noteholders, the Company may amend or supplement the Indenture or the Notes to
cure any ambiguity, defect or inconsistency or to make any change that does not
materially and adversely affect the rights of any Noteholder or the holders of
Senior Debt. However, without the consent of each Holder of Notes affected
thereby, the Company may not amend or supplement the Indenture or the Notes to,
among other things, extend the maturity, reduce the rate or extend the time of
payment of interest, modify the terms of payment of the principal, premium, if
any, or interest on the Notes, change redemption provisions in a manner adverse
to the Holders, impair the right to convert the Notes into Common Stock on the
terms set forth in the Indenture or reduce the percentage of Holders necessary
to amend or supplement the Indenture.
SATISFACTION AND DISCHARGE OF INDENTURE
The Company may terminate its obligations, with certain exceptions,
under the Notes and the Indenture if all Notes previously authenticated and
delivered (other than destroyed, lost or stolen Notes which have been replaced
or paid) have been delivered to the Trustee for cancellation and the Company has
paid all sums payable by it under the Indenture, or if the Company irrevocably
deposits in trust with the Trustee money or United States government obligations
sufficient to pay principal of and interest on the Notes to maturity or
redemption, as the case may be, and to pay all sums payable to the Trustee under
the Indenture and certain other conditions are satisfied.
REPORTS TO NOTEHOLDERS
So long as any of the Notes remain outstanding, the Company will mail
to the Noteholders its annual report to stockholders and any quarterly or other
financial reports furnished by it to its stockholders.
THE TRUSTEE
The Indenture will contain certain limitations on the right of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions with the Company; provided, however, that if the Trustee
acquires certain conflicting interests specified in the 1939 Act, it must
eliminate such conflicts or resign.
The Holders of a majority in principal amount of Notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, provided that
such direction does not conflict with any rule of law or with the terms of the
Indenture and does not unduly prejudice the rights of another Noteholder. The
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction. The Indenture provides that, if any Event of
Default occurs (and is not cured), the Trustee will be required to use the
degree of care and skill of a prudent person in the conduct of his own affairs
in the exercise of its powers. Subject to such provisions, the
36
<PAGE> 38
Trustee is under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the Noteholders, unless it has received
satisfactory security and indemnity.
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the AMEX under the symbol "CHM." The
following table sets forth the high and low sales prices of the Common Stock as
reported in the AMEX Composite Tape for the periods indicted.
HIGH LOW
-----------------------
FISCAL YEAR 1994
First Quarter....................................... $7.250 $4.125
Second Quarter...................................... 4.813 3.250
Third Quarter....................................... 4.500 3.500
Fourth Quarter...................................... 4.063 2.875
FISCAL YEAR 1995
First Quarter....................................... 4.188 2.375
Second Quarter...................................... 4.938 2.750
Third Quarter....................................... 4.625 3.750
Fourth Quarter...................................... 4.500 1.875
FISCAL YEAR 1996
First Quarter....................................... 2.875 1.250
Second Quarter...................................... 3.875 1.250
Third Quarter (through August 8, 1996).............. $3.500 $2.1875
On August 8, 1996, the closing price of the Common Stock was $2.1875
per share. As of August 8, 1996, there were approximately 577 holders of record
of the Common Stock, and 3,932,602 shares of Common Stock were outstanding. As
of August 8, 1996, there was one holder of record of Cumulative Convertible
Preferred Stock, and 3,500 shares were outstanding. See "Description of Capital
Stock."
DIVIDEND POLICY
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
37
<PAGE> 39
fiscal year in excess of 20% of the Company's net income for such fiscal year.
See "Risk Factors -- Dividend Policy."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain anticipated federal
income tax consequences under present law to holders of Common Stock upon the
issuance (the "Issuance") of Rights and to Rights Holders upon exercise or lapse
of the Rights and is not intended as tax advice. This discussion is based on the
provisions of the Tax Code, final, temporary and proposed Treasury regulations
thereunder, and administrative and judicial interpretations thereof, all as in
effect as of the date hereof and all of which are subject to change (possibly on
a retroactive basis). Legislative, judicial or administrative changes or
interpretations could alter or modify the tax discussion set forth below. This
discussion does not purport to deal with all aspects of federal income taxation
that may be relevant to a particular Rights Holder in light of such Rights
Holder's personal investment circumstances or to certain types of Rights Holders
subject to special treatment under the federal income tax laws (e.g., life
insurance companies, tax exempt organizations, foreign corporations and
nonresident aliens). No attempt is made to consider any aspects of state, local
or foreign taxation. Finally, substantial uncertainties resulting from the lack
of definitive judicial or administrative authority and interpretations apply to
various tax issues addressed herein. The Company has not sought, nor does it
intend to seek, any rulings from the Internal Revenue Service ("IRS") relating
to such issues or any other issues.
EACH RIGHTS HOLDER IS THEREFORE URGED TO CONSULT SUCH RIGHTS HOLDER'S
OWN ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE RIGHTS OFFERING ON SUCH
RIGHTS HOLDER'S OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND
EFFECT OF THE TAX CODE, AS WELL AS STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
LAWS.
ISSUANCE OF RIGHTS
- ------------------
The Company believes that issuance of the Rights to it stockholders
will not result in the receipt of taxable income by those stockholders and,
accordingly, the Company does not intend to issue IRS Forms 1099 in connection
therewith.
The tax consequences of the Issuance are dependent upon (i) the
applicability of Section 305 of the Tax Code and (ii) whether the Rights have a
market value. In this regard, the IRS has taken the position that the issuance
by a corporation to its stockholders of rights entitling them to subscribe to
convertible debt securities will be nontaxable under Section 305 of the Tax Code
if both of the following two requirements are satisfied: (i) the value of the
rights is attributable to the conversion privilege of the convertible debt
securities; and (ii) no exception to the general rule of nontaxability under
Section 305(a) of the Tax Code applies.
The Company believes that any market value attributable to the Rights
would be attributable to the conversion privilege of the Notes. It should be
noted that the Company has
38
<PAGE> 40
not sought or relied upon the advice of any independent securities dealers or
investment bankers in making this determination and that the determination might
be subject to challenge by the IRS. The Company also believes that no exception
to the general rule of nontaxability under Section 305(a) of the Tax Code will
apply to the Issuance.
If, notwithstanding the foregoing (and contrary to the Company's
belief), the Rights were determined to fall outside of the protective ambit of
Section 305 of the Tax Code, and if the Rights were determined to have a market
value, the distribution of the Rights would result in taxable dividend income to
those stockholders exercising the Rights (to the extent of the lesser of the
market value of the Rights or such stockholders' allocable share of the
Company's current or accumulated earnings and profits). With respect to
stockholders not exercising the Rights, the Company believes that, although the
matter is not free from doubt, such stockholders could, because the Rights are
nontransferable, reasonably take the position that they have not received
taxable dividend income. No assurance can be given that such position would
ultimately be sustained if challenged.
BASIS IN AND EXERCISE OF THE RIGHTS
- -----------------------------------
Unless a stockholder elects otherwise (as provided in (ii) below), if,
in accordance with the Company's belief, the fair market value of the Rights on
the date of Issuance is less than 15% of the fair market value (on the date of
Issuance) of the Common Stock with respect to which the Rights are received, the
basis of the Rights received by a stockholder as a distribution with respect to
such stockholder's Common Stock will be zero. If, however, either (i) the fair
market of the Rights on the date of Issuance is 15% or more of the fair market
value (on the date of Issuance) of the Common Stock with respect to which the
Rights are received or (ii) the stockholder elects, in his, her or its federal
income tax return for the taxable year in which the Rights are received, to
allocate part of the basis of such Common Stock to the Rights, then upon
exercise of the Rights, the stockholder will allocate such stockholder's basis
in such Common Stock between the Common Stock and the Rights in proportion to
the fair market values of each on the date of Issuance, except that, in either
case, no allocation of basis will be made to the Rights if the Rights expire
unexercised. The holding period of a stockholder with respect to the Rights
received as a distribution on such stockholder's Common Stock will include the
stockholder's holding period for the Common Stock with respect to which the
Rights were issued.
No gain or loss will be recognized by a Rights Holder upon exercise of
the Rights. The basis for federal income tax purposes of Notes acquired upon
exercise of Rights will equal the sum of the holder's basis in the Rights
surrendered and the amount of cash paid for the Notes. The holding period of the
Notes thereby acquired will begin on the date of issuance of the Notes. No
Rights Holder will recognize a capital loss upon expiration of the Rights unless
such stockholder has recognized taxable income in connection with receipt of the
Rights.
CONVERSION OF NOTES
- -------------------
Generally, no gain or loss should be recognized upon the conversion of
a Note into Common Stock. The tax basis of shares of Common Stock received
pursuant to the conversion
39
<PAGE> 41
of a Note will be equal to the basis such holder had in the Note. The holding
period for the Common Stock will include the holding period of the Note.
If at any time the Company makes a distribution of property to its
stockholders which is taxable to them as a dividend for federal income tax
purposes (for example, distributions of money or other assets of the Company,
but generally not stock dividends or rights to subscribe for Common Stock) and
the conversion price of the Notes is reduced pursuant to the anti-dilution
provisions of the Indenture, the reduction may be deemed to result in the
recognition of taxable dividend income to holders of Notes at the time the
conversion price is reduced. Under certain circumstances, the failure to adjust
the conversion price of the Notes also may result in a taxable dividend to the
holders of the Notes.
ORIGINAL ISSUE DISCOUNT
- -----------------------
Stated interest on the Notes will not be paid until maturity.
Consequently, the Notes will be issued at an original issue discount ("OID"),
and holders of the Notes will be required to recognize OID as ordinary income in
advance of the receipt of the cash payments at maturity to which such OID income
is attributable. The amount of OID per Note will equal the total amount of the
stated interest on the Notes that will be payable upon the maturity of the
Notes, assuming that the Notes are not converted or redeemed prior to such date.
The amount of OID required to be included in a holder's income for any
taxable year (regardless of whether the holder uses the cash or accrual method
of accounting) will be determined by allocating to each day in the taxable year
during which the holder owns a Note, a portion of the OID that accrues during
the taxable year as determined by a constant yield method. The amount of OID
accruing in each semi-annual accrual period will be determined by multiplying
the adjusted issue price of the Note at the beginning of an accrual period by a
fraction of the yield to maturity of the Note based on the length of the accrual
period. The adjusted issue price of a Note at the beginning of an accrual period
will be equal to its original issue price increased by all previously accrued
OID.
In accordance with the foregoing, any interest payment received by a
holder upon maturity of the Notes will not be treated as interest income for
federal income tax purposes. Instead, such interest payments will be treated as
a return of principal.
A holder's tax basis in a Note (which initially will equal its cost to
the holder) will be increased by the amount of OID which is required to be
included in the holder's income. Gain or loss upon a sale or other disposition
of a Note will be measured by the difference between the amount of cash, or fair
market value of property, received with respect to a sale or disposition and a
holder's adjusted tax basis in the Note.
As required by law, the Company will report annually to the IRS and to
each holder the amount of OID accrued with respect to each Note.
40
<PAGE> 42
SALE OR REDEMPTION OF THE NOTE OR SALE OF THE COMMON STOCK
- ----------------------------------------------------------
On a sale or redemption of the Notes or a sale of the Common Stock, a
holder will generally recognize gain or loss measured by the difference between
the amount of cash and the fair market value of property received (except to the
extent attributable to accrued interest) and the holder's tax basis in the
Notes. Because the Company has no present intention to exercise its optional
redemption rights, if the Company does choose to exercise these rights, the
redemption premium should be treated as capital gain. Subject to the market
discount rules, any remaining gain or any loss should also be capital gain or
loss.
NET OPERATING LOSS CARRYOVERS
Section 382 of the Tax Code imposes limitations on the amount of
"pre-change" losses and deductions (including, in certain instances, unrealized
losses and deductions attributable to periods prior to an "ownership change")
that may be used to offset "post-change" taxable income of a corporation which
undergoes an ownership change. Similarly, Section 383 of the Tax Code limits the
amount of pre-change tax credits that may be used to reduce the post-change tax
liability of a corporation which undergoes an "ownership change."
As a result of an ownership change of the Company that occurred during
1992, the Company's ability to utilize approximately $3,150,000 of its current
NOLs are subject to a limitation of $850,000 per year. The Company's remaining
NOLs (which approximate $4,847,000 as of December 31, 1995) are not subject to
limitation and may be utilized on a current basis.
The Company does not believe that it has experienced an ownership
change since its 1992 ownership change. It is possible, however, that
transactions that occur subsequent to this Rights Offering, or transactions that
have already occurred but which are not now known to the Company, may, when
considered with other previous, concurrent and/or future transactions, result in
another ownership change of the Company. In this regard, the consummation of the
transactions contemplated herein will increase the risk of a future ownership
change. If another ownership change were to occur, then the Company's ability to
utilize its NOLs to offset future income would generally be limited to an amount
equal to the value of the Company's equity immediately prior to such ownership
change multiplied by the then applicable long-term tax-exempt rate applicable to
ownership changes (currently 5.78% for ownership changes occurring in June
1996); provided, however, if the annual limitation exceeds $850,000, the annual
limitation applicable to the portion of the Company's NOLs currently subject to
limitation as a result of the 1992 ownership change will remain at $850,000. As
of December 31, 1995, the Company's NOLs were approximately $7,998,000.
41
<PAGE> 43
PLAN OF DISTRIBUTION
The Notes offered pursuant to the Rights Offering are being offered by
the Company directly to its holders of Common Stock.
