<PAGE> 1
As filed with the Securities and Exchange Commission on November 3, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
SPECIALTY CHEMICAL RESOURCES, INC.
(Exact name of Registrant as Specified In Its Charter)
DELAWARE 34-1366838
(State of Incorporation) (I.R.S. Employer
Identification Number)
9055 S. FREEWAY DRIVE
MACEDONIA, OHIO 44056
(330) 468-1380
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
COREY B. ROTH
PRESIDENT AND CHIEF OPERATING OFFICER
9055 S. FREEWAY DRIVE
MACEDONIA, OHIO 44056
(330) 468-1380
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------
Copy to:
IRA C. KAPLAN, ESQ.
BENESCH, FRIEDLANDER, COPLAN & ARONOFF LLP
2300 BP TOWER
200 PUBLIC SQUARE
CLEVELAND, OHIO 44114-2378
(216) 363-4567
------------------
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]
<PAGE> 2
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. [ ]
------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount To Be Aggregate Price Aggregate Amount Of
To Be Registered Registered Per Unit Offering Price Registration Fee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rights 18,000 -- -- -- (1)
- ------------------------------------------------------------------------------------------------------------------------
Notes (2) $1,800,000 100% $1,800,000 $501
- ------------------------------------------------------------------------------------------------------------------------
Common Stock (3) 3,600,000 -- -- -- (1)
- ------------------------------------------------------------------------------------------------------------------------
(1) Pursuant to Rule 457(g), no separate registration fee is required with respect to the Rights and pursuant to
Rule 457(i), no separate registration fee is required with respect to the Common Stock which is issuable upon
conversion of the New Notes.
(2) An aggregate principal amount of $1,800,000 of Registrant's 6% Convertible Subordinated Notes Due 2008 (the
"New Notes") is issuable upon exercise of the Rights.
(3) Shares of Registrant's Common Stock, $.10 par value per share, issuable upon conversion of the New Notes.
Pursuant to Rule 416, this Registration Statement also covers such indeterminable additional shares as may
become issuable as a result of any future adjustments in accordance with the terms of the New Notes, as
described in the Prospectus.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED NOVEMBER 3, 1998
PROSPECTUS
- ----------
SPECIALTY CHEMICAL RESOURCES, INC.
6% Convertible Subordinated Notes Due 2008
We are offering subscription rights to purchase an aggregate principal
amount of $1,800,000 of our 6% Convertible Subordinated Notes Due 2008 (the "New
Notes") to our stockholders and holders of our 6% Convertible Subordinated Notes
Due 2006 (the "Original Notes"). You will receive one subscription right for
each ___ shares of our common stock that you hold as of the close of business on
________ ___, 1998 (the "Record Date") and one subscription right for each ___
shares of our common stock that your Original Notes would be convertible into on
the Record Date. Each subscription right entitles you to purchase $100 principal
amount of New Notes for $100.
TERMS OF THE NEW NOTES
- - Unsecured, subordinated obligations
- - Convertible into shares of our common stock after:
- December 31, 2001; or
- A Change of Control or Election Contest (defined on pages 29
and 30)
- - Interest at 6% per year compounded semi-annually in arrears
and payable at maturity
- - Redeemable by the Company at a premium after:
- December 31, 2001; or
- A Change of Control
Our common stock is listed on the American Stock Exchange, Inc. under
the symbol "CHM."
