<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996
REGISTRATION NO. 333-09879
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
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)
------------------------
COPY TO:
EDWIN M. ROTH IRA C. KAPLAN, ESQ.
CHAIRMAN OF THE BOARD AND PRESIDENT BENESCH, FRIEDLANDER, COPLAN &
9100 VALLEY VIEW ROAD ARONOFF P.L.L.
MACEDONIA, OHIO 44056 2300 BP AMERICA BUILDING
(216) 468-1380 200 PUBLIC SQUARE
CLEVELAND, OHIO 44114-2378
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
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. [ ]
------------------------
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
PROSPECTUS
$4,000,000
SPECIALTY CHEMICAL RESOURCES, INC.
6% 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 6% 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 September 3, 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.
The Notes (or portions thereof in denominations of $100 or any integral
multiple of $100), including accrued and compounded interest thereon, are
initially convertible into shares of Common Stock at a conversion ratio of 66.67
shares of Common Stock for each $100 in principal amount of, and accrued and
compounded interest on, the Notes (i.e., $1.50 per share of Common Stock). On
August 26, 1996, the day immediately preceding the public announcement of this
offering, the closing sale price for the Common Stock on the American Stock
Exchange was $1.75 per share. On August 29, 1996, the closing sale price was
$2.25 per share.
Stockholders who do not exercise their Rights in full are expected to
experience substantial dilution in their percentage ownership in the Company.
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."
(continued on following page)
------------------------
THE PURCHASE OF THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
INVESTMENT RISK. SEE "RISK FACTORS" AT PAGES 10 THROUGH 13.
------------------------
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
$250,000.
</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 SEPTEMBER 3, 1996.
<PAGE> 3
(continued from preceding page)
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 (but are not obligated) 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 September 3, 1996, the
Stockholders Group beneficially owned an aggregate of approximately 32% 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
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,"
"Use of Proceeds" and "The Allocation Agreement, Voting Agreement and
Indemnification Agreement."
The Rights will expire at 5:00 p.m., Cleveland, Ohio local time, on October
4, 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 are
expected to experience substantial 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 indebtedness and to repurchase 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."
NOTES: The Notes (or portions thereof in denominations of $100 or any
integral multiple of $100), including accrued and compounded interest thereon,
are initially convertible into shares of Common Stock at a conversion ratio of
66.67 shares of Common Stock (i.e., $1.50 per share) for each $100 in principal
amount of the Notes (and accrued and compounded interest thereon): (i) any time
after December 31, 2001, (ii) in the event of a Change of 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 ratio will be adjusted from time to time 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 $10.5 million as of September 3, 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 additional 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 then 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. See
"Description of the Notes."
Interest on the Notes will accrue and compound semi-annually in arrears, at
the rate of 6% per annum commencing on the first business day following the
Expiration Date. 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 in 2006. There will be no sinking fund or other mandatory
prepayment of principal on the Notes. Interest on the Notes will not be paid
until the maturity date of the Notes in 2006 or until redemption of the Notes.
Subject to the holders' rights to convert the Notes, the Notes may be
redeemed at the option of the Company (i) commencing three years from the date
of issuance of the Notes, in whole or in part, or (ii) at any time upon a Change
of Control 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.
2
<PAGE> 4
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 Commission's web
site can be accessed at http://www.sec.gov. 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.
This Prospectus may contain estimates, projections and other
forward-looking statements. These statements are subject to certain risks,
trends and other uncertainties, including those discussed in this Prospectus
that could cause actual results to vary from those projected. Stockholders are
cautioned not to place undue reliance on forward-looking statements, which are
based only on current judgments and current knowledge.
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.
3
<PAGE> 5
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 or 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
more than 10% of the Company's net sales. The Company provides customers with
prompt shipment, normally within six weeks 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.
4
<PAGE> 6
THE RIGHTS OFFERING
Securities Offered......... $4,000,000 principal amount of 6% 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 September 3, 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 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, Voting
Agreement and Indemnification Agreement."
Record Date................ September 3, 1996.
Expiration Date............ October 4, 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 (but are not
obligated) 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 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."
5
<PAGE> 7
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."
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."
6
<PAGE> 8
Subscription Agent......... National City Bank. See "The Rights
Offering -- Subscription Agent."
TERMS OF THE NOTES
Securities................. Upon exercise of the Basic Subscription Privilege
and the Oversubscription Privilege, the Company
will issue $4,000,000 principal amount of 6%
Convertible Subordinated Notes Due 2006.