The Company will pay the fees and expenses of National City Bank, as
Subscription Agent, and has also agreed to indemnify the Subscription Agent from
any liability which it may incur in connection with the Rights Offering,
including liabilities under the Securities Act.
Rights Holders who desire to purchase Notes in the Rights Offering are
urged to complete, date and sign the Subscription Certificate accompanying this
Prospectus and return it to the Subscription Agent on or before the Expiration
Date of the Rights Offering, together with payment in full of the aggregate
Subscription Price. See "The Rights Offering -- Exercise of Rights."
Subscription Rights are nontransferable. See "Prospectus Summary -- The Rights
Offering -- Nontransferability of Rights." Any questions concerning the
procedure for subscribing for the purchase of Notes should be directed to the
Subscription Agent.
THE ALLOCATION AGREEMENT
All members of the Stockholders Group have advised the Company that
they intend to acquire from the Company, at the Subscription Price, the
principal amount of all Underlying Notes subject to their Basic Subscription
Privileges. In addition, the members of the Stockholders Group have expressed a
present intent to subscribe for the maximum principal amount of Notes that they
are entitled to purchase pursuant to the Oversubscription Privilege. The members
of the Stockholders Group and Mr. David F. Spink, Vice President of the Company
(collectively, the "Allocation Group"), have entered into the Allocation
Agreement, dated [ ], 1996. Pursuant to the Allocation Agreement, upon
consummation of the Rights Offering, the aggregate principal amount of Notes
received by all members of the Stockholders Group will be re-allocated among the
members of the Allocation Group in accordance with the terms of the Allocation
Agreement, which provides that each of CEW Partners, Martin Trust and the
individual parties (referred to therein as the "Roth Group") will receive
one-third of the total aggregate principal amount of the Notes received in the
Rights Offering by all members of the Stockholders Group.
As of August 8, 1996, the members of the Stockholders Group owned
beneficially [ ] shares of Common Stock, or approximately [ ]% of the
outstanding Common Stock, and Mr. Edwin M. Roth owned 3,500 shares of
Cumulative Convertible Preferred Stock, or 100% of the outstanding Cumulative
Convertible Preferred Stock. The Company intends to purchase all of the shares
of Cumulative Convertible Preferred Stock owned by Mr. Roth upon consummation
of the Rights Offering. The members of Stockholders Group will receive [ ] in
aggregate principal amount of the Notes upon exercise of their Basic
Subscription Privileges. The Stockholders Group could beneficially own as much
as 100% of the principal amount of the Notes outstanding immediately after
consummation of the Rights Offering, based on the assumption that no other
Rights Holders exercise their Basic Subscription Privileges.
42
<PAGE> 44
In addition, CEW Partners, Martin Trust and the Roths have entered into
a voting agreement that expires after December 31, 2001 pursuant to which CEW
Partners and Martin Trust have agreed, among other things, (i) to vote, with
certain exceptions, all shares of voting stock of the Company owned by each of
them in connection with any action to be taken by the Company's stockholders in
accordance with the recommendation of the Roths or, absent such recommendation,
in accordance with the recommendation of the Board of Directors; (ii) to vote
all shares of their voting stock in favor of the election to the Board of
Directors of the nominees for the Board recommended by the Roths or, absent
such recommendation, for the Company's nominees for the Board and no others;
(iii) not to conduct, encourage, solicit or in any way participate in, any
solicitation of proxies or any election contest with respect to the Company;
and (iv) not to encourage, solicit or in any way participate in the formation
of any "person" (as defined in Section 13(d)(3) of the Exchange Act) which
owns, or seeks to acquire beneficial ownership of the Company's voting stock.
Further, the Roths have agreed to vote their Common Stock for two persons
designated by CEW Partners and Martin Trust and reasonably satisfactory to the
Roths for election to the Company's Board of Directors. CEW Partners and Martin
Trust have named ____________________ and _______________ as such designees.
[The obligations of the members of the Stockholders Group under the
Allocation Agreement are conditioned upon, among other things: (i) no stop order
suspending the effectiveness of the Registration Statement of which this
Prospectus forms a part having been issued and no proceeding for that purpose
having been instituted or threatened; (ii) the Expiration Date having occurred
not later than [ ], 1996; and (iii) the Rights Offering having been completed.]
[The Allocation Agreement provides that it may be terminated by any
member of the Stockholders Group upon the occurrence of any of the following
events: [ ].] The Allocation Agreement may also be terminated by mutual written
consent of all members of the Stockholders Group.
There can be no assurance that all of the conditions to the Allocation
Agreement will be satisfied or waived or that an event permitting termination of
the Allocation Agreement will not occur.
LEGAL MATTERS
Certain matters with respect to the validity of the issuance of the
Notes offered hereby will be passed on for the Company by Benesch, Friedlander,
Coplan & Aronoff P.L.L., counsel for the Company. George N. Aronoff, the
Secretary and a Director of the Company, is a partner of Benesch, Friedlander,
Coplan & Aronoff P.L.L. As of August 8, 1996, Mr. Aronoff beneficially owned [ ]
shares of Common Stock.
43
<PAGE> 45
EXPERTS
The audited financial statements of the Company incorporated by
reference in this Prospectus and elsewhere in this Registration Statement, to
the extent and for the periods indicated in their report, have been examined by
Grant Thornton LLP, independent certified public accountants, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in auditing and accounting in giving said reports.
44
<PAGE> 46
================================================================================
NO PERSON, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES IN ANY JURISDICTION WHERE, OR TO ANY
PERSON WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
---------------------------
TABLE OF CONTENTS
Page
----
Available Information.................................. 4
Incorporation of Certain Information by Reference...... 5
Prospectus Summary..................................... 6
Risk Factors........................................... 15
The Company............................................ 20
The Rights Offering.................................... 22
Use of Proceeds........................................ 29
Description of Capital Stock........................... 29
Description of the Notes................................31
Price Range of Common Stock............................ 37
Dividend Policy.........................................37
Certain Federal Income Tax Considerations...............38
Plan of Distribution................................... 42
The Allocation Agreement............................... 42
Legal Matters.......................................... 43
Experts .............................................. 44
================================================================================
================================================================================
$4,000,000
SPECIALTY CHEMICAL
RESOURCES, INC.
___% Convertible
Subordinated Notes Due 2006
-----------------
PROSPECTUS
-----------------
[ ],1996
================================================================================
<PAGE> 47
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
Filing Fee -- Securities and Exchange Commission......... $1,379
Subscription Agent Fees and Expenses..................... **
Accounting Fees and Expenses............................. **
Legal Fees and Expenses.................................. **
Blue Sky Fees and Expenses............................... **
Printing and Engraving Expenses.......................... **
Miscellaneous Expenses................................... **
---------
Total Expenses....................................... $ **
- ---------------
* All expenses other than the Securities and Exchange Commission filing fee are
estimated.
** To be completed by amendment.
All of the fees and other expenses of the Registration Statement will be borne
by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or on the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable for
II-1
<PAGE> 48
negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that despite the adjudication of liability, such person
is fairly and reasonably entitled to be indemnified for such expenses that the
court shall deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.
Section 102(b)(7) provides that a corporation in its original
certificate of incorporation or an amendment thereto validly approved by
stockholders may eliminate or limit personal liability of members of its board
of directors or governing body for violations of a director's duty of care.
However, no such provision may eliminate or limit the liability of a director
for breaching his duty of loyalty, failing to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was illegal, or obtaining an improper
personal benefit. A provision of this type has no effect on the availability of
equitable remedies, such as injunction or rescission, for breach of fiduciary
duty.
The Restated Certificate of Incorporation of the Company provides that
each person who is a party to or involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was a director or officer of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, shall be indemnified and held harmless by the Company to the fullest
extent authorized by the General Corporation Law of the State of Delaware, as
exists or may be amended, but only to the extent that such amendment broadens
the Company's indemnity powers, against all expense, liability and loss
reasonably incurred by such person in connection therewith. The Restated
Certificate of Incorporation provides that the right to indemnification
contained therein is a contract right and includes the right to be paid by the
Company the expenses incurred in defending any such proceeding in advance of its
final disposition; provided, however, that if the General Corporation Law of the
State of Delaware requires, the payment of such expenses incurred in advance of
the final disposition of a proceeding shall be made only upon delivery to the
Company of an undertaking to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified.
The Company also maintains directors' and officers' liability insurance
covering certain liabilities incurred by the directors and officers of the
Company in connection with the performance of their duties.
II-2
<PAGE> 49
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
**4.1 -- Form of Indenture
**4.2 -- Form of Note (included in Exhibit 4.1)
*4.3 -- Form of Subscription Certificate
*4.4 -- Form of Allocation Agreement among Edwin M. Roth, Corey B.
Roth, John H. Ehlert, David F. Spink, CEW Partners and Martin
Trust
*5.1 -- Opinion of Benesch, Friedlander, Coplan & Aronoff P.L.L.,
counsel for the Company, regarding legality
**12.1 -- Statement of Computation of Ratios
**23.1 -- Consent of Grant Thornton LLP, independent public accountants
for the Company
*23.2 -- Consent of Benesch, Friedlander, Coplan & Aronoff P.L.L.
(contained in the opinion to be filed as Exhibit 5.1 to this
Registration Statement)
24.1 -- Power of Attorney (included in Part II of this Registration
Statement)
*99.1 -- Form of Agreement among CEW Partners, Martin Trust, Edwin M.
Roth and Corey B. Roth regarding voting of Common Stock
- ------------------
* To be filed by amendment.
** Filed herewith.
ITEM 17. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
II-3
<PAGE> 50
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended, (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
C. The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
(2) For purposes of determining any liability under the
Securities Act of 1933, as amended, the information omitted from the
form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by
the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-4
<PAGE> 51
(3) For the purpose of determining any liability under the
Securities Act of 1933, as amended, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(4) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-5
<PAGE> 52
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO, ON THE 9TH DAY OF
AUGUST, 1996.
SPECIALTY CHEMICAL RESOURCES,
INC.
By: /s/ Edwin M. Roth
------------------------------
Edwin M. Roth, Chairman of the
Board and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Edwin M. Roth and David F. Spink, or any
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement on Form S-3 (including post-effective amendments), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact, agent or their substitutes may
lawfully do or cause to be done by virtue hereof.
II-6
<PAGE> 53
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
Dated: August 9, 1996 /s/ Edwin M. Roth
------------------
Edwin M. Roth
Chairman of the Board, President and Director
(Principal Executive Officer)
Dated: August 9, 1996 /s/ David F. Spink
-------------------
David F. Spink
Vice President (Principal Financial
and Accounting Officer)
Dated: August 9, 1996 /s/ Corey B. Roth
------------------
Corey B. Roth
Director
Dated: August 9, 1996 /s/ George N. Aronoff
----------------------
George N. Aronoff
Director
Dated: August 9, 1996 /s/ Victor Gelb
----------------
Victor Gelb
Director
Dated: August 9, 1996 /s/ Leonard P. Judy
--------------------
Leonard P. Judy
Director
Dated: August 9, 1996 /s/ Lionel N. Sterling
-----------------------
Lionel N. Sterling
Director
II-7
<PAGE> 54
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ------- ------------------- ------
**4.1 -- Form of Indenture
**4.2 -- Form of Note (included in Exhibit 4.1)
*4.3 -- Form of Subscription Certificate
*4.4 -- Form of Allocation Agreement among Edwin M. Roth,
Corey B. Roth, John H. Ehlert, David F. Spink, CEW Partners
and Martin Trust
*5.1 -- Opinion of Benesch, Friedlander, Coplan & Aronoff P.L.L.,
counsel for the Company, regarding legality
**12.1 -- Statement of Computation of Ratios
**23.1 -- Consent of Grant Thornton LLP, independent public accountants
for the Company
*23.2 -- Consent of Benesch, Friedlander, Coplan & Aronoff P.L.L.
(contained in the opinion to be filed as Exhibit 5.1 to this
Registration Statement)
24.1 -- Power of Attorney (included in Part II of this Registration
Statement)
*99.1 -- Form of Agreement among CEW Partners, Martin Trust,
Edwin M. Roth and Corey B. Roth regarding voting of Common
Stock
- ------------------
* To be filed by amendment.