INVESTING IN THESE NEW NOTES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Per New Note Total
<S> <C> <C>
Price to Public $1,800,000 $1,800,000
Underwriting Discounts and Commissions $0 $0
Proceeds to the Company $1,800,000 $1,800,000
</TABLE>
Prospectus dated November ____, 1998
<PAGE> 4
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus under the headings
"Risk Factors" and "The Company," in addition to certain statements contained
elsewhere in this Prospectus or incorporated herein by reference, that are not
statements of historical facts are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and are thus
prospective. Such forward-looking statements include, without limitation,
statements regarding the availability of net operating loss carryovers, the
outcomes of certain environmental and legal proceedings and the adequacy of
Year 2000 compliance measures. Such forward-looking statements are subject to
risks, uncertainties and other factors that could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. Important factors that could cause actual results
to differ materially from the results expressed or implied by any
forward-looking statements ("Cautionary Statements") include the general
economic conditions, the uncertainty of availability of net operating loss
carryovers, the outcomes of certain environmental and legal proceedings, the
adequacy of Year 2000 compliance measures and other factors disclosed under
"Risk Factors." All subsequent written and oral forward-looking statements
relating to the matters described in this Prospectus and attributable to the
Company or to persons acting on behalf of the Company are expressly qualified
in their entirety by the Cautionary Statements.
2
<PAGE> 5
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
Prospectus. It is not complete and may not contain all of the information that
you should consider before investing in the New Notes. Certain information
contained in this summary and elsewhere in this Prospectus are forward-looking
statements. You should read the entire Prospectus carefully, including the "Risk
Factors" section.
THE COMPANY
The Company is a leading custom formulator and packager of specialty
chemical products, primarily for the automotive service, industrial maintenance
and janitorial/sanitation markets. We specialize in developing, formulating and
packaging new products for customers that do not have the expertise or volume to
maintain captive research and development departments or manufacturing
operations. The Company produces and sells over 850 "proprietary" chemical
formulations, substantially all of which are packaged in aerosol containers. The
Company's products include cleaners, sealants, gasket components, lubricants,
waxes, adhesives, paints, coatings, degreasers, polishes, antistatics and tire
inflators. See "The Company."
The Company is a Delaware corporation with its principal executive
offices located at 9055 S. Freeway Drive, Macedonia, Ohio 44056; its telephone
number is (330) 468-1380.
TERMS OF THE RIGHTS
<TABLE>
<S> <C>
Rights.................................. You will receive one subscription right (a
"Right") for each ___ shares of our common
stock that you hold of record as of the close
of business on ___________, 1998 (the
"Record Date") and one Right for each ___
shares of our common stock that your 6%
Convertible Subordinated Notes Due 2006
(the "Original Notes") (including accrued and
compounded interest) would be convertible
into as of the Record Date. The number of
Rights distributed by the Company to each
holder of common stock and Original Notes
will be rounded up to the nearest whole
number. The distribution of the Rights and
sale of New Notes upon the exercise of the
Rights or pursuant to the Oversubscription
Privilege are referred to as the "Rights
Offering." See "The Rights Offering - The
Rights."
</TABLE>
3
- --------------------------------------------------------------------------------
<PAGE> 6
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Record Date............................. _____________, 1998
Expiration Date......................... _____________, 1998, 5:00 p.m., Cleveland, Ohio
local time (the "Expiration Date").
Nontransferability of Rights............ The Rights will be nontransferable.
Basic Subscription Privilege............ You will be entitled to purchase $100 principal
amount of New Notes for each of your Rights (the
"Basic Subscription Privilege").
Oversubscription Privilege.............. If you purchase all the New Notes that you are entitled
to pursuant to the Basic Subscription Privilege, you may
also subscribe at the Subscription Price for any
principal amount of additional New Notes (the
"Oversubscription Privilege"). See "The Rights Offering
-- Subscription Privileges -- Oversubscription
Privilege."
Subscription Price...................... $100 per $100 principal amount of New Notes purchased
pursuant to the Basic Subscription Privilege or the
Oversubscription Privilege. See "The Rights Offering --
Determination of Subscription Price."
Procedure for Exercising Rights......... To exercise your Rights and subscribe for additional
New Notes pursuant to the Oversubscription Privilege,
you should complete the subscription certificate and
forward it, along with payment of the Subscription Price
for the principal amount of New Notes you would like to
purchase, to the Subscription Agent for receipt on or
prior to the Expiration Date. If you plan to mail the
Subscription Certificate, we recommend that you use
insured, registered mail. See "The Rights Offering --
Exercise of Rights."