Trustee; Indenture......... The Notes will be issued pursuant to an indenture
(the "Indenture") between the Company and Bank One,
Columbus, N.A., as trustee (the "Trustee").
Maturity Date.............. October 8, 2006.
Interest................... Interest will accrue and compound on the Notes
semi-annually in arrears at a rate of 6% 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 or
upon redemption of the Notes by the Company.
Conversion................. Each $100 principal amount of the Notes (and
accrued and compounded interest thereon) will
initially be convertible into 66.67 shares of
Common Stock (i.e., $1.50 per share) at the
earliest of (i) any time after December 31, 2001,
(ii) in the event of a Change of 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 of 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 (or any of them or
their affiliates) (the "Acquiring Entity"), of
beneficial ownership of shares of capital stock of
the Company, in an amount that, 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 October 8, 1999, in whole or in part, at
premiums declining ratably to par value commencing
October 8, 2004, plus accrued and unpaid interest,
as set forth below:
October 8, 1999 110%
October 8, 2000 108%
October 8, 2001 106%
October 8, 2002 104%
October 8, 2003 102%
October 8, 2004 100%
7
<PAGE> 9
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
September 3, 1996, approximately $10.5 million
aggregate amount of Senior Debt was outstanding.
The Indenture prohibits the Company from incurring
additional indebtedness that would rank senior to
the Notes except for certain specified
indebtedness, including indebtedness under the
Company's existing senior credit facility and
renewals, refinancings, or extensions thereof. See
"Description of the Notes."
OTHER INFORMATION
Use of Proceeds............ The net proceeds available to the Company from the
Transaction will be approximately $3,750,000. Such
net proceeds will be used to repay a portion of the
Company's indebtedness existing on the date the
Notes are issued and to repurchase all of its
outstanding Cumulative Convertible Preferred Stock
at a cost of $350,000. In addition, a portion of
the net proceeds may be used by the Company to
acquire businesses or product lines. See "Use of
Proceeds."
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, any Notes
purchased by them through the Rights Offering. See
"The Allocation Agreement, Voting Agreement and
Indemnification Agreement." As of September 3,
1996, the members of the Stockholders Group owned
beneficially an aggregate of approximately 32% of
the outstanding Common Stock, and Mr. Edwin M. Roth
owned 100% of the outstanding Cumulative
Convertible Preferred Stock, which the Company
intends to repurchase 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 (but is not
obligated) 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."
8
<PAGE> 10
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 $1,160,000 in 1994 and income
tax benefit of $455,000 in 1993)............. -- -- 2,265 (884) -- --
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 charges(1).......... $ -- $ -- $ -- $ 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>
- ---------------
(1) The ratios of earnings to fixed charges were computed by dividing the sum of
earnings before income taxes (benefits), extraordinary items and fixed
charges.
9
<PAGE> 11
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.
DILUTION AND LOSS OF INVESTMENT OPPORTUNITY
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 Company who do not exercise
all of their Rights are expected to experience a substantial reduction in equity
ownership and percentage voting interests in the Company.
The initial conversion price of the Notes (i.e., $1.50 per share) reflects
a material discount from the price at which the Common Stock is being quoted and
from the stockholders' equity. On August 26, 1996, the day immediately preceding
the public announcement of this offering, the closing sale price for the Common
Stock on the AMEX was $1.75 per share. 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 are expected
to suffer substantial dilution in their interest in the Company and its equity.
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.
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 were 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 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.
10
<PAGE> 12
CONTROL OF THE COMPANY BY CERTAIN STOCKHOLDERS
The members of the Stockholders Group have expressed a present intent (but
are under no obligation) to acquire from the Company the principal amount of all
Underlying Notes subject to their Basic Subscription Privilege and
Oversubscription Privilege. As of September 3, 1996, the Stockholders Group
beneficially owned an aggregate of 32% of the outstanding Common Stock, and Mr.
Edwin M. Roth owned 100% of the Cumulative Convertible Preferred Stock, which
the Company intends to repurchase 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, Voting Agreement and Indemnification Agreement."