** Filed herewith.
<PAGE> 55
S-3 REGISTRATION STATEMENT-DEBT
<PAGE> 1
SPECIALTY CHEMICAL RESOURCES, INC.
and
______________________________________, as TRUSTEE
-----------------
INDENTURE
Dated as of ____________________, 1996
----------------
____% Convertible Subordinated Notes Due 2006
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE ONE DEFINITIONS AND INCORPORATION
BY REFERENCE................................................................(1)
Section 1.01. Definitions.................................................................(1)
Section 1.02. Incorporation by Reference of Trust Indenture Act...........................(5)
Section 1.03. Rules of Construction.......................................................(6)
ARTICLE TWO THE SECURITIES..............................................................(7)
Section 2.01. Form and Dating.............................................................(7)
Section 2.02. Execution and Authentication................................................(7)
Section 2.03. Registrar, Paying Agent and Conversion Agent................................(7)
Section 2.04. Paying Agent to Hold Money in Trust.........................................(8)
Section 2.05. Securityholder Lists........................................................(8)
Section 2.06. Transfer and Exchange.......................................................(8)
Section 2.07. Replacement Securities......................................................(9)
Section 2.08. Outstanding Securities......................................................(9)
Section 2.09. Treasury Securities.........................................................(9)
Section 2.10. Temporary Securities.......................................................(10)
Section 2.11. Cancellation...............................................................(10)
ARTICLE THREE REDEMPTION.................................................................(10)
Section 3.01. Notices to Trustee and Paying Agent........................................(10)
Section 3.02. Selection of Securities to be Redeemed.....................................(10)
Section 3.03. Notice of Redemption.......................................................(11)
Section 3.04. Effect of Notice of Redemption.............................................(12)
Section 3.05. Deposit of Redemption Price................................................(12)
Section 3.06. Securities Redeemed in Part................................................(12)
ARTICLE FOUR SUBORDINATION..............................................................(12)
Section 4.01. Securities Subordinated to Senior Debt.....................................(12)
Section 4.02. Maturity of Senior Debt....................................................(13)
Section 4.03. Liquidation, Etc...........................................................(13)
Section 4.04. Senior Debt Default........................................................(13)
Section 4.05. Company's Obligations Unimpaired...........................................(14)
Section 4.06. Subrogation................................................................(14)
Section 4.07. Subordination Unimpaired...................................................(14)
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE FIVE COVENANTS..................................................................(15)
Section 5.01. Payment of Securities......................................................(15)
Section 5.02. Limitation on Indebtedness for Borrowed Money..............................(15)
Section 5.03. Reports by the Company.....................................................(15)
Section 5.04. Corporate Existence........................................................(16)
Section 5.05. Notice of Default..........................................................(16)
Section 5.06. Waiver of Stay, Extension or Usury Laws....................................(16)
ARTICLE SIX SUCCESSORS.................................................................(16)
Section 6.01. When Company May Merge, Etc................................................(16)
Section 6.02. Successor Corporation Substituted..........................................(17)
ARTICLE SEVEN DEFAULT AND REMEDIES.......................................................(17)
Section 7.01. Events of Default..........................................................(17)
Section 7.02. Acceleration...............................................................(18)
Section 7.03. Other Remedies.............................................................(19)
Section 7.04. Waiver of Past Defaults....................................................(19)
Section 7.05. Control by Majority........................................................(19)
Section 7.06. Limitation on Suits........................................................(20)
Section 7.07. Rights of Holders to Receive Payment.......................................(20)
Section 7.08. Collection Suit by Trustee.................................................(21)
Section 7.09. Trustee May File Proofs of Claim...........................................(21)
Section 7.10. Priorities.................................................................(21)
Section 7.11. Undertaking for Costs......................................................(22)
ARTICLE EIGHT TRUSTEE....................................................................(22)
Section 8.01. Duties of Trustee..........................................................(22)
Section 8.02. Rights of Trustee..........................................................(23)
Section 8.03. Individual Rights of Trustee...............................................(24)
Section 8.04. Disclaimers................................................................(24)
Section 8.05. Notice of Defaults.........................................................(24)
Section 8.06. Reports by Trustee to Holders..............................................(24)
Section 8.07. Compensation and Indemnity.................................................(24)
Section 8.08. Replacement of Trustee.....................................................(25)
Section 8.09. Successor Trustee by Merger, Etc...........................................(26)
Section 8.10. Eligibility; Disqualification..............................................(26)
Section 8.11. Preferential Collection of Claims Against the Company......................(26)
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE NINE DISCHARGE OF INDENTURE.....................................................(27)
Section 9.01. Termination of the Company's Obligation....................................(27)
Section 9.02. Application of Trust Money.................................................(27)
Section 9.03. Repayment to the Company...................................................(28)
Section 9.04. Reinstatement..............................................................(28)
ARTICLE TEN CONVERSION.................................................................(28)
Section 10.01. Right of Conversion; Conversion Price......................................(28)
Section 10.02. Procedures for Conversion..................................................(28)
Section 10.03. Adjustments to Conversion Price............................................(29)
Section 10.04. Covenant to Reserve Shares.................................................(30)
Section 10.05. Compliance with Legal and Governmental Requirements........................(31)
Section 10.06. Payment of Taxes...........................................................(31)
Section 10.07. Responsibility of Trustee and Conversion Agent.............................(31)
ARTICLE ELEVEN AMENDMENTS, SUPPLEMENTS AND WAIVERS........................................(32)
Section 11.01. Without Consent of Holders.................................................(32)
Section 11.02. With Consent of Holders....................................................(32)
Section 11.03. Revocation and Effect of Consents..........................................(33)
Section 11.04. Notation on or Exchange of Securities......................................(33)
Section 11.05. Trustee to Sign Amendments, Etc............................................(34)
ARTICLE TWELVE MISCELLANEOUS..............................................................(34)
Section 12.01. Notices....................................................................(34)
Section 12.02. Certificate and Opinion as to Conditions Precedent.........................(35)
Section 12.03. Statements Required in Certificate or Opinion..............................(35)
Section 12.04. Rules by Trustee, Registrar, Paying Agent
and Conversion Agent.......................................................(35)
Section 12.05. Legal Holidays.............................................................(36)
Section 12.06. Governing Law..............................................................(36)
Section 12.07. No Recourse Against Others.................................................(36)
Section 12.08. No Adverse Interpretation of Other Agreements..............................(36)
Section 12.09. Successors.................................................................(36)
Section 12.10. Duplicate Originals........................................................(36)
Section 12.11. Separability...............................................................(36)
Section 12.12. Table of Contents, Headings and References.................................(36)
SIGNATURES...............................................................................................(37)
EXHIBIT A................................................................................................A-1
</TABLE>
(iii)
<PAGE> 5
INDENTURE
INDENTURE, dated as of ___________ ___, 1996, between SPECIALTY
CHEMICAL RESOURCES, INC., a Delaware corporation (the "Company"), and
____________________, a ____________, as trustee (the "Trustee").
Each of the parties hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders (defined below)
of the Company's ___% Convertible Subordinated Notes Due 2006 issued pursuant to
this Indenture.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
---------------------------
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"AGENT" means any Registrar, Paying Agent or Conversion Agent.
"BANKRUPTCY LAW" means Title 11 of the United States Code, 11 U.S.C.
ss.ss. 101 et seq., or any similar federal or state law for the relief of
debtors.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"BUSINESS DAY" means a day that is not a Saturday, Sunday, legal
holiday or other day on which banks and trust companies in the city where the
Trustee is located are not required to be open.
"CAPITALIZED LEASE OBLIGATION" means indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles,
and the amount of such indebtedness shall be the capitalized amount of such
obligations determined in accordance with such principles.
"CAPITAL STOCK" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
<PAGE> 6
"CHANGE OF CONTROL" means the acquisition (or the announcement of an
intent to acquire), directly or indirectly, by any Person or group of Persons
acting together, for a similar purpose, of beneficial ownership of shares of the
Capital Stock of the Company in such amount that, after giving effect to such
acquisition, such Person or Persons shall be entitled to vote 25% or more of the
shares entitled to vote, as at such date, in the election of directors of the
Company.
"COMMON STOCK" means all shares now or hereafter authorized of the
common stock, $0.10 par value, of the Company.
"COMPANY" means the party named as such in this Indenture, until a
successor replaces it pursuant to the Indenture, and thereafter means the
successor.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order
signed in the name of the Company by the Chairman or Vice Chairman of the Board
of Directors, the President or any Vice President and by the Treasurer, an
Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or
an Assistant Secretary of the Company and delivered to the Trustee.
"CONSOLIDATED NET WORTH" means with respect to any Person at any date
the total amount of non-redeemable preferred stock and common shareholders'
equity (excluding amounts attributable to securities which are exchangeable for
or convertible into securities, other than non-redeemable preferred stock or
common stock) which would appear on a consolidated balance sheet of any Person
as at such date prepared in accordance with generally accepted accounting
principles.
"CONVERSION AGENT" means an office or agency where Securities may be
presented for conversion. The term includes any additional conversion agent.
"CONVERSION PRICE" initially means $_______________.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"DEFAULT" means any event which is, or after notice or passage of time
would be, an Event of Default.
"ELECTION CONTEST" means any filing pursuant to Rule 14a-11 under the
Securities Exchange Act of 1934, as amended, by any Person or group of Persons
for the purpose of opposing a solicitation by the Company with respect to the
election of directors of the Company.
"EVENT OF DEFAULT" shall have the meaning provided in Section 7.01.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and
(2)
<PAGE> 7
any corporation or other entity owned or controlled (through stock or capital
ownership or otherwise) by any of the foregoing.
"HOLDER," "SECURITYHOLDER" or "NOTEHOLDER" means the Person in whose
name a Security is registered on the Registrar's books.
"INDEBTEDNESS" means (a) any indebtedness, obligation or liability
(whether matured or unmatured, liquidated or unliquidated, direct or indirect,
absolute or contingent or joint or several) of any Person (i) for or in respect
of borrowed money, (ii) evidenced by a note, debenture or similar instrument
(including a purchase money obligation) given in connection with the acquisition
of any property or assets, including securities, (iii) for the payment of money
relating to any other transaction (including forward sale or purchase
agreements, Capitalized Lease Obligations (but not operating leases) and
conditional sales agreements) having the commercial effect of a borrowing of
money entered into by such Person to finance its operations or capital
requirements; or (iv) for the maximum fixed repurchase price of any equity
securities of such Person which by their terms or otherwise are required to be
redeemed prior to the maturity of the Securities or at the option of the holder
thereof; (b) any liability of others described in the preceding clause (a) which
the Person has guaranteed or for which it is otherwise legally liable; and (c)
any deferral, renewal, refinancing, extension or refunding of, or amendment,
modification or supplement to, any liability of the types referred to in clauses
(a) and (b) above, but shall not include indebtedness or amounts owed (except to
banks or other financing institutions) for compensation to employees, or for
goods or materials purchased, or services utilized, in the ordinary course of
business of the Person. For purposes hereof, the "maximum fixed repurchase
price" of any equity securities, which price is based upon, or measured by, the
fair market value of such equity securities, means, as of any date, the fair
market value thereof as determined in good faith by the Board of Directors.
"INDENTURE" means this Indenture as amended or supplemented from time
to time as provided for herein.
"MATURITY DATE" means January 1, 2006.
"NASDAQ" means the National Association of Securities Dealers
Automated Quotation System.
"NET INCOME" of any Person for any period means the net income (loss)
of such Person for such period determined in accordance with generally accepted
accounting principles.
"OFFICER" means the Chairman or Vice Chairman of the Board of
Directors, the President, any Vice President, the Chief Financial Officer, the
Treasurer, the Secretary or the Controller of the Company.
(3)
<PAGE> 8
"OFFICER'S CERTIFICATE" means a certificate signed by the Chairman or
Vice Chairman of the Board of Directors, the President or any Vice President and
by any other Officer or an Assistant Treasurer or Assistant Secretary of the
Company.
"OPINION OF COUNSEL" means a written opinion from legal counsel, who
may be an employee of or counsel to the Company or the Trustee and who is
reasonably acceptable to the Trustee.
"PAYING AGENT" means an office or agency where Securities may be
presented for payment, except that for purposes of Article Nine the Paying Agent
shall not be the Company or a Subsidiary. The term includes any additional
paying agent.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or any Governmental Authority.
"QUOTED PRICE" of the Common Stock means (i) if the Common Stock is
listed on a securities exchange, the last reported closing sales price of the
Common Stock on such exchange which shall be for consolidated trading if
applicable to such exchange, (ii) if the Common Stock is quoted on the NASDAQ
National Market System, the last reported closing sales price of the Common
Stock on such system, or (iii) if the Common Stock is not listed on a securities
exchange or quoted on the NASDAQ National Market System, the last reported
closing bid price of the Common Stock.
"REDEMPTION DATE," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture and the Securities.
"REDEMPTION PRICE," when used with respect to any Security to be
redeemed, means the price fixed for such redemption by or pursuant to this
Indenture and the Securities.
"REGISTRAR" means an office or agency where Securities may be presented
for registration of transfer or for exchange. The term includes any
co-registrar.
"SEC" means the Securities and Exchange Commission.
"SECURITY" or "SECURITIES" means the Company's _____% Convertible
Subordinated Notes Due 2006, or any of them, as amended or supplemented from
time to time, that are issued pursuant to this Indenture and which shall be
substantially in the form of Exhibit A annexed hereto and constituting a part
hereof for all purposes.
"SENIOR DEBT" means all principal of and interest on, and any other
payment due pursuant to the terms of instruments or agreements creating or
evidencing Indebtedness of the Company (other than the Securities), whether
(4)
<PAGE> 9
outstanding on the date of this Indenture or thereafter created, incurred,
assumed or guaranteed by the Company for money borrowed from others or in
connection with the acquisition by it or any Subsidiary of any other business or
entity or of any properties or assets, and, in each case, all renewals,
extensions, refinancings or refundings thereof, unless the terms of the
instrument or agreement creating or evidencing such Indebtedness expressly
provide that such Indebtedness is not superior in right of payment to the
payment of principal and interest on the Securities. Notwithstanding the
foregoing, Senior Debt shall not include (i) any Indebtedness or liability for
compensation to employees, or for goods or materials purchased in the ordinary
course of business or for services, and (ii) any Indebtedness of the Company to
a Subsidiary for money borrowed or advanced from such Subsidiary.
"SUBSIDIARY" means (i) a corporation in which the Company owns,
directly or indirectly, a majority of the Capital Stock with voting power, under
ordinary circumstances, to elect directors, (ii) a corporation in which a
Subsidiary of the Company owns, directly or indirectly, a majority of the
Capital Stock with voting power, under ordinary circumstances, to elect
directors, or (iii) a corporation in which the Company and a Subsidiary, or two
or more Subsidiaries, owns directly or indirectly, a majority of the Capital
Stock with voting power, under ordinary circumstances, to elect directors, or
(iv) any other Person (other than a corporation) in which the Company, a
Subsidiary of the Company, or the Company and a Subsidiary, directly or
indirectly, own at the date of determination thereof, at least a majority of the
ownership interests.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sections 77aaa-
77bbbb), as in effect on the date of this Indenture.