No Revocation........................... YOU MAY NOT REVOKE YOUR SUBSCRIPTION AFTER THE
SUBSCRIPTION AGENT RECEIVES YOUR SUBSCRIPTION
CERTIFICATE. SEE "THE RIGHTS OFFERING -- NO REVOCATION."
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE> 7
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Amendments and Termination.............. We reserve the right to amend the terms and conditions
of the Rights Offering.
We may terminate the Rights Offering at any time prior
to delivery of the New Notes. See "The Rights Offering
-- Amendments and Termination."
Persons Holding Shares or Original
Notes, or Wishing to Exercise Rights
Through Others.......................... If you hold shares of common stock or Original Notes
through a broker, dealer, commercial bank, trust company
or other nominee and would prefer to have those
institutions act on your behalf with respect to the
Rights, you should contact the appropriate institution
or nominee and inform them of your wishes. See "The
Rights Offering -- Exercise of Rights."
Subscription Agent...................... National City Bank. See "The Rights Offering --
Subscription Agent."
TERMS OF THE NEW NOTES
<S> <C>
New Notes............................... $1,800,000 principal amount of 6% Convertible
Subordinated Notes Due 2008.
Trustee; Indenture...................... The New Notes will be issued pursuant to an
indenture (the "Indenture") between the Company and Bank
One, N.A. as trustee (the "Trustee").
Maturity Date........................... December __, 2008.
Interest................................ The New Notes will accrue interest at the rate of 6% per
year compounded semi-annually in arrears. The interest
will begin accruing on the first business day after the
Expiration Date. Interest on the New Notes will be paid
along with the principal amount of the New Notes on the
first business day following the Maturity Date, upon
redemption of the New Notes by the Company or upon your
conversion of the New Notes into common stock. At the
Company's option, accrued
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE> 8
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
interest on the New Notes will be payable in cash or
shares of common stock at maturity or upon conversion
of the New Notes into common stock.
Conversion.............................. You will initially be able to convert each $100
principal amount of the New Notes (and, at the Company's
option, accrued and compounded interest) into 200 shares
of common stock (i.e., $0.50 per share) (the "Conversion
Rate") after December 31, 2001 and earlier if certain
events occur. The Conversion Rate was determined by the
Company based primarily on (i) the average of the
closing sale price of the common stock on the AMEX
during the 30 active trading days between August 28, 1998
and October 26, 1998, which was approximately $0.45 per
share, and (ii) the closing sale prices of the common
stock on the AMEX during the week ending October 30,
1998, which prices ranged from $0.50 to $0.625 per
share. See "Description of the New Notes -- Conversion."
Redemption.............................. We may redeem the New Notes after December ___, 2001
and earlier if certain events occur. If we redeem the
New Notes before December ___, 2006, we will pay you a
premium, plus accrued and unpaid interest. On December
___, 2006 and at any time thereafter, we may redeem the
New Notes at face value, plus accrued and unpaid
interest. In addition, we may redeem the New Notes at a
premium, plus accrued and unpaid interest, if a Change
of Control occurs. See "Description of the New Notes --
Redemption."
Subordination........................... The New Notes will be unsecured and subordinated to
all of our existing and future Senior Debt (as defined
on page 31). As of October 30, 1998, approximately
$10,433,610 aggregate amount of Senior Debt was
outstanding. The Indenture prohibits us from incurring
additional indebtedness that would rank senior to the
New Notes except for certain specified indebtedness,
including indebtedness under our existing senior credit
facility and renewals, refinancings, or extensions of
such credit facility. See "Description of the New Notes
-- Subordination."
The New Notes are equal in right to payment with the
Original Notes, which were issued in October, 1996 in
connection with our rights offering to our stockholders.
As of
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE> 9
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
October 22, 1998, $3,985,000 principal amount of the
Original Notes was outstanding, along with $492,546
aggregate accrued interest.