In addition, CEW Partners and Martin Trust and Edwin M. Roth, the Chairman
and President of the Company, and Corey B. Roth, Vice President and a director
of the Company (together, the "Roths"), have entered into a voting agreement
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 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 Geoffrey Colvin and Terence J. Conklin as such designees. The voting
agreement provides that neither CEW Partners nor Martin Trust, on the one hand,
and neither of the Roths, on the other hand, may sell their Shares or Notes
without extending to the others the right to purchase such Shares and Notes on
the same terms as those being offered by a third party. The voting agreement
also restricts the ability of CEW Partners and Martin Trust to sell, assign or
Transfer, grant an option with respect to, or otherwise dispose of any Notes or
Shares.
The voting agreement expires on the earliest of (i) March 31, 2000, (ii)
the date Edwin M. Roth is no longer the Chief Executive Officer of the Company,
or (iii) mutual agreement of the parties. See "The Allocation Agreement, Voting
Agreement and Indemnification Agreement."
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 and will not be able to convert their Notes until December 31, 2001
(except in the event of a Change of Control or 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 (an "Election Contest")). 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."
11
<PAGE> 13
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."
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 Considerations -- Net Operating Loss Carryovers." Use of the NOLs to
reduce future taxable income may subject the Company to an alternative minimum
tax.
MARKET CONSIDERATIONS
The Notes are not convertible until after December 31, 2001 except in the
event of a Change of Control or in the event of an Election Contest. 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 issuance of the Notes could have the effect of delaying, deferring or
preventing a change in control of the Company in that the Notes become
immediately convertible into shares of Common Stock upon a Change of Control or
an Election Contest.
12
<PAGE> 14
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
repurchase upon consummation of the Rights Offering.
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.
Moreover, the Company currently is involved in certain litigation and
investigations pertaining to environmental concerns. See "The Company -- Legal
Proceedings."
13
<PAGE> 15
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.
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 July 31, 1996, approximately $371,000 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 August 14, 1996, the
Company had incurred $979,000 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 September 3, 1996, the Director of OEPA has approved
reimbursement to the Company in the amount of $620,800 from the OEPA Trust Fund.
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 $358,000 during 1996 and 1997.
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
14
<PAGE> 16
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.
15
<PAGE> 17
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 September 3, 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 October
4, 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.
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.
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<PAGE> 18
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.
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 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:
<TABLE>
<S> <C>
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
</TABLE>
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 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, signatures on such Subscription Certificate must be
guaranteed by a participant in the Securities Transfer Agents Medallion Program,
the 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
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<PAGE> 20
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 in its sole discretion, 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).
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 p.m., 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
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<PAGE> 21
interest or deduction. Any completed Subscription Certificate received by the
Subscription Agent five (5) or more business days after 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.
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
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 (but have no obligation) to exercise their respective Basic
Subscription Privileges in full. In addition, the members of the Stockholders
Group have advised the Company that they intend (but have no obligation) to
subscribe for the maximum principal amount of Notes that they are entitled to
purchase pursuant to the Oversubscription Privilege. As of September 3, 1996,
the members of the Stockholders Group owned beneficially an aggregate of
1,262,991 shares of Common Stock, or approximately 32% of the outstanding Common
Stock. See "The Allocation Agreement, Voting Agreement and Indemnification
Agreement."
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<PAGE> 22
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 $3,750,000. Such net proceeds will be utilized to (i) repay
approximately $3,400,000 of the Company's borrowings under its new revolving
credit facility with Star Bank, N.A. (the "Revolving Credit Facility"), and (ii)
repurchase all 3,500 shares of the Company's Cumulative Convertible Preferred
Stock for $350,000. The Company anticipates that it will enter into the
Revolving Credit Facility on or about September 6, 1996. 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."
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 September 3, 1996, 3,932,602 shares of Common Stock were issued
and outstanding, and 555,249 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 576 record holders of
Common Stock. As of September 3, 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 repurchase 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. 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,
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<PAGE> 23
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 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 repurchase 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 Bank One, Columbus, N.A., 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 accrue and compound semi-annually on
each April 8 and October 8, commencing on the first business day following the
Expiration Date, at the rate of 6% per annum. The Notes mature October 8, 2006
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 then 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) any indebtedness of
any other entity existing at the time such entity merged with or into or
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became a subsidiary of the Company or of a subsidiary, (vi) any indebtedness
incurred in connection with a merger with or into, or the acquisition of the
stock or assets of, another entity, and (vii) 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), plus accrued and compounded interest thereon, are
convertible into shares of Common Stock (i) at any time after December 31, 2001
and before the close of business on the Maturity Date, (ii) in the event of a
Change of Control of the Company, 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 an initial conversion ratio of 66.67 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.