"TRUSTEE" means the party named as such in this Indenture, until a
successor replaces it in accordance with the provisions of this Indenture, and
thereafter means the successor.
"TRUST OFFICER" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"U.S. GOVERNMENT OBLIGATIONS" means direct non-callable obligations of,
or noncallable obligations guaranteed by, the United States of America or any
Person or agency controlled or supervised by or acting as an instrumentality of
the United States of America pursuant to authority granted by the Congress of
the United States of America for the payment of which guarantee or obligation
the full faith and credit of the United States of America.
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA such provision is
incorporated by reference in and made a part of this Indenture, as if this
Indenture were governed by the same. The following TIA terms used in this
Indenture have the following meanings:
(5)
<PAGE> 10
(i) "Commission" means the SEC;
(ii) "indenture securities" means the Securities;
(iii) "indenture security holder" means a Holder,
Securityholder or Noteholder;
(iv) "indenture to be qualified" means this Indenture;
(v) "indenture trustee" or "institutional trustee" mean
the Trustee; and
(vi) "obligor" on the indenture securities means the
Company or any other obligor on the Securities.
All other terms used in this Indenture that are defined by the TIA or defined by
reference in the TIA to another statute or defined by SEC rule, and not
otherwise defined herein, shall have the meanings assigned to them in the TIA
such other statute, as if the Indenture were governed by the same, or SEC rule.
SECTION 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a capitalized term has the meaning assigned to it
in this Article or in the Section in which it is first used;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles in effect on the date hereof and any other reference in this
Indenture to "generally accepted accounting principles" refers to
generally accepted accounting principles on the date hereof;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural and words
in the plural include the singular;
(v) "herein," "hereof," "hereto" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision; and
(vi) any term connoting gender shall be deemed to
include the neuter, masculine and feminine gender.
(6)
<PAGE> 11
ARTICLE TWO
THE SECURITIES
SECTION 2.01. FORM AND DATING. The Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A
annexed hereto. The Securities may have notations, legends or endorsements
required by law, securities exchange rule or usage. The Company shall approve
the form of the Security and any notation, legend or endorsement thereon. Each
Security shall be dated the date of its authentication. The terms and provisions
contained in the Securities shall constitute, and are hereby expressly made, a
part of this Indenture.
SECTION 2.02. EXECUTION AND AUTHENTICATION. (a) Two Officers shall
sign the Securities for the Company by manual or facsimile signature.
The Company's corporate seal, if required, shall be impressed, affixed,
imprinted or reproduced on the Securities and may be in facsimile form.
(b) If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
(c) A Security shall not be valid until the Trustee manually signs the
certificate of authentication on the Security. The signature of the Trustee
shall be conclusive evidence that the Security has been authenticated under this
Indenture.
(d) The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to $4,000,000 upon a Company Order. Such
Company Order, and any subsequent Company Order made with respect to the
Securities from time to time, shall specify the amount of Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed $4,000,000, except as provided in Sections 2.07.
(e) The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
(f) The Securities shall be issuable only in registered form without
coupons and only in denominations of $100 and any integral multiple thereof.
SECTION 2.03. REGISTRAR, PAYING AGENT AND CONVERSION AGENT. The Company
shall continuously employ a Registrar and a Conversion Agent. The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars, one or more additional paying agents
and one or more additional conversion agents. Except for purposes of Article
Nine, the Company or any Subsidiary may act as Paying Agent.
(7)
<PAGE> 12
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any such Agent. If the Company fails to
maintain a Registrar, Paying Agent or Conversion Agent or fails to give the
foregoing notice, the Trustee shall act as such.
The Company initially appoints the Trustee as Registrar, Paying Agent
and Conversion Agent.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. On or prior to the
due date of the principal of and interest on any Securities, the Company shall
deposit with the Paying Agent cash or cleared funds in a sum sufficient to pay
such principal and interest so becoming due. The Paying Agent shall hold in
trust for the benefit of Securityholders or the Trustee all money held by the
Paying Agent for the payment of principal of and interest on the Securities and
shall promptly notify the Trustee of any default by the Company in making any
such payment. If the Company or an Affiliate acts as Paying Agent, it shall
segregate the money and hold it as a separate trust fund. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
account for any funds disbursed. The Trustee may at any time during the
continuance of any payment default, upon written request to a Paying Agent,
require such Paying Agent to pay all money held by it to the Trustee and to
account for any funds disbursed. Upon doing so, the Paying Agent (if other than
the Company) shall have no further liability for the money.
SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee on or before each
semi-annual interest payment date, and at such times as the Trustee may request
in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Securityholders.
SECTION 2.06. TRANSFER AND EXCHANGE. (a) When Securities are presented
to the Registrar with a request to register the transfer of such Securities or
to exchange such Securities for an equal principal amount of Securities of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested; provided that such Securities presented or surrendered
for registration of transfer or exchange shall be duly endorsed or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by the Holder thereof or his attorney
duly authorized in writing; provided further that the Registrar need not
register the transfer of or exchange any Securities selected for redemption or
register the transfer of or exchange any Securities for a period of 15 days
before a selection of Securities to be redeemed. To permit registrations of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Securities at the Registrar's request. The Company may charge a
reasonable fee for any transfer or exchange,
(8)
<PAGE> 13
and may require payment of a sum sufficient to cover any transfer tax or other
governmental charge that may be imposed in connection therewith (other than any
such transfer taxes or similar governmental charge payable upon exchanges
pursuant to Sections 2.10, 3.06 or 10.02).
(b) All Securities presented or surrendered for exchange, registration
of transfer, redemption or payment shall, if so required by the Trustee or the
Company, be accompanied by a written instrument or instruments of transfer and
other required documentation satisfactory in form to the Company and the
Trustee, duly executed by the registered owner or by his attorney duly
authorized in writing.
SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is
surrendered to the Trustee, or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, and neither the Company
nor the Trustee has received notice that such Security has been acquired by a
bona fide purchaser, the Company shall issue and the Trustee, at the Company's
request, shall authenticate a replacement Security if the Trustee's requirements
are met. If required by the Trustee or the Company, the applicant for a
replacement Security must provide (a) an indemnity bond which must be sufficient
in the judgment of both the Trustee and the Company to protect the Company, the
Trustee or any Agent from any loss which any of them may suffer if a Security is
replaced and (b) evidence to the satisfaction of the Company and the Trustee of
the loss, destruction or theft of such Security and the ownership thereof. The
Company may charge such Holder for its expenses in replacing a Security.
SECTION 2.08. OUTSTANDING SECURITIES. (a) The Securities outstanding at
any time are all Securities that have been authenticated by the Trustee, except
for those cancelled by it, those delivered to it for cancellation and those
described in this Section 2.08 as not outstanding. Subject to Section 2.09, a
Security does not cease to be outstanding because the Company or one of its
Affiliates holds the Security.
(b) If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding, until the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
(c) If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on a Redemption Date or the Maturity Date money sufficient to pay
principal of and accrued interest on Securities payable on that date, then on
and after that date such Securities cease to be outstanding and interest on them
ceases to accrue.
SECTION 2.09. TREASURY SECURITIES. In determining whether the Holders
of the required principal amount of Securities have concurred in any notice,
direction, waiver or consent, Securities owned by the Company or any of its
Affiliates shall be disregarded, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such notice, direction,
waiver or consent, only
(9)
<PAGE> 14
Securities which the Trustee knows are so owned shall be so disregarded.
Securities so owned which have been pledged in good faith shall not be
disregarded if the pledgee establishes to the satisfaction of the Trustee that
the pledgee has the right so to act with respect to the Securities and that the
pledgee is not the Company or any of its Affiliates.
SECTION 2.10. TEMPORARY SECURITIES. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and, upon receiving an appropriate Company Order, the Trustee
shall authenticate definitive Securities in exchange for temporary Securities.
SECTION 2.11. CANCELLATION. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar, Paying Agent and
Conversion Agent shall forward to the Trustee any Securities surrendered to them
for transfer, exchange, payment or conversion. The Trustee and no one else shall
cancel all Securities surrendered for transfer, exchange, payment, conversion or
cancellation and shall destroy canceled Securities and shall deliver a
certificate of such destruction to the Company. Subject to Section 2.07, the
Company may not issue new Securities to replace Securities it has paid or
delivered to the Trustee for cancellation or that any Securityholder has
converted pursuant to Article Ten.
ARTICLE THREE
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE AND PAYING AGENT. (a) If the Company
elects to redeem Securities pursuant to Section 5 of the Securities, it shall
notify the Trustee and the Paying Agent in writing of the Redemption Date and
the principal amount of Securities to be redeemed.
(b) The Company shall give the notice provided for in subsection
3.01(a) at least 45 days before the Redemption Date (unless a shorter notice is
satisfactory to the Trustee).
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If less than all
of the Securities are to be redeemed, the Trustee shall select the Securities to
be redeemed pro rata or by lot or in such other manner as the Trustee shall deem
fair to the Securityholders. The Trustee shall make the selection from the
Securities outstanding and not previously called for redemption. Securities in
denominations of $100 may be redeemed only in whole. The Trustee may select for
redemption portions (equal to $100 or any integral multiple thereof) of the
principal of securities that have denominations larger than $100. The Trustee
shall promptly notify the Company in writing of such Securities selected for
redemption and, in the case of any Security selected for partial redemption, the
principal amount to
(10)
<PAGE> 15
be redeemed. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION. (a) At least 30 days before a
Redemption Date, the Company shall mail or cause the mailing of a notice of
redemption by first class mail to each Holder whose Securities are to be
redeemed.
(b) The notice shall identify the Securities to be redeemed and shall
state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the Conversion Price;
(iv) the amount of interest accrued on the Securities
called for redemption up to but not including the Redemption Date and
that interest on such Securities ceases to accrue on and after the
Redemption Date;
(v) the name and address of the Paying Agent and the
Conversion Agent;
(vi) that Securities called for redemption may be
converted at any time before the close of business on the day prior
to the Redemption Date;
(vii) that Holders who want to convert Securities must
satisfy the requirements in Section 7 of the Securities;
(viii) that Securities called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price;
(ix) if any Security is being redeemed in part, the
portion of the principal amount of such Security to be redeemed and
that, after the Redemption Date, upon surrender of such Security, a
new Security or Securities in aggregate principal amount equal to the
unredeemed portion thereof will be issued without charge to the
Securityholder;
(x) if the Security is being redeemed based upon the
relation of the Quoted Price to the conversion price then in effect
for the Common Stock, the amount of the Quoted Price and the beginning
and end of the 30 trading days when the Quoted Price was determined.
(c) At the Company's request, and after receiving a Company Request,
the Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. Any such notice, if given in accordance with this Indenture,
shall be deemed properly given, regardless of whether it is actually received.
(11)
<PAGE> 16
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption
is mailed, Securities called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender to the Paying Agent,
Securities called for redemption shall be paid at the Redemption Price plus
accrued interest to the Redemption Date. Interest on Securities called for
redemption ceases to accrue on and after the Redemption Date unless the Company
fails to pay the Redemption Price.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. On or before the Redemption
Date, the Company shall deposit with the Paying Agent (or if the Company is its
own Paying Agent, shall segregate and hold in trust) cash or cleared funds in an
amount sufficient to pay the Redemption Price of all Securities or portions
thereof to be redeemed on that date other than Securities or portions thereof
called for redemption on that date which have been delivered by the Company to
the Trustee for cancellation. The Paying Agent shall return to the Company any
money previously deposited but no longer required for that purpose because of
conversion of Securities.
SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a Security
that is redeemed in part, the Company shall execute, and the Trustee shall
authenticate for the Holder, a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
ARTICLE FOUR
SUBORDINATION
SECTION 4.01. SECURITIES SUBORDINATED TO SENIOR DEBT. (a) The Company
agrees, and each Holder of the Securities by his acceptance thereof likewise
agrees, that the payment (i) of the principal and interest on, and any other
amount due in respect of, the Securities, (ii) to acquire any of the Securities
or (iii) on account of the mandatory redemption provisions set forth in Section
5 of the Securities (except mandatory redemption payments made for Securities
acquired by the Company before the maturity of the Senior Debt), is
subordinated, to the extent and in the manner provided in this Article Four, to
the prior payment in full of all Senior Debt financing arrangements between the
Company and the holders of Senior Debt. The Indebtedness evidenced by this
Indenture and the Securities shall at no time be secured by any rights, liens,
or security interests in any assets of the Company. In the event that any such
Indebtedness shall become so secured, all such rights, liens and security
interests shall be subordinated to the rights, liens and security interests of
the holders of the Senior Debt.
(b) This Article Four shall constitute a continuing offer to all
persons who, in reliance upon such provisions, become holders of, or continue to
hold, Senior Debt, and such provisions are made for the benefit of the holders
of Senior Debt, and such holders are made obligees hereunder and any one or more
of them may enforce such provision.
(12)
<PAGE> 17
SECTION 4.02. MATURITY OF SENIOR DEBT. Upon maturity of any Senior Debt
by lapse of time, acceleration or otherwise, then all principal of, premium, if
any, and interest on, and any other amount due pursuant to the terms of the
instruments or agreements creating or evidencing all such matured Senior Debt
shall first be paid in full before any payment on account of principal,
interest, mandatory redemption provisions or any other amount due is made upon a
Security.