OTHER INFORMATION
Use of Proceeds......................... We will raise approximately $1,600,000 from the
Rights Offering, after all expenses. We will use these
monies to repay our indebtedness to certain of our
stockholders. Any remaining monies will be used for
general working capital purposes. See "Use of Proceeds."
Agreement Among the Company and Certain
Stockholders............................ In connection with loans made by Edwin M.
Roth, CEW Partners and Martin Trust to the Company in
the aggregate principal amount of $1,500,000, these
stockholders and the Company agreed at the time these
loans were made that the debt would be refinanced with
the net proceeds of a pro rata rights offering of
Company debt to its stockholders and its holders of
Original Notes. See "Use of Proceeds."
Certain Agreements Among Our
Stockholders............................ Edwin M. Roth and Corey B. Roth and CEW Partners and
Martin Trust (the "Stockholders Group") have entered
into an agreement regarding the allocation of New Notes
among themselves and an agreement regarding the voting
of their shares of common stock and the transfer of
their New Notes. See "The Allocation Agreement and
Voting Agreement." As of October 22, 1998, these
stockholders owned beneficially an aggregate of
approximately 34% of the outstanding common stock. As of
the same date, these stockholders owned an aggregate of
approximately 58% of the outstanding common stock on a
fully diluted basis, which includes the shares of common
stock that their Original Notes, including accrued
interest,
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE> 10
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
would be convertible into. See "Risk Factors --
Control of the Company by Certain Stockholders."
Risk Factors............................ For a discussion of the high degree of risk involved
in investing in the New Notes, see "Risk Factors."
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE> 11
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
The following selected financial information is not complete and should
be read together with the detailed information and financial statements,
including the notes thereto, incorporated herein by reference. The information
at June 30, 1998 and for the six months ended June 30, 1998 is derived from
unaudited financial data, but, in the opinion of management, reflects all
adjustments (which consist only of normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations at such
date and for the period then ended. The financial position and results of
operations at June 30, 1998 and for the six months ended June 30, 1998 may not
be indicative of such financial data for the entire fiscal year.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
Six Months Ended ------------------------------
June 30,
1998 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $19,386 $40,283 $38,914 $43,419 $44,931 $47,362
Cost of goods sold 15,640 33,628 32,783 39,123 38,066 36,988
-----------------------------------------------------------------------------------
Gross profit 3,746 6,655 6,131 4,296 6,865 10,374
Selling, general and administrative expenses 3,298 6,903 6,067 7,648 6,995 6,327
Amortization of intangibles 213 997 907 869 874 862
Loss on impairment - 18,501 - - - -
Restructuring charges - - - - 954 -
-----------------------------------------------------------------------------------
Operating profit (loss) 234 (19,746) (843) (4,221) (1,958) 3,185
Other income (expense)
Interest expense (801) (1,405) (1,059) (779) (560) (531)
Other - 66 11 10 39 29
-----------------------------------------------------------------------------------
(801) (1,339) (1,048) (769) (521) (502)
-----------------------------------------------------------------------------------
Earnings (Loss) before income taxes
and extraordinary item (567) (21,085) (1,891) (4,990) (2,479) 2,683
Income tax benefits (expense) - - 128 2,981 840 (944)
-----------------------------------------------------------------------------------
Earnings (Loss) before extraordinary item (567) (21,085) (1,763) (2,009) (1,639) 1,739
Extraordinary Item:
Gain (loss) due to fire (net of income taxes) - - - - 2,265 (884)
-----------------------------------------------------------------------------------
Net earnings (loss) $(567) $(21,085) $(1,763) $(2,009) $626 $855
===================================================================================