A Change of 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 or governmental authority, or any group of the
foregoing acting together, (other than the Stockholders Group (or any of them or
any of their Affiliates)) (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 on or after
October 8, 1999 and prior to the Maturity Date, 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
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appears on the Note register, at premiums declining ratably to par value on or
after October 8, 2004, plus an amount equal to accrued and unpaid interest, as
set forth below:
<TABLE>
<S> <C>
October 8, 1999.................................... 110%
October 8, 2000.................................... 108%
October 8, 2001.................................... 106%
October 8, 2002.................................... 104%
October 8, 2003.................................... 102%
October 8, 2004.................................... 100%
</TABLE>
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 and the termination of all financing arrangements between the
Company and the holders of 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 of the
Indenture or under the Company's then 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) 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, (vi) any indebtedness incurred in connection
with a merger with or into, or the acquisition of the stock or assets of,
another entity, and (vii) 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, relating to or
evidencing indebtedness of the Company (other than the Notes and the Indenture),
whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed by the Company for money borrowed from another
or in connection with an acquisition of any other business or entity or of any
properties or assets, and, in each case, all renewals, extensions, refinancings
or refundings thereof, after the date of the Indenture by the Company or any
Subsidiary of the Company. 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 September 3, 1996,
the Senior Debt of the Company was approximately $10.5 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.
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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 in the Indenture) 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.
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 ("Holders") 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.
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,
together with accrued interest, will be due and payable without any declaration
or any act on the part of the Trustee or the Holders. 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 Holders may not exercise any rights or remedies against the Company to
enforce or collect upon the Notes unless the Senior Debt has been paid in full
and all financing arrangements between the Company and
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the holders of Senior Debt have been terminated. However, upon the occurrence of
an Event of Default involving a default for 10 days in payment of either
principal or interest or certain events of bankruptcy, insolvency or
reorganization, the Holder may exercise any rights and remedies in respect of
such Event of Default but only after the expiration of the 179-day period
commencing upon receipt by the holders of Senior Debt of notice of an Event of
Default and subject to the right of holders of Senior Debt to receive prior
payment in full of the Senior Debt.
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 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 Holder of Notes 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 Trustee is
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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 on the AMEX for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
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 29, 1996).......................... $3.500 $1.750
</TABLE>
On August 26, 1996, the day preceding public announcement of this offering,
the closing sale price of the Common Stock on the AMEX was $1.75 per share. On
August 29, 1996, the closing sale price of the Common Stock was $2.25 per share.
As of August 29, 1996, there were approximately 576 holders of record of the
Common Stock, and 3,947,765 shares of Common Stock were outstanding. As of
September 3, 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 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
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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 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.
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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 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. In addition,
the stated interest rate on the Notes may be less than the applicable federal
long-term rate (as determined pursuant to Section 1274 of the Code) in effect
for the month in which the Notes are issued (the applicable federal long-term
rate for indebtedness issued in August 1996 is 7.08%, compounded semi-annually).
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
plus, if the applicable federal long-term rate in effect for the month in which
the Notes are issued exceeds the 6% stated interest rate on the Notes, an amount
equal to the excess (the "imputed transfer amount") of the stated principal
amount of the Notes over the present value of all payments due thereunder,
determined by using a discount rate equal to the applicable federal long-term
rate, compounded semi-annually, in effect at the time the Notes are issued.
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.
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<PAGE> 31
If the applicable federal long-term rate in effect for the month in which
the Notes are issued exceeds the stated interest rate on the Notes, a purchaser
of Notes will be deemed to have made a capital contribution to the Company as of
the date of purchase in an amount equal to the imputed transfer amount.
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.
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 of the Tax Code, 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.
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
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<PAGE> 32
"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, VOTING AGREEMENT
AND INDEMNIFICATION AGREEMENT
All members of the Stockholders Group have advised the Company that they
intend (but they have no obligation) 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, have entered into the Allocation
Agreement, dated August 30, 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 Stockholders Group and Mr. Spink in accordance with the terms of
the Allocation Agreement, which provides that each of (i) CEW Partners, (ii)
Martin Trust and (iii) Edwin M. Roth, Corey Roth and John Ehlert (collectively
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 after up to $200,000 principal amount of the
Notes has been allocated to Mr. Spink with the consent of the Stockholders Group
and subject to a limitation that the principal amount of the Notes allocated to
the Roth Group cannot exceed $1,000,000.