SECTION 4.03. LIQUIDATION, ETC. In the event of any insolvency,
bankruptcy, liquidation, reorganization or other similar proceedings, or any
receivership proceedings in connection therewith, relative to the Company or its
creditors or its property, and in the event of any proceedings for voluntary
liquidation, dissolution, or other winding up of the Company, whether or not
involving insolvency or bankruptcy proceedings, then all principal, premium, if
any, and interest due on and any other amount due pursuant to the terms of the
instruments or agreements creating or evidencing Senior Debt shall first be paid
in full, or such payment shall have been provided for, before any payment on
account of principal or interest is made upon a Security. Except as may
otherwise be ordered by a court of competent jurisdiction, any payment or
distribution of any kind or character, whether in cash, property, stock, or
obligations, which may be payable or deliverable in respect of a Security in any
of the proceedings referred to in the first sentence of this Section 4.03 shall
be paid or delivered directly to the holders of Senior Debt for application in
payment thereof, unless and until all principal and interest on, and any other
amount due in respect of, Senior Debt shall have been paid in full, or such
payment shall have been provided for.
SECTION 4.04. SENIOR DEBT DEFAULT. The Company shall not make any, and
the Holders of the Securities shall not accept or receive, payment of principal
or interest on, or any amounts in respect of, or purchase or acquire for value
(and the Holders of the Securities shall not offer for sale or otherwise cause
the Company to purchase or acquire for value) (including, without limitation, on
account of the mandatory redemption provisions of the Securities) a Security if,
either immediately before or after any such payment received by a Holder of a
Security, an event of default as defined in any indenture or instrument
evidencing Senior Debt shall exist or any event which, with the passage of time
or the giving of notice or both, would constitute an event of default as defined
in any indenture or instrument evidencing Senior Debt shall exist. The Company
shall give prompt written notice to the Trustee of any default or of any event
which, with the passage of time or the giving of notice or both, would
constitute an event of default, under any Senior Debt or under any agreement
pursuant to which Senior Debt may have been issued, but failure to give such
notice shall not affect the subordination of the Securities to the Senior Debt
provided in this Article Four. Except as specifically permitted herein, should
any payment or distribution be received by a Holder of a Security prior to the
payment in full of all Senior Debt and termination of all financing arrangements
between the Company and the holders of the Senior Debt, such Holder shall
receive and hold the same in trust for the benefit of the holders of the Senior
Debt.
(13)
<PAGE> 18
SECTION 4.05. COMPANY'S OBLIGATIONS UNIMPAIRED. The provisions of this
Article Four are for the purpose of defining the relative rights of the holders
of Senior Debt, on the one hand, and the Holders of the Securities on the other
hand, and, as between the Company and such Holders, nothing herein shall impair
the obligation of the Company, which is unconditional and absolute, to pay the
Holders the principal of and interest on the Securities in accordance with the
terms of the Securities, nor shall anything herein prevent the Holders of the
Securities from exercising all remedies otherwise permitted by applicable law
upon an Event of Default thereunder, subject to the rights, under this Article
Four, of holders of Senior Debt in respect of cash, property, stock or other
securities received upon the exercise of such remedies.
SECTION 4.06. SUBROGATION. Subject to the payment in full of all Senior
Debt, the Holders of the Securities shall be subrogated to the rights of the
holders of Senior Debt to receive payments or distributions of assets of the
Company payable or distributable to the holders of Senior Debt until all of the
Securities shall be paid in full and, as between the Company, its creditors,
other than the holders of Senior Debt, and the Holders of the Securities, no
payments or distributions otherwise payable or deliverable in respect of the
Securities, but, by virtue of the provisions thereof, paid or delivered to the
holders of Senior Debt, shall be deemed to be a payment by the Company on
account of Senior Debt, and no payments or distributions paid to the Holders of
the Securities, by virtue of the subrogation herein provided for, shall be
deemed to be a payment by the Company on account of the Securities. The holders
of the Senior Debt shall be subrogated to the Holders of the Securities with
respect to their claims against the Company and their rights, liens and security
interests, if any, in any of the Company's assets and the proceeds thereof until
all Senior Debt shall have been paid and all financing arrangements between the
Company and the Holders of the Senior Debt have been terminated.
SECTION 4.07. SUBORDINATION UNIMPAIRED. No right of any present or
future holder of Senior Debt to enforce subordination as herein provided shall
at any time in any way be prejudiced or impaired by any act or failure to act on
the part of the Company or by any act or failure to act in good faith by any
such holder, or by any noncompliance by the Company with the terms, provisions,
and covenants of any agreement relating to Senior Debt, regardless of any
knowledge thereof any such holder may have or be otherwise charged with. Each
holder of a Security authorizes each holder of Senior Debt to (i) change any
terms relating to the Senior Debt or any agreement relating thereto, (ii) make
new loans or extend further credit to the Company, grant renewals, increases or
extensions for time of payment of the Senior Debt, (iii) take or omit to take
any action for the enforcement of, or waive any rights with respect to, any
Senior Debt, and (iv) enter into such agreements as the holders of the Senior
Debt may deem proper affecting any collateral for the Senior Debt, or exchange,
sell, release, surrender or otherwise deal with such collateral, in each such
case without invalidity or impairing the subordination provided for herein.
(14)
<PAGE> 19
ARTICLE FIVE
COVENANTS
SECTION 5.01. PAYMENT OF SECURITIES. Subject to the terms of Article
Four hereof, the Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities and this
Indenture. No installments of principal or interest are payable until the
Maturity Date. Such principal amount or interest due shall be considered paid
on the date due if the Trustee or Paying Agent (other than the Company or its
Affiliates) holds on that date cash or cleared funds designated for and
sufficient to pay such installment. The Company shall pay interest on overdue
principal at a rate per annum equal to the rate set forth in the title of the
Securities; it shall pay interest on overdue interest at the same rate of
interest to the extent lawful.
SECTION 5.02. LIMITATION ON INDEBTEDNESS FOR BORROWED MONEY. The
Company will not, and will not permit any Subsidiary to, incur any indebtedness
for borrowed money that would rank senior to the Securities, except (i) any such
indebtedness existing on the date hereof or under the Company's existing
revolving credit facility; (ii) any renewals, refinancings, extensions or
refundings under any indebtedness referred to in clause (i) above; (iii) any
indebtedness secured by purchase money security interests; (iv) any other senior
bank or other institutional indebtedness; (v) any indebtedness of a Subsidiary
to another Subsidiary; (vi) any indebtedness of any other entity existing at the
time such entity merged with or into or became a Subsidiary of the Company or of
a Subsidiary, including indebtedness incurred in connection with, or in
contemplation of, such other entity merging with or into or becoming a
Subsidiary of the Company or of a Subsidiary or assumed by the Company or a
Subsidiary in connection with its acquisition of the assets owned by such other
entity, (vii) any indebtedness incurred in connection with a merger with or
into, or the acquisition of the stock or assets of, a Person and (viii) any
indebtedness to holders of the Securities.
SECTION 5.03. REPORTS BY THE COMPANY. (a) The Company shall file with
the Trustee within 15 days after filing with the SEC copies of the annual
reports and the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and such
additional information, documents and reports with respect to compliance by the
Company with the conditions and covenants set forth in this Indenture as the SEC
may by rules and regulations prescribe.
(b) So long as any Security is outstanding, the Company shall cause its
annual report to stockholders and any quarterly or other financial reports
furnished by it to stockholders to be mailed to the Holders at their addresses
appearing in the register of Securities maintained by the Registrar.
(15)
<PAGE> 20
(c) The Company shall promptly furnish such additional information
concerning the Company as may be reasonably requested and deemed necessary by
the Trustee in the conduct of its duties hereunder; provided, however, that the
Company shall have no such obligation with respect to information constituting
restricted information under any law or governmental regulation at the time
applicable thereto.
SECTION 5.04. CORPORATE EXISTENCE. Subject to Article Six, the
Company shall not liquidate or discontinue its normal operations with
intention to liquidate.
SECTION 5.05. NOTICE OF DEFAULT. (a) In the event that the Company or
any of its Subsidiaries receive written notice from any holder of Indebtedness
that the full amount of such Indebtedness has been declared due and payable
before its maturity because of an acceleration of such Indebtedness or the
occurrence of any default under such Indebtedness, the Company shall promptly
give written notice to the Trustee of such declaration.
(b) The Company shall deliver to the Trustee within 120 days after the
end of each fiscal year an Officer's Certificate stating whether or not there
has been any Default or Event of Default by the Company that occurred during
such fiscal year. If there has been a Default or Event of Default, the
certificate shall describe the Default or Event of Default and its status. The
first certificate to be delivered by the Company pursuant to this Section 5.05
shall be for the first fiscal year beginning after the date of the Indenture.
SECTION 5.06. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law or any usury law or other law that
would prohibit or forgive the Company from paying all of any portion of the
principal or interest on overdue principal, if any, of the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
ARTICLE SIX
SUCCESSORS
SECTION 6.01. WHEN COMPANY MAY MERGE, ETC. (a) The Company shall
not consolidate with or merge into any other corporation or transfer all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to any Person, unless:
(16)
<PAGE> 21
(i) either the Company shall be the continuing Person, or the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged, or the Person to which the properties and
assets of the Company as an entirety or substantially as an entirety
are transferred, shall be a Person organized and existing under the
laws of the United States of America, any State thereof or the District
of Columbia and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form reasonably
satisfactory to the Trustee and in compliance with Article Eleven, all
the obligations of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and
(iii) immediately after giving effect to such transaction the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged or to which the properties and assets of
the Company as an entirety or substantially as an entirety are
transferred shall have a positive Consolidated Net Worth equal to not
less than the Consolidated Net Worth of the Company immediately
preceding such transaction.
(b) The Company shall deliver to the Trustee, and the Trustee shall be
fully protected in relying upon, an Officer's Certificate and an Opinion of
Counsel, each to the effect that such consolidation, merger or transfer and the
entering into any such supplemental indenture comply with this Indenture and
that all conditions precedent herein provided for relating to such transaction
have been complied with.
SECTION 6.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation
or merger, or any transfer of all or substantially all of the assets of the
Company in accordance with Section 6.01, the successor corporation formed by
such consolidation or into which the Company is merged or the Person to which
such transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor corporation had been named as the Company herein. When such
a successor assumes all obligations of its predecessor under this Indenture and
the Securities, the predecessor shall be released from such obligations.
ARTICLE SEVEN
DEFAULT AND REMEDIES
SECTION 7.01. EVENTS OF DEFAULT. (a) Each of the following shall
constitute an "Event of Default":
(i) the Company defaults in the payment of the principal of and
interest on any Security when the same becomes due and payable at
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maturity, upon redemption or otherwise, and the default continues for a
period of 10 days;
(ii) the Company fails to observe or perform any of its other
covenants contained in the Securities or this Indenture, or any
material representation of the Company in the Securities or this
Indenture shall prove to be untrue in any material respect on the date
made, and, in any case, such default continues for the period and after
the notice specified below;
(iii) there shall be a default under any Indebtedness of the
Company or any Subsidiary, whether such Indebtedness now exists or
shall hereafter be created, which default shall have resulted in such
Indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable or at
maturity, without such acceleration having been rescinded or annulled
or such Indebtedness having been discharged; provided, however, that no
default under this clause (a)(iii) shall exist if all such defaults
taken as a whole relate to Indebtedness with an aggregate principal
amount of less than $1,000,000;
(iv) the Company pursuant to or within the meaning of any
Bankruptcy Law (i) commences a voluntary case or proceeding, (ii)
consents to the entry of an order for relief against it in an
involuntary case or proceeding, (iii) consents to the appointment of a
Custodian of it or for all or substantially all of its property or (iv)
makes a general assignment for the benefit of its creditors;
(v) a court of competent jurisdiction enters a decree or order
under any Bankruptcy law that (i) is for relief against the Company in
an involuntary case or proceeding, (ii) appoints a Custodian of the
Company or for all or substantially all of its property or (iii) orders
the liquidation of the Company; and in each case the decree or order
remains unstayed and in effect for a period of 45 days;
(b) A Default under clause (a)(ii) is not an Event of Default until the
Trustee, with actual knowledge or after receipt of written notice of a Default,
notifies the Company or until the Holders of at least 25% in principal amount of
the Securities then outstanding notify the Company and the Trustee of the
Default, and the Company does not cure the Default within 30 days after receipt
of the notice. The notice called for by this subsection (b) must specify the
Default, demand that it be remedied and state that such notice is a "Notice of
Default."
(c) When a Default is cured, it will be deemed never to have existed.
SECTION 7.02. ACCELERATION. If an Event of Default (other than an Event
of Default specified in clause 7.01(a)(iv) or 7.01(a)(v)) occurs and is
continuing, the Trustee by written notice to the Company, or the Holders of at
least 25% in principal amount of the Securities then outstanding by written
notice to the
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Company and the Trustee, may declare the principal of and accrued interest on
the Securities then outstanding to be due and payable. Upon such declaration,
the principal and interest shall become due and payable immediately (but payment
thereof shall be subject to the terms of Article Four hereof). If an Event of
Default specified in clause 7.01(a)(iv) or 7.01(a)(v) occurs, all unpaid
principal of and accrued interest on the Securities then outstanding shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Securityholder (but payment thereof shall
be subject to the terms of Article Four hereof). Upon payment of such
principal and interest, all of the Company's obligations under such Securities
and this Indenture, other than its obligations under Section 8.07, shall
terminate. The Holders of a majority in principal amount of the Securities then
outstanding by written notice to the Trustee may rescind an acceleration with
respect to such Security and its consequences if (a) all existing Events of
Default, other than the nonpayment of the principal of such Securities which
has become due solely by such declaration of acceleration, have been cured or
waived, (b) to the extent the payment of such interest is lawful, interest on
overdue principal and interest, which has become due otherwise than by such
declaration of acceleration, has been paid, (c) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction, and
(d) all payments due to the Trustee and any predecessor Trustee under Section
8.07 have been made. Anything herein contained to the contrary notwithstanding,
in the event of any acceleration pursuant to this Section 7.02, the Company
shall not be obligated to pay any premium which it would have had to pay if it
had then elected to redeem the Securities pursuant to the terms of the
Securities.