Ratio of earnings to fixed charges 0.37x - - - - 4.76x
Earnings (deficiency of earnings) over
fixed charges $(567) $(21,085)(1) $(1,891) $(4,990) $(2,479) $2,683
SHARE DATA:
Basic earnings (Loss) per common share:
Before extraordinary item $(0.15) $(5.43) $(0.45) $(0.51) $(0.42) $0.44
Extraordinary Item - - - - 0.58 (0.22)
-----------------------------------------------------------------------------------
Net earnings (loss) $(0.15) $(5.43) $(0.45) $(0.51) $0.16 $0.22
===================================================================================
Dividends paid - - - - - -
Weighted average common shares outstanding 3,882 3,882 3,946 3,939 3,935 3,946
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 8,283 $ 6,415 $ 7,550 $ 7,142 $ 6,420 $10,883
Total assets $28,671 $29,518 $43,923 $47,272 $44,558 $49,914
Long-term debt $17,543 $15,446 $12,246 $10,399 $ 4,512 $ 9,948
Redeemable preferred stock - - - $ 350 - -
Stockholders' equity $ 4,929 $ 5,497 $26,562 $28,444 $30,439 $29,814
</TABLE>
- --------------------------------------------------------------------------------
(1) 1997 includes $18,501 loss on impairment of goodwill
9
<PAGE> 12
RISK FACTORS
You should carefully consider the following risk factors as well as the
other information included in this Prospectus before you purchase any New Notes.
DILUTION AND LOSS OF INVESTMENT OPPORTUNITY
Securityholders 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 New Notes
are convertible into common stock, securityholders of the Company who do not
exercise all of their Rights will experience a substantial reduction in equity
ownership and percentage voting interests in the Company.
The Company believes that it has taken steps to improve operations and
that as a result of such steps it hopes to improve its financial performance.
Since these improvements may benefit the Company, securityholders who do not
exercise their Rights will lose any value inherent in the Rights, including the
possibility that the common stock into which the New Notes are convertible will
increase in value.
ABSENCE OF PROFITABLE OPERATIONS IN RECENT PERIODS
The Company had net losses in 1997 of $21,085,000 or $5.43 per share on
weighted average shares outstanding of 3,882,000. This compared to net losses in
1996 of $1,763,000, or $0.45 per share on weighted average shares outstanding of
3,946,000 and net losses in 1995 of $2,009,000, or $0.51 per share on weighted
average shares outstanding of 3,939,000.
In the first six months of 1998, we had net losses of $567,195 or
$0.15 per share on weighted average shares outstanding of 3,882,261, net losses
of $205,018 or $0.05 per share for the first six months of 1997 and net losses
of $688,798 or $0.17 per share for the first six months of 1996. We may
continue to have net losses in the future and we may never be or remain
profitable.
CONTROL OF THE COMPANY BY CERTAIN STOCKHOLDERS
The members of the Stockholders Group have told the Company that they
intend (but are not obligated) to purchase the maximum principal amount of New
Notes pursuant to their Basic Subscription Privileges and Oversubscription
Privileges. As of October 22, 1998, the Stockholders Group beneficially owned an
aggregate of approximately 34% of the outstanding common stock. As of the same
date, these stockholders owned an aggregate of approximately 58% of the
outstanding common stock on a fully diluted basis, which includes the shares of
common stock that their Original Notes, including accrued interest, would be
convertible into. Depending on the unsubscribed principal amount of New 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 control
corporate policy. If no other stockholders exercise their rights and the members
of the Stockholders Group
10
<PAGE> 13
purchase all the principal amount of New Notes, as of October 22, 1998, the
Stockholders Group would have owned an aggregate of approximately 72% of the
outstanding common stock on a fully diluted basis. See "The Allocation Agreement
and Voting Agreement."
The members of the Stockholder Group may, if they become holders of at
least 25% of the principal amount of the New Notes, under certain circumstances,
declare the principal of, and accrued interest on, the New Notes immediately due
and payable and exercise other powers under the Indenture. The market price for
shares of common stock may be adversely affected by this concentration of
ownership. See "Description of the New Notes -- Default and Remedies."