As of September 3, 1996, the members of the Stockholders Group owned
beneficially 1,262,991 shares of Common Stock, or approximately 32% 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 repurchase all of the shares of
Cumulative Convertible Preferred Stock owned by Mr. Roth upon consummation of
the Rights Offering. The members of the Stockholders Group will receive
$1,263,000 in aggregate principal amount of the Notes upon exercise of their
Basic Subscription Privileges. The Stockholders Group and Mr. Spink could
beneficially own as much as 100% of the principal amount of the Notes
outstanding immediately after consummation of the Rights Offering, if no other
Rights Holders exercise their Basic Subscription Privileges.
In addition, CEW Partners, Martin Trust, Edwin M. Roth and Corey Roth have
entered into a Voting Agreement dated August 30, 1996 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 Geoffrey Colvin and Terence J. Conklin as such designees. The Voting
Agreement expires on the earliest of (i) March 31, 2000, (ii) Edwin M. Roth no
longer being the Chief Executive Officer of the Company, or (iii) mutual
agreement of the parties thereto.
The Voting Agreement provides that neither CEW Partners nor Martin Trust,
on the one hand, and neither of the Roths, on the other hand, may sell their
Shares or Notes without extending to the others the right to purchase such
Shares and Notes on the same terms as those being offered by a third party. The
Voting Agreement also restricts the transferability of Shares or Notes owned by
CEW Partners and Martin Trust. Neither CEW Partners nor Martin Trust may sell,
transfer, assign, grant an option with respect to or otherwise
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<PAGE> 33
dispose of any Notes or Shares (or enter into any agreement or understanding
with respect to the foregoing) (a "Disposition") to any person or group (i)
which has filed, or intends to file, a Schedule 13D or 13G with the SEC with
respect to any class of shares of capital stock of the Company or (ii) is known
to by either of them to be accumulating stock on behalf of or acting in concert
with any person or group contemplated by clause (i) above. Notwithstanding the
foregoing, CEW Partners and Martin Trust may make a Disposition pursuant to (i)
a tender or exchange offer by a person other than CEW Partners and Martin Trust
or their respective affiliates if such person has been approved by the Roths,
(ii) a brokers' transaction meeting certain volume limitations, (iii) a bona
fide pledge of Shares to a major brokerage firm or financial institution or an
affiliate thereof not affiliated with it for money borrowed, (iv) a transaction
involving the Company, or (v) a transaction involving any one of their
affiliates or a tax-exempt charitable institution, provided that any such
transferee must agree to be bound by the terms of the Voting Agreement.
The Company and CEW Partners and Martin Trust have entered into an
Indemnification Agreement dated August 30, 1996. The Company has agreed to
indemnify CEW Partners and Martin Trust against all losses, claims, damages,
liabilities and expenses ("Losses") arising out of (i) the Rights Offering
(except that any losses relating to the value of the Notes and the Shares are
not indemnifiable), or (ii) any untrue or alleged untrue statement of material
fact contained in this Registration Statement or any omission or alleged
omission of a material fact required to make statements in this Registration
Statement not misleading, unless such untrue statement or omission relates to
information provided to the Company by CEW Partners or Martin Trust for use in
this Registration Statement. In turn, CEW Partners and Martin Trust have agreed
to indemnify the Company against all Losses arising out of any untrue statement
or omission in this Registration Statement if such untrue statement or omission
relates to information provided to the Company by CEW Partners or Martin Trust
for use in this Registration Statement.
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 September 3, 1996, Mr. Aronoff beneficially owned 34,074
shares of Common Stock.
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.
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================================================================================
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Information
by Reference........................ 3
Prospectus Summary.................... 4
Risk Factors.......................... 10
The Company........................... 14
The Rights Offering................... 16
Use of Proceeds....................... 21
Description of Capital Stock.......... 21
Description of the Notes.............. 22
Price Range of Common Stock........... 27
Dividend Policy....................... 27
Certain Federal Income Tax
Considerations...................... 27
Plan of Distribution.................. 30
The Allocation Agreement, Voting
Agreement and Indemnification
Agreement........................... 31
Legal Matters......................... 32
Experts............................... 32
</TABLE>
================================================================================
================================================================================
$4,000,000
SPECIALTY CHEMICAL
RESOURCES, INC.