SECTION 7.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of or interest on the Securities
or to enforce the performance of any provision of the Securities or this
Indenture. The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 7.04. WAIVER OF PAST DEFAULTS. Subject to Sections 7.07 and
11.02, the Holders of a majority in principal amount of the outstanding
Securities by written notice to the Trustee may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of or interest on any Security. When a Default or Event of Default is
waived, it is cured and ceases.
SECTION 7.05. CONTROL BY MAJORITY. The Holders of a majority in
principal amount of the outstanding Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising
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any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with any law or this Indenture that the Trustee
determines may be unduly prejudicial to the rights of another Securityholder or
that may involve the Trustee in personal liability; provided, that the Trustee
may take any other action deemed proper by the Trustee which is not inconsistent
with such direction.
SECTION 7.06. LIMITATION ON SUITS. Notwithstanding anything to the
contrary set forth herein, neither a Securityholder nor the Trustee may pursue
any remedy with respect to this Indenture or the Securities unless:
(i) the Holder gives to the Trustee and the Company's senior bank
and/or other institutional lender written notice of a continuing Event
of Default;
(ii) the Holders of at least 25% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue
the remedy and a copy thereof is forwarded to the Company's senior
bank and/or other institutional lender;
(iii) such Holder or Holders offer to the Trustee indemnity and
security therefor satisfactory to the Trustee against any loss,
liability or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of satisfactory indemnity
and security therefor; and
(v) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee
a direction which, in the opinion of the Trustee, is inconsistent with
the request.
Neither a Securityholder nor the Trustee may use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over such
other Securityholder.
This Section 7.06 shall constitute a continuing offer to all persons who, in
reliance on such section, become holders of, or continue to hold, Senior Debt,
and this section is made for the benefit of the holders of Senior Debt, and such
holders are made obligees hereunder and any one or more of them may enforce this
section.
SECTION 7.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Subject to Article
Four, notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest on a Security on or after
the respective due dates expressed in the Security, or to bring suit for the
enforcement of any such payment on or after such date, shall not be impaired or
affected
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without the consent of such Holder. Notwithstanding any other provision of this
Indenture, the right of any Holder of a Security to bring suit for the
enforcement of the right to convert the Security shall not be impaired or
affected without the consent of the Holder.
SECTION 7.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default in
payment of interest or principal specified in clause 7.01(a)(i) occurs and is
continuing, subject to the terms of Article 4 hereof and Section 7.06 above, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or any other obligor on the Securities for the whole amount
of unpaid principal and accrued interest remaining unpaid, together with
interest on overdue principal and, to the extent permitted by law, interest on
overdue interest, in each case at a rate per annum equal to the rate set forth
in the title of the Securities, and such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel and any other amounts due the Trustee pursuant to Section 8.07.
SECTION 7.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and the Securityholders allowed in any judicial
proceedings relative to the Company (or any other obligor upon the Securities),
its creditors or its property, and subject to the terms of Article 4 hereof and
Section 7.06 above, shall be entitled and empowered to collect and receive any
monies or other property payable or deliverable on any such claims and to
distribute the same, and any Custodian in any such judicial proceedings is
hereby authorized by each Securityholder to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 8.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 7.10. PRIORITIES. If the Trustee collects any money pursuant
to this Article Seven, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 8.07;
Second: to holders of Senior Debt, to the extent required by
Article Four;
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Third: to Holders for amounts due and unpaid on the Securities
for principal and interest or interest on overdue principal, if any,
and, to the extent permitted by law, interest on overdue interest, if
any, ratably, without preference or priority of any kind, according to
the amounts due and payable on the Securities for principal and
interest, respectively; and
Fourth: to the Company.
The Trustee, upon prior written notice to the Company, may fix a record date and
payment date for any payment to Securityholders pursuant to this Section 7.10.
SECTION 7.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking including
security therefor to pay the costs of the suit, and the court in its discretion
may assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This Section 7.11 does not
apply to a suit by the Trustee, a suit by a Holder pursuant to Section 7.07 or a
suit by Holders of more than 10% in principal amount of the outstanding
Securities.
ARTICLE EIGHT
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
SECTION 8.01. DUTIES OF TRUSTEE. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no others; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; however, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
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(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this subsection (c) does not limit the effect of subsection
(b) of this Section 8.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 7.05.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to subsections (a), (b), (c) and (d) of this Section 8.01
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree with the Company in a writing separate
from this Indenture. Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
SECTION 8.02. RIGHTS OF TRUSTEE. Subject to Section 8.01:
(i) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the
document.
(ii) Before the Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel, which shall
conform to Section 12.04. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(iii) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(iv) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or
within its rights or powers.
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(v) The Trustee may consult with counsel and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
(vi) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Securityholders, pursuant to the
provisions of this Indenture, unless such Securityholders shall have
offered, to the satisfaction of the Trustee, security against the
costs, expenses and liabilities which might be incurred by the Trustee
thereby.
SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Agent may do the same with like
rights. However, the Trustee must comply with Sections 8.10 and 8.11.
SECTION 8.04. DISCLAIMERS. The Trustee makes no representation as to
the validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities or for the
use or application of any money or assets by any Paying Agent (other than the
Trustee) and it shall not be responsible for any statement in the Securities
other than its certificate of authentication.
SECTION 8.05. NOTICE OF DEFAULTS. If a Default or an Event of Default
occurs and is continuing and if it is known to the Trustee, the Trustee shall
mail to each Securityholder notice of the Default or Event of Default within 90
days after it occurs or becomes known to the Trustee, whichever is later;
provided, however, that except in the case of a Default or an Event of Default
in payment of principal or interest on any Security, the Trustee may withhold
the notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of the
Securityholders.
SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each
May 15 beginning with May 15, 1997, the Trustee shall mail to each
Securityholder a brief report dated as of such May 15 that complies with Section
313(a) of the TIA, as if this Indenture were governed by the same. The Trustee
also shall comply with Section 313(b) and (c) of the TIA, as if this Indenture
were governed by the same. A copy of each such report at the time of its mailing
to Securityholders shall be mailed to the Company and filed with the SEC and
each securities exchange, if any, on which the Securities are listed. The
Company shall notify the Trustee if the Securities become listed on any
securities exchange.
SECTION 8.07. COMPENSATION AND INDEMNITY. (a) The Company shall pay
to the Trustee from time to time reasonable compensation for its services. The
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Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable disbursements, expenses and advances incurred or made
by it. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
(b) The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability incurred by it in connection with the
administration of this Indenture and its duties hereunder, including the
reasonable expenses of defending itself against any claim of liability
hereunder. The Trustee shall notify the Company promptly of any claim asserted
against the Trustee for which it may seek indemnity. The Company need not
reimburse any expense or indemnify against any loss or liability incurred by the
Trustee through negligence or bad faith on its part.
(c) To secure the Company's payment obligations in this Section 8.07,
the Trustee shall have a senior lien to which the Securities are hereby made
subordinate on all money or property held or collected by the Trustee, in its
capacity as Trustee, except money or property held in trust to pay principal of
and interest on particular Securities.
(d) When the Trustee incurs expenses or renders services after an Event
of Default specified in clause 7.01(a)(iv) or 7.01(a)(v) occurs, the expenses
and the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 8.08. REPLACEMENT OF TRUSTEE. (a) The Trustee may resign by so
notifying the Company in writing. The Holders of a majority in principal amount
of the outstanding Securities may remove the Trustee by so notifying the Trustee
and the Company in writing and may appoint a successor Trustee with the
Company's written consent. The Company may remove the Trustee if:
(i) the Trustee fails to comply with Section 8.10;
(ii) the Trustee is adjudged a bankrupt or an insolvent;
(iii) a receiver or other public officer takes charge of the
Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
(b) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
(c) A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately thereafter,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor
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Trustee, subject to the lien provided in Section 8.07, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
(d) If a successor Trustee does not take office within 60 days after
the retiring or removed Trustee resigns or is removed, the retiring or removed
Trustee, the Company or the Holders of at least a majority in principal amount
of the outstanding Securities may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(e) If the Trustee fails to comply with Section 8.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
(f) Notwithstanding replacement of the Trustee pursuant to this Section
8.08, the Company's obligations under Section 8.07 shall continue for the
benefit of the retiring or removed Trustee.
SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation, the successor,
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee.
SECTION 8.10. ELIGIBILITY; DISQUALIFICATION. This Indenture shall
always have a Trustee who satisfies the requirements of Section 310(a)(1) of the
TIA, as if this Indenture were governed by the same. The Trustee shall have a
combined capital and surplus of at least $1,000,000, as set forth in its most
recent published annual report of condition. The Trustee shall comply with
Section 310(b) of the TIA, including the optional provision permitted by the
second sentence of Section 310(b)(9) of the TIA, as if this Indenture were
governed by the same; provided, however, that there shall be excluded from the
operation of Section 310(b)(1) of the TIA any indenture or indentures under
which other securities, or certificates of interest or participation in other
securities of the Company are outstanding, if the requirements for such
exclusion set forth in Section 310(b)(1) of the TIA are met.
SECTION 8.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 311(a) of the TIA, excluding any creditor
relationship listed in Section 311(b) of the TIA, as if this Indenture were
governed by the same. A Trustee who has resigned or been removed shall be
subject to Section 311(a) of the TIA to the extent indicated, as if this
Indenture were governed by the same.
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ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. TERMINATION OF THE COMPANY'S OBLIGATION. (a) The Company
may terminate its obligations under the Securities and this Indenture if all
such Securities previously authenticated and delivered (other than destroyed,
lost or wrongfully taken Securities which have been replaced or paid or
Securities for whose payment money or securities have theretofore been held in
trust and thereafter repaid to the Company, as provided in Section 9.03) have
been delivered to the Trustee for cancellation and the Company has paid all sums
payable by it hereunder, or if the Company has irrevocably deposited or caused
to be deposited with the Trustee or Paying Agent (if other than the Company),
under the terms of an irrevocable trust agreement in form and substance
reasonably satisfactory to the Trustee and any such Paying Agent, as trust funds
in trust solely for the benefit of the Holders for that purpose, money or U.S.
Government Obligations maturing as to principal and interest in such amounts and
at such times as are sufficient without consideration of any reinvestment of
such interest, to pay principal of and interest on the outstanding Securities to
maturity or redemption and all other sums payable hereunder by the Company, as
the case may be; provided, that the Trustee or such Paying Agent shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of said principal and interest and such
amounts with respect to the Securities. The Company shall also pay or cause to
be paid all other sums payable hereunder by the Company and shall deliver to the
Trustee an Officer's Certificate stating that all conditions precedent to the
satisfaction and discharge of this Indenture have been complied with and an
Opinion of Counsel to the same effect.
(b) Notwithstanding the foregoing subsection (a), the Company's and
Trustee's obligations under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 5.01, 8.07,
8.08, 9.03 and 9.04 and Article Ten shall survive until such Securities are no
longer outstanding. Thereafter, the Company's and the Trustee's obligations in
Sections 8.07, 9.03 and 9.04 shall survive.
(c) After any such delivery or irrevocable deposit, subject to Section
9.04, the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under the Securities and this Indenture except for those
surviving obligations specified above.
SECTION 9.02. APPLICATION OF TRUST MONEY. The Trustee or Paying Agent
shall hold in trust money or U.S. Government Obligations deposited with it
pursuant to Section 9.01. It shall apply the deposited money and the money from
U.S. Government Obligations in accordance with this Indenture to the payment of
principal and interest on the Securities. Money and U.S. Government Obligations
so held in trust are not subject to the subordination provisions of Article Four
if such money and U.S. Government Obligations were received in trust prior to
the occurrence of an event of default with respect to any Senior Debt.
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SECTION 9.03. REPAYMENT TO THE COMPANY. Subject to Section 9.01, the
Trustee and the Paying Agent shall promptly pay to the Company upon request any
excess money or U.S. Government Obligations held by them at any time. The
Trustee and the Paying Agent shall pay to the Company upon request any money
held by them for the payment of principal or interest that remains unclaimed for
two years after the date such payment shall have become due. After payment to
the Company, Securityholders entitled to money must look to the Company for
payment as general creditors unless an applicable abandoned property law
designates another Person, and the Trustee and the Paying Agent shall have no
responsibility to the Securityholders for such money.
SECTION 9.04. REINSTATEMENT. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
9.01 by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the Company's obligations under this Indenture and
the Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 9.01 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 9.01; provided, however, that if the Company has made any payment
of principal of or interest on any Securities because of the reinstatement of
its obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE TEN
CONVERSION
SECTION 10.01. RIGHT OF CONVERSION; CONVERSION PRICE. The Holder of a
Security may convert the principal amount of the Security in whole, and accrued
interest thereon, or, if less than the whole principal amount, any portion
thereof that is in an integral multiple of $100 and accrued interest on such
portion, into Common Stock at the Conversion Price: (i) at any time after
December 31, 2001 and before the close of business on the Maturity Date, and
(ii) in the event of an Election Contest. In addition, if a Security is called
for redemption, the Holder may convert it at any time before the close of
business on the last Business Day prior to the Redemption Date.