In addition, Edwin M. Roth, the Chairman of the Board and Chief
Executive Officer of the Company, and Corey B. Roth, President, Chief Operating
Officer and a director of the Company (together, the "Roths") and CEW Partners
and Martin Trust have entered into a voting agreement (the "Voting Agreement")
whereby CEW Partners and Martin Trust have agreed:
- to vote their shares of common stock in accordance with the
recommendation of the Roths or, absent such recommendation, in
accordance with the recommendation of the Company's Board of
Directors (the "Board");
- to vote their shares in favor of the nominees for the Board
recommended by the Roths or, absent such recommendation, for
the Company's nominees to the Board; and
- not to participate in certain activities which could be
related to a change of control of the Company.
As part of the Voting Agreement, the Roths have agreed to vote their
shares of common stock to elect Geoffrey J. Colvin and Terence J. Conklin, as
designees of CEW Partners and Martin Trust, to the Board, each of whom have been
serving as directors of the Company since 1996 pursuant to the agreement dated
August 30, 1996 and described below. The Voting Agreement gives a right of first
refusal to CEW Partners and Martin Trust, on the one hand, and the Roths, on the
other hand, with respect to the sale of their shares or New Notes. The Voting
Agreement also contains other restrictions on the ability of CEW Partners and
Martin Trust to sell, assign or transfer, grant an option with respect to, or
otherwise dispose of any New Notes or shares.
The Voting Agreement expires on the earliest of (1) March 31, 2000, (2)
the date Edwin M. Roth is no longer the Chief Executive Officer of the Company,
or (3) the mutual agreement of the parties. See "The Allocation Agreement and
Voting Agreement."
In connection with the offering of the Original Notes, the Roths, CEW
Partners and Martin Trust entered into an agreement dated August 30, 1996
pursuant to which the parties agreed to vote their common stock and any common
stock they receive upon conversion of the Original Notes in the same manner as
described above with respect to the Voting Agreement. This agreement also
restricts the parties' transfer of common stock and Original Notes in the same
manner as described
11
<PAGE> 14
above with respect to the Voting Agreement. This agreement contains termination
provisions which are identical to those contained in the Voting Agreement.
ABSENCE OF TRADING MARKET FOR THE NEW NOTES
There is no public market for the New Notes and we do not expect that a
public market will develop for the New Notes. The New Notes will not be listed
on any exchange or national quotation system and current market quotations may
not be available. Investors may not be able to sell the New Notes at any price.
The New Notes are convertible into our common stock after December 31,
2001, except that the New Notes may be converted earlier under certain
conditions. The common stock is traded on the American Stock Exchange, Inc. (the
"AMEX"). Holders of New Notes may need to convert their New Notes into shares of
common stock in order to dispose of their economic interest in the New Notes.
Investors should consider the difficulties they may encounter in selling their
New Notes and should only subscribe for the New Notes with a long-term
investment intent. See "Description of the New Notes" and "Price Range of Common
Stock."
ORIGINAL ISSUE DISCOUNT
The New Notes will be issued at an original issue discount.
Consequently, holders of the New Notes will be required to recognize interest
income before they receive the cash payments at maturity to which such income is
attributable. Each holder of New Notes will receive an increase in their tax
basis in the New Notes equal to the amount of original issue discount 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 and does not intend to pay cash dividends.
In addition, the Company cannot pay cash dividends if it has net losses for any
year under the terms of its current debt agreements. See "Dividend Policy."