6% CONVERTIBLE
SUBORDINATED NOTES DUE 2006
------------------------
PROSPECTUS
------------------------
SEPTEMBER 3, 1996
================================================================================
<PAGE> 37
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..................... 5,000
Trustee Fees and Expenses................................ 5,000
Accounting Fees and Expenses............................. 12,000
Legal Fees and Expenses.................................. 175,000
Blue Sky Fees and Expenses............................... 2,035
Printing and Engraving Expenses.......................... 25,000
Miscellaneous Expenses................................... 24,586
--------
Total Expenses....................................... $250,000
- ---------------
* All expenses other than the Securities and Exchange Commission filing fee are
estimated.
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> 38
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> 39
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
*4.1 -- Form of Indenture
*4.2 -- Form of Note (included in Exhibit 4.1 to the Registration
Statement (Reg. No. 333-09879))
*4.3 -- Form of Subscription Certificate
*4.4 -- Allocation Agreement among Edwin M. Roth, Corey B. Roth,
John H. Ehlert, David F. Spink, CEW Partners and Martin Trust
*4.5 -- Indemnification Agreement among the Company, 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)
23.3 -- Consent of Geoffrey Colvin, designee for Board of Directors
23.4 -- Consent of Terence J. Conklin, designee for Board of Directors
*24.1 -- Power of Attorney (included in Part II of the Registration
Statement (Reg. No. 333-09879))
*99.1 -- Form of Agreement among CEW Partners, Martin Trust, Edwin M.
Roth and Corey B. Roth regarding voting of Common Stock
- ------------------
* Filed previously.
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> 40
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> 41
(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> 42
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
POST-EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND,
STATE OF OHIO, ON THE 4TH DAY OF OCTOBER, 1996.
SPECIALTY CHEMICAL RESOURCES,
INC.
By: /s/ Edwin M. Roth
------------------------------
Edwin M. Roth, Chairman of the
Board and President
II-6
<PAGE> 43
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
Dated: October 4, 1996 /s/ Edwin M. Roth
------------------
Edwin M. Roth
Chairman of the Board, President and Director
(Principal Executive Officer)
Dated: October 4, 1996 *
-------------------
David F. Spink
Vice President (Principal Financial
and Accounting Officer)
Dated: October 4, 1996 *
------------------
Corey B. Roth
Director
Dated: October 4, 1996 *
----------------------
George N. Aronoff
Director
Dated: October 4, 1996 *
----------------
Victor Gelb
Director
Dated: October 4, 1996 *
--------------------
Leonard P. Judy
Director
Dated: October 4, 1996 *
-----------------------
Lionel N. Sterling
Director
*By: /s/ Edwin M. Roth
-----------------------
Edwin M. Roth
Attorney-in-fact
II-7
<PAGE> 44
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ------- ------------------- ------
*4.1 -- Form of Indenture
*4.2 -- Form of Note (included in Exhibit 4.1 to the Registration Statement
(Reg. No. 333-09879))
*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
*4.5 -- Indemnification Agreement among the Company, 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)
23.3 -- Consent of Geoffrey Colvin, designee for Board of Directors
23.4 -- Consent of Terence J. Conklin, designee for Board of Directors
*24.1 -- Power of Attorney (included in Part II of the Registration
Statement (Reg. No. 333-09879))
*99.1 -- Form of Agreement among CEW Partners, Martin Trust,
Edwin M. Roth and Corey B. Roth regarding voting of Common
Stock
- ------------------
* Filed previously.
<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 the Post-Effective
Amendment No. 1 to the Registration Statement. We consent to the incorporation
by reference in the Post-Effective Amendment No. 1 to 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
October 4, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF GEOFFREY COLVIN
I consent to the use of my name in the Registration Statement as a
nominee for election to the Board of Directors of Specialty Chemical Resources,
Inc.
/s/ Geoffrey Colvin
Cleveland, Ohio ---------------------------
September 12, 1996 Geoffrey Colvin
<PAGE> 1
EXHIBIT 23.4
CONSENT OF TERENCE J. CONKLIN
I consent to the use of my name in the Registration Statement as a
nominee for election to the Board of Directors of Specialty Chemical Resources,
Inc.
/s/ Terence J. Conklin
Cleveland, Ohio ---------------------------------
September 12, 1996 Terence J. Conklin