SECTION 10.02. PROCEDURES FOR CONVERSION. (a) To convert a Security, a
Holder must (i) complete and sign the conversion notice attached to a Security,
(ii) surrender a Security to the Company or its Conversion Agent, (iii) furnish
required endorsements and transfer documents and (iv) pay any transfer tax or
similar tax if required. A Holder may convert a portion of a Security only if
the portion is $100 or an integral multiple of $100.
(b) As promptly as practicable after the surrender of a Security for
conversion, the Company shall deliver, to or upon the written order of the
Holder,
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certificates representing the number of fully paid and nonassessable shares of
Common Stock into which the Security may be converted in accordance with the
provisions of the Security and this Indenture. Such conversion shall be deemed
to have been made at the close of business on the date that a Security shall
have been surrendered for conversion with a written notice of conversion duly
executed in satisfactory form for conversion. At such time, the rights of the
Holder of a Security as such a Holder shall cease, and, subject to the
provisions of subsection (c) below, the person or persons entitled to receive
the shares of Common Stock upon conversion of a Security shall be treated for
all purposes as having become the record holder or holders of such shares of
Common Stock at such time. Any such conversion shall be at the Conversion Price
in effect at such time. Interest on the Security surrendered for conversion
will accrue through the date that such Security has been duly surrendered for
conversion and will be converted into Common Stock at the Conversion Price with
the principal amount of the Security being surrendered.
(c) Notwithstanding the above, if the stock transfer books of the
Company shall be closed on the date of such surrender described in subsection
(b) above, such surrender shall be effective at the close of business on the
next succeeding day on which such stock transfer books are open. As of the
close of business on such succeeding day, the person or persons entitled to
receive such shares of Common Stock shall be deemed the record holder or
holders thereof for all purposes. Such conversion shall be at the conversion
price in effect on the date that a Security shall have been surrendered for
conversion in satisfactory form for conversion, as if the stock transfer books
of the Company had not been closed.
(d) Upon conversion of a Security in part only, the Company shall
execute and deliver to or on the order of the Holder thereof, at the expense of
the Company, a new Security of authorized denomination in principal amount equal
to the unconverted portion of a Security.
(e) If the last day for the exercise of the conversion right shall not
be a Business Day, then such conversion right may be exercised on the next
succeeding Business Day.
SECTION 10.03. ADJUSTMENTS TO CONVERSION PRICE. The number of shares of
Common Stock deliverable upon conversion of a Security shall be subject to
adjustment from time to time as follows:
(I) STOCK SPLITS, STOCK DIVIDENDS, ETC. If the Company (A) takes
a record of the holders of Common Stock for the purpose of entitling
them to receive a dividend payable in shares of Common Stock, (B)
subdivides its outstanding shares of Common Stock into a greater number
of shares, (C) combines its outstanding shares of Common Stock into a
smaller number of shares, or (D) issues by reclassification of its
Common Stock any shares of the Company of any class or series, the
Holder of a Security shall thereafter be entitled to receive upon the
conversion of a Security the number of shares of Common Stock or other
(29)
<PAGE> 34
class or series which he would have owned or have been entitled to
receive had the Security been converted immediately prior to the
happening of such event, such adjustment to become effective
immediately after the opening of business on the day following such
record date or the day upon which such subdivision, combination or
reclassification becomes effective.
(ii) DIVIDENDS OF CONVERTIBLE SECURITIES. If the Company pays the
holders of Common Stock a dividend payable in any security convertible
into Common Stock and the Holder of a Security thereafter converts the
Security, such Holder shall be entitled to receive upon such
conversion, in addition to the shares of Common Stock deliverable to
him in accordance with the provisions hereof, the number of shares or
principal amount of such security convertible into Common Stock as he
would have been entitled to receive if he had converted immediately
prior to the payment of such dividend.
(iii) CONSOLIDATION OR MERGER. If the Company is a party to a
consolidation or merger or a transfer or lease of all or substantially
all of its assets, the right to convert a Security into Common Stock
may be changed into a right to convert it into securities, cash or
other assets of the Company or another entity.
(iv) DE MINIMIS. No adjustment in the number of shares into which
a Security may be converted shall be required unless such adjustment
would require an increase or decrease of at least one percent of the
number of shares for which the Security may be converted; provided,
however, that any adjustment which by reason hereof is not required to
be made shall be carried forward and taken into account in any
subsequent adjustment.
(v) NO FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of a Security, but instead, to the
extent that any fraction of a share would otherwise be issuable, the
Company will round such fraction of a share up to the nearest whole
share.
SECTION 10.04. COVENANT TO RESERVE SHARES. The Company covenants that
it will reserve and keep available, free from preemptive rights, out of its
authorized Common Stock, solely for the purpose of issuance upon conversion of
Securities as herein provided, such number of shares of Common Stock as shall
then be issuable upon the conversion of all outstanding Securities. The Company
covenants that all shares of Common Stock which shall be so issuable shall be,
when issued, duly and validly issued and fully paid and nonassessable. For
purposes of this Section 10.04, the number of shares of Common Stock which shall
be deliverable upon the conversion of all outstanding Securities shall be
computed as if at the time of computation all outstanding Securities were held
by a single Holder.
(30)
<PAGE> 35
SECTION 10.05. COMPLIANCE WITH LEGAL AND GOVERNMENTAL REQUIREMENTS. (a)
Before taking any action which would cause an adjustment reducing the Conversion
Price below the then stated or par value of the shares of Common Stock issuable
upon conversion of the Securities, the Company will take any corporate action
which may, in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue fully paid and nonassessable shares of such Common
Stock at such adjusted Conversion Price.
(b) The Company covenants that if any shares of Common Stock, required
to be reserved for purposes of conversion of Securities hereunder, require
registration with or approval of any governmental authority under any federal or
state law, or listing upon any national or regional securities exchange, before
such shares may be issued upon conversion, the Company will in good faith and as
expeditiously as possible endeavor to cause such shares to be duly registered,
approved or listed, as the case may be.
SECTION 10.06. PAYMENT OF TAXES. The issuance of certificates for
shares of Common Stock upon the conversion of the Securities shall be made
without charge to the converting Securityholders for any tax in respect of the
issuance of such certificates, and such certificates shall be issued in the
respective names of, or in any such names as may be directed by, the Holders of
the Securities converted; provided, however that neither the Company nor any
Conversion Agent shall be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate in a name other than that of the Holder of Securities converted, and
neither the Company nor any Conversion Agent shall be required to issue or
deliver such certificates unless or until the Person or Persons requesting the
issuance thereof shall have paid to the Company or the Conversion Agent the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
SECTION 10.07. RESPONSIBILITY OF TRUSTEE AND CONVERSION AGENT. Neither
the Trustee nor any Conversion Agent shall at any time be under any duty or
responsibility to any Holder of Securities to determine whether any facts exist
which may require any adjustment of the Conversion Price, or with respect to the
nature or extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. Neither the Trustee nor any Conversion Agent shall be
accountable with respect to the validity or value (or the kind or amount) of any
shares of Common Stock or of any securities or property or cash which may at any
time be issued or delivered upon the conversion of any Security; and neither the
Trustee nor any Conversion Agent makes any representation with respect thereto.
Neither the Trustee nor any Conversion Agent shall be responsible for any
failure of the Company to make any cash payment or to issue, transfer or deliver
any shares of Common Stock or stock certificates or other securities or property
upon the surrender of any Security for the purpose of conversion, or, subject to
Section 8.01, to comply with any of the covenants of the Company contained in
this Article Ten.
(31)
<PAGE> 36
ARTICLE ELEVEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 11.01. WITHOUT CONSENT OF HOLDERS. The Company, when authorized
by a Board Resolution, and the Trustee may amend or supplement this Indenture or
the Securities without notice to or consent of any Securityholder:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to comply with Article Six;
(iii) to comply with any requirements of the SEC in connection
with the qualification of this Indenture under the TIA, if required;
or
(iv) to make any change that does not adversely affect the rights
of any Securityholders or the holders of the Senior Debt.
Anything to the contrary notwithstanding, the Company may at any time
amend or supplement this Indenture or the Securities without notice to or
consent of any Securityholder to lower the Conversion Price.
SECTION 11.02. WITH CONSENT OF HOLDERS. (a) Subject to Section 7.07,
the Company, when authorized by a Board Resolution, and the Trustee may amend or
supplement this Indenture or the Securities without prior notice to any Holder
but with the written consent of the Holders of a majority in principal amount of
the outstanding Securities. Subject to Section 7.07, the Holders of a majority
in principal amount of the Securities then outstanding may waive compliance by
the Company with any provision of this Indenture or the Securities without prior
notice to any Holder. However, subject to Section 11.03, without the consent of
each Holder affected thereby, an amendment, supplement or waiver, including a
waiver pursuant to Section 7.04, may not:
(i) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the rate of or extend the time for payment of
interest on any Security;
(iii) reduce the principal of or extend the fixed maturity of any
Security, or alter the redemption or conversion provisions with
respect thereto, in a manner adverse to any Holder;
(iv) waive a Default in the payment of the principal of or
redemption payment with respect to, any Security;
(v) make any changes in Section 7.04, 7.07 or this third sentence
of this Section 11.02; or
(32)
<PAGE> 37
(vi) make any Security payable in money or property other than
that stated in the Security.
(b) It shall not be necessary for the consent of the Holders under this
Section 11.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
(c) After an amendment, supplement or waiver under this Section 11.02
becomes effective, the Company shall mail to the Holders affected thereby and
the Trustee a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amendment,
supplement or waiver.
SECTION 11.03. REVOCATION AND EFFECT OF CONSENTS. (a) Until an
amendment, supplement or waiver becomes effective, a consent to it by a Holder
is a continuing consent by the Holder and every subsequent Holder of a Security
or portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security. However,
any such Holder or subsequent Holder may revoke the consent as to his Security
or portion of a Security. Such revocation shall be effective only if the Trustee
receives written notice of revocation before the date the amendment, supplement
or waiver becomes effective.
(b) The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the last
two sentences of the subsection (a) above, those Persons who were Holders on
such record date (or their duly designated proxies), and only those Persons,
shall be entitled to consent to such amendment, supplement or waiver or to
revoke any consent previously given, whether or not such Persons continue to be
Holders after such record date. No such consent shall be valid or effective for
more than 90 days after such record date.
(c) After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder, unless it makes a change described in any of
clauses (i) through (vi) of subsection 11.02(a). In that case, the amendment,
supplement or waiver shall bind each Holder of a Security who has consented to
it and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security.
SECTION 11.04. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment,
supplement or waiver changes the terms of a Security, the Trustee may require
the Holder of the Security to deliver it to the Trustee. The Trustee may place
an appropriate notation on the Security describing the changed terms and return
it to the Holder. Alternatively, if the Company or the Trustee so determines,
the Company in exchange for the Security shall issue without cost to the Holder
(33)
<PAGE> 38
thereof, and the Trustee shall authenticate, a new Security that reflects the
changed terms.
SECTION 11.05. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign
any amendment, supplement or waiver authorized pursuant to this Article Eleven
if the amendment, supplement or waiver does not adversely affect the rights,
duties, liabilities or immunities of the Trustee. If it does, the Trustee may,
but need not, sign it. In signing or refusing to sign such amendment, supplement
or waiver, the Trustee shall be entitled to demand and receive and, subject to
Section 8.01, shall be fully protected in relying upon, one or more Officer's
Certificates and/or Opinions of Counsel as conclusive evidence that the
execution of such amendment, supplement or waiver is authorized or permitted by
this Indenture, is not inconsistent herewith and will be valid and binding upon
the Company in accordance with its terms. The Company may not sign an amendment
until the Board of Directors approves it.
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. NOTICES. (a) Any notice or communication shall be
given in writing and delivered in person or mailed by first-class mail
addressed as follows:
if to the Company:
SPECIALTY CHEMICAL RESOURCES, INC.
9100 Valley View Road
Macedonia, Ohio 44056
Attention: Edwin M. Roth, President
if to the Trustee:
(b) Such notices or communications shall be effective when received.
The Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
(c) Any notice or communication mailed to a Securityholder shall be
mailed to such Holder first class mail, postage prepaid, at such Holder's
address as it appears on the registration books of the Registrar and shall be
sufficiently given to such Holder if so mailed within the time prescribed.
(d) Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders.
(34)
<PAGE> 39
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 12.02. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon
any request or application by the Company to the Trustee to take or to refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee at the request of the Trustee:
(i) an Officer's Certificate (which shall include the statements
set forth in Section 12.03) stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel (which shall include the statements
set forth in Section 12.03) stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.03. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
Officer's Certificate or Opinion of Counsel with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that the person(s) signing such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel
may rely on one or more Officer's Certificates or certificates of
public officials if the Opinion of Counsel expressly states that
nothing has come to the attention of such Counsel to make it believe
there is not justification to rely thereon.
SECTION 12.04. RULES BY TRUSTEE, REGISTRAR, PAYING AGENT AND CONVERSION
AGENT. The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar, Paying Agent or Conversion Agent may make
reasonable rules and set reasonable requirements for its functions.
(35)
<PAGE> 40
SECTION 12.05. LEGAL HOLIDAYS. If a payment date is not a Business
Day, payment may be made on the next succeeding Business Day, and no interest
shall accrue for the intervening period.
SECTION 12.06. GOVERNING LAW. The laws of the State of Ohio shall
govern this Indenture and the Securities without regard to principles of
conflicts of laws.
SECTION 12.07. NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability.
SECTION 12.08. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or a Subsidiary. Any such indenture, loan or debt agreement may
not be used to interpret this Indenture.
SECTION 12.09. SUCCESSORS. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 12.10. DUPLICATE ORIGINALS. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
SECTION 12.11. SEPARABILITY. In case any provision in this Indenture or
in the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefor against
any party hereto.
SECTION 12.12. TABLE OF CONTENTS, HEADINGS AND REFERENCES. The Table of
Contents and headings of Articles and Sections of this Indenture have been
inserted for convenience of reference only, shall not be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof. All references herein to Articles and Sections are to articles and
sections of this Indenture, unless otherwise indicated.
(36)
<PAGE> 41
SIGNATURES
----------
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the date first above written.
SPECIALTY CHEMICAL
RESOURCES, INC.
By:
----------------------------------
[SEAL] President
Attest:
-------------------------------------
[TRUSTEE]
By:
----------------------------------
[SEAL]
Attest:
-------------------------------------
(37)
<PAGE> 42
EXHIBIT A
[FACE OF SECURITY]
No._______________ $_____________
SPECIALTY CHEMICAL RESOURCES, INC.
____% CONVERTIBLE SUBORDINATED NOTE DUE 2006
SPECIALTY CHEMICAL RESOURCES, INC., a Delaware corporation, for value
received, hereby promises to pay to _______________________ or registered
assigns the principal sum of __________________________________________ Dollars
($____________) on _______________, 2006.
Interest on this Note shall be paid at maturity.
Additional provisions of this Note are set forth on the reverse side
hereof.
Dated:______________, 1996 SPECIALTY CHEMICAL
RESOURCES, INC.
By:
---------------------------------
By:
---------------------------------
Certificate of Authentication:
_________________, as Trustee,
certifies that this is one of the
Securities referred to in the within
mentioned Indenture.
By:____________________________
Authorized Signatory
A-1
<PAGE> 43
[BACK OF SECURITY]
SPECIALTY CHEMICAL RESOURCES, INC.
____% CONVERTIBLE SUBORDINATED NOTE DUE 2006
1. INTEREST. Specialty Chemical Resources, Inc. ("Company"), a Delaware
corporation, promises to pay interest on the principal amount of this Note at
the rate per annum shown above. The Interest on the Notes will accrue from the
date of this Note and will be paid along with the principal amount of this Note
on ___________, 2006 (the "Maturity Date"). Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Holder must surrender this Note to a Paying Agent
to collect the principal payment and accrued interest thereon due at maturity.
The Company will pay principal and interest at the offices or the agencies of
the Company maintained for that purpose in such coin or currency of the United
States of America that at the time of payment is legal tender for payment of
public and private debts. The Company, however, may pay principal and interest
by its check or its agent's check payable in such money and may mail such an
interest check to the Holder's registered address.
3. REGISTRAR AND PAYING AGENT. Initially, ______________________
("Trustee") will act as Registrar, Paying Agent and Conversion Agent. The
Company may change any Registrar, co-registrar, Paying Agent or Conversion Agent
without notice to the Holder of this Note. The Company or any of its
Subsidiaries may act as Paying Agent, Registrar, co-registrar or Conversio
Agent, except under certain circumstances specified in the Indenture.
4. INDENTURE. The Company issued this Note under an Indenture, dated as of
_______________, 1996 (the "Indenture"), between the Company and the Trustee.
The terms of this Note include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
ss. 77aaa-77bbbb), as in effect on the date of the Indenture (the "Act"), as if
the Indenture were governed by the same. This Note is subject to all such terms
and the holder of this Note is referred to the Indenture and such Act for a
statement of them. The Notes are unsecured general obligations of the Company
limited to $4,000,000 in aggregate principal amount.
5. REDEMPTION. The Company may redeem this Note at any time, or from time
to time, on or after _______________, 1999 and prior to the Maturity Date, at a
Redemption Price equal to the applicable percentage of the principal amount so
being redeemed determined as set forth below, in each case together with
interest accrued to the Redemption Date:
A-2
<PAGE> 44
Redemption
From To (Inclusive) Price
---- -------------- ----------
__________, 1999 __________, 1999 110%
__________, 2000 __________, 2000 108%
__________, 2001 __________, 2001 106%
__________, 2002 __________, 2002 104%
__________, 2003 __________, 2003 102%
__________, 2004 and thereafter 100%
In addition, the Company may offer to redeem all the then outstanding
Notes at a Redemption Price equal to 105% of the principal amount thereof plus
accrued interest if a Change in Control occurs. "Change in Control" means the
acquisition (or the announcement of an intent to acquire), directly or
indirectly, by any Person or group of Persons acting together, for a similar
purpose, of beneficial ownership of shares of the Capital Stock of the Company
in such amount that, after giving effect to such acquisition, such Person or
Persons shall be entitled to vote 25% or more of the shares entitled to vote, as
at such date, in the election of directors of the Company.
6. NOTICE OF REDEMPTION. Notice of redemption containing the
information prescribed in the Indenture will be mailed at least 30 days before
the Redemption Date to each Holder of a Note to be redeemed at his registered
address. Notes in the denomination of $100 may be redeemed only in whole. Notes
in denominations larger than $100 may be redeemed in part, but only in integral
multiples of $100. On and after the Redemption Date, interest ceases to accrue
on this Note or the portions of this Note called for redemption.
7. CONVERSION. A Holder of this Note may convert the principal amount
of this Note only in whole if the principal amount is $100, or, if in a
denomination greater than $100, any portion hereof that is an integral multiple
of $100, into Common Stock of the Company at the Conversion Price: (i) at any
time after December 31, 2001 and before the close of business on the Maturity
Date, or (ii) in the event of an "Election Contest." In addition, if this Note
is called for redemption, the Holder may convert it at any time before the close
of business on the day prior to the Redemption Date. "Election Contest" means
any filing pursuant to Rule 14a-11 under the Securities Exchange Act of 1934, as
amended, by any Person or group of Persons for the purpose of opposing a
solicitation by the Company with respect to the election of directors of the
Company. Interest on this Note will accrue through the date that this Note has
been surrendered for conversion and will be converted into Common Stock of the
Company along with the principal amount of this Note.
A-3
<PAGE> 45
The initial Conversion Price is $__________ per share. The Conversion
Price is subject to adjustments as specified in the Indenture. No fractional
shares of Common Stock shall be issued upon conversion, but, instead, to the
extent that any fraction of a share would otherwise be issuable, the Company
will round such fraction of a share up to the nearest whole share.
To convert this Note under this Section 7, a Holder must (i) complete
and sign the conversion notice on the back of this Note, (ii) surrender this
Note to a Conversion Agent, (iii) furnish appropriate endorsements and transfer
documents if required by the Registrar or Conversion Agent and (iv) pay any
transfer tax or similar tax if required.
If the Company is a party to a consolidation or merger or a transfer or
lease of all or substantially all of its assets, the right to convert this Note
into Common Stock may be changed into a right to convert it into securities,
cash or other assets of the Company or another.
8. SUBORDINATION. The Notes are subordinated in right of payment to
all Senior Debt of the Company. To the extent provided in the Indenture, Senior
Debt must be paid before the Notes may be paid. Each Holder by accepting a
Note agrees to the subordination and authorizes the Trustee to give it effect.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are issuable only in
registered form, without coupons, in denominations of $100 and integral
multiples of $100. The Holder may register the transfer of or exchange this Note
in accordance with the Indenture. The Registrar may require the Holder, among
other things, to furnish appropriate endorsements and transfer documents and to
pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Note selected for
redemption or register the transfer of or exchange any Note for a period of 15
days before a selection of Notes to be redeemed.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
11. UNCLAIMED MONEY. If money for the payment of principal or interest
on any Note remains unclaimed for two years, the Trustee and the Paying Agents
will pay the money back to the Company at its request. After that Holders
entitled to the money must look to the Company for payment unless a law
governing abandoned property designates another person.
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. The Indenture and Notes
will be discharged and canceled except for certain Sections thereof, subject to
the terms of the Indenture, upon the payment or conversion of all the Notes or
upon the irrevocable deposit with the Trustee or Paying Agent (if other than the
Company) of funds or U.S. Government Obligations sufficient to pay the principal
of and interest accrued on the Notes to the Maturity Date or Redemption Date.
A-4
<PAGE> 46
In the case of such a deposit, Holders must look to the deposited money for
payment.
13. AMENDMENT AND WAIVER. The Indenture permits, with certain
exceptions as therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of at least a majority in aggregate principal amount of the Notes at the
time outstanding. The Indenture also contains provisions permitting the Holders
of a majority in aggregate principal amount of the Notes at the time
outstanding, on behalf of the Holders of all the Notes, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Subject to the Indenture, any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Note. Without the consent of any Holder, the Indenture or the Notes may be
amended to cure any ambiguity, defect or inconsistency, to provide for
assumption of Company obligations to Holders or to make any change that does not
adversely affect the rights of any Holder.
14. SUCCESSORS. When a successor to the Company as a result of a
permitted merger, consolidation or sale of assets assumes all the obligations
of the Company under the Notes and the Indenture, the Company will be released
from those obligations.
15. DEFAULTS AND REMEDIES. If an Event of Default, as defined in the
Indenture, including but not limited to, failure to pay principal or interest
when such payment is due, occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of Notes may declare all the Notes together
with accrued interest thereon to be due and payable immediately in the manner
and with the effect provided in the Indenture. Holders of Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. The Trustee may
require indemnity and security therefor satisfactory to it before it enforces
the Indenture or the Notes. Subject to certain limitations, Holders of a
majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default (except a Default in payment
of principal or interest) if it determines that withholding notice is in their
interests. The Company is required to file periodic reports with the Trustee as
to the absence of Defaults or Events of Default.
16. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture,
in its individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may
otherwise deal with the Company or its Affiliates, as if it were not Trustee.
A-5
<PAGE> 47
17. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
shareholder, as such, of the Company shall not have any liability for any
obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issue of
the Notes.
18. AUTHENTICATION. This Note shall not be valid until the Trustee
signs the certificate of authentication on the front side of this Note.
19. LEGAL HOLIDAYS. If a payment date is not a "Business Day" (i.e., a
day other than a Saturday, Sunday, legal holiday or other day on which banks and
trust companies in the city where the Trustee is located are not required to be
open), then payment may be made on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
20. DEFINITIONS. All capitalized terms used in this Note which are
defined in the Indenture and not otherwise defined in this Note shall have the
meanings assigned to them in the Indenture; provided, however, that as used
herein "Note" or "Notes" shall have the same meaning as "Security" or
"Securities" under the Indenture.
21. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder of a Debenture or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (=
Uniform Gifts to Minors Act).
22. COPY OF INDENTURE. The Company will furnish to any Holder upon
written request and without charge a copy of the Indenture which has in it the
text of this Note in larger type. Requests may be made to: Specialty Chemical
Resources, Inc., 9100 Valley View Road, Macedonia, Ohio 44056, Attention:
Secretary.
A-6
<PAGE> 48
ASSIGNMENT FORM
---------------
If you the Holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ___________________________________, agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for him.
Dated: Signature:
--------------------- -----------------------------
------------------------------
(Sign exactly as name appears
on the other side of this Note)
Signature Guarantee:
-----------------------------
(to be signed by a New York commercial bank
or trust company or a member of the New York
Stock Exchange)
A-7
<PAGE> 49
CONVERSION NOTICE
-----------------
To convert this Note into Common Stock of the Company, check the box.
[ ]
To convert only part of this Note in the amount of $100 or integral
multiples thereof, state the amount: $____________________________
If you want the stock certificate made out in another person's name,
fill in the form below and have your signature guaranteed:
-----------------------------------------------------------------
(Insert other persons's social security or tax ID number)
Dated: Signature:
--------------------- -------------------------------
-------------------------------
(Sign exactly as name appears
on the other side of this Note)
Signature Guarantee: _____________________
(to be signed by a New York commercial bank
or trust company or a member of the New York
Stock Exchange)
A-8
<PAGE> 1
<TABLE>
SPECIALTY CHEMICAL RESOURCES, INC.
RATIO COMPUTATION S-K ITEM 503(d)
EARNINGS TO FIXED CHARGES
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED
30-JUN-96 1995 1994 1993 1992 1991
----------------------------------------------------------------------
In Thousands (except ratios)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Pre-tax earnings (loss) from continuing operations $(689) $(4,990) $(2,479) $2,683 $1,773 $(165)
FIXED CHARGES
Interest expense 509 779 560 531 1,051(1) 3,836
Amortization of debt expense - - - - 30 180
Portion of rent expense representative of interest 43 171 202 182 162 150
----------------------------------------------------------------------
TOTAL FIXED CHARGES 552 950 762 713 1,243 4,166
TOTAL EARNINGS AND FIXED CHARGES $(137) $(4,040) $(1,717) $3,396 $3,016 $4,001
======================================================================
EARNINGS TO FIXED CHARGES RATIO - - - 4.76X 2.43X -
======================================================================
EARNINGS (DEFICIENCY OF EARNINGS)
OVER FIXED CHARGES $(689) $(4,990) $(2,479) $2,683 $1,773 $(165)
======================================================================
<FN>
(1) Excludes extraordinary loss on debt extinguishment
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF GRANT THORNTON LLP
We have issued our reports dated February 7, 1996 accompanying the
financial statements and accompanying schedules of Specialty Chemical
Resources, Inc. included in the Annual Report on Form 10-K for the year ended
December 31, 1995 which is incorporated by reference in this Registration
Statement. We consent to the incorporation by reference in the Registration
Statement of the aforementioned reports and to the use of our name as it
appears under the caption "Experts".
GRANT THORNTON LLP
Cleveland, Ohio
August 9, 1996