UNCERTAINTY OF AVAILABILITY OF NET OPERATING LOSS CARRYOVERS
As of December 31, 1997, the Company had approximately $11,335,000 of
net operating loss carryovers ("NOLs") for federal income tax purposes. Although
the Company experienced an "ownership change" within the meaning of Section 382
of the Internal Revenue Code of 1986, as amended (the "Code"), during 1992, due
to unused Code Section 382 limitations in prior years and the recognition of
certain "built-in gains," beginning in 1999 the 1992 ownership change will no
longer materially limit the ability of the Company to utilize its pre-1992
ownership change NOLs. However, if the Company experiences another ownership
change within the meaning of Section 382 of the Code, it would be severely
limited in its ability to use its NOLs on a current basis. In this regard, the
Rights Offering increases the risk that another ownership change within the
meaning of Section 382 of the Code will occur in the future. In addition,
approximately $6,450,000 of the
12
<PAGE> 15
Company's NOLs, to the extent unused, will expire by December 31, 1999 with
respect to approximately $3,060,000 of such NOLs, by December 31, 2000 with
respect to approximately an additional $2,475,000 of such NOLs and by
December 31, 2001 with respect to the balance of such NOLs. If the Company uses
NOLs to reduce future taxable income it may be subject to an alternative
minimum tax. See "Certain Federal Income Tax Considerations -- Net Operating
Loss Carryovers."
MARKET CONSIDERATIONS
The New 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 New Notes." The market price of the common stock may decline
before the New Notes are convertible into common stock. A subscribing Rights
Holder may not be able to sell the New Notes at any price. A RIGHTS HOLDER WHO
CHOOSES TO EXERCISE RIGHTS IN THE RIGHTS OFFERING MAY NOT REVOKE THE
SUBSCRIPTION. MOREOVER, UNTIL THE NEW NOTES ARE DELIVERED, SUBSCRIBING RIGHTS
HOLDERS MAY NOT BE ABLE TO SELL THE NEW NOTES THAT THEY HAVE PURCHASED IN THE
RIGHTS OFFERING. NOTES REPRESENTING THE PRINCIPAL AMOUNT OF THE NEW 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 MADE. See
"Price Range of Common Stock."
Rights Holders will not receive interest on funds delivered to the
Subscription Agent pending delivery of the New Notes.
ANTI-TAKEOVER EFFECT OF THE NEW NOTES AND ISSUANCES OF PREFERRED STOCK
The issuance of the New Notes may delay, defer or prevent a change of
control of the Company because the New Notes become immediately convertible into
shares of common stock upon a Change of Control or an Election Contest. The
conversion of the New Notes into shares of common stock may have a dilutive
effect on existing stockholders, including any stockholder attempting to effect
a change of control of the Company.
The Board can issue up to 2,000,000 shares of preferred stock without
stockholder approval. Although the Company does not presently intend to issue
shares of preferred stock, the Board's power to establish the rights,
preferences and powers of the preferred stock allows it to create a class of
stockholders senior (with respect to matters like voting, dividend and
liquidation rights) to the holders of common stock (including holders of New
Notes who can convert them into shares of common stock). Holders of preferred
stock could be entitled to payments of earnings and assets before the holders of
common stock (including holders of New Notes who can convert them into shares of
common stock). Issuances of preferred stock could make it more difficult for a
third party to acquire the Company. See "Description of Capital Stock --
Preferred Stock."
SUBORDINATION
When any of the Senior Debt matures, all principal of, premium, and
interest on such Senior Debt must be paid in full before any payment is made on
the New Notes. The terms of the Indenture limit the rights of the holders of New
Notes upon any distribution of assets of the Company. For example, if the
Company is insolvent, holders of New Notes may be paid less than the general
13
<PAGE> 16
creditors of the Company or the holders of Senior Debt. The Indenture also
limits the Company's ability to borrow money that would create an obligation
senior to the New Notes. See "Description of the New Notes -- Subordination."
The New Notes are equal in right to payment with the Original Notes,
which were issued in October, 1996 in connection with a rights offering by the
Company to its stockholders. As of October 22, 1998, $3,985,000 principal amount
of Original Notes was outstanding, along with $492,546 aggregate accrued
interest.
ENVIRONMENTAL MATTERS
Extensive environmental laws and regulations and various other federal,
state and local laws and regulations regarding health and safety matters affect
the Company's operations. Currently, the Company is involved in two disputes
with environmental regulatory authorities involving alleged violations of an
existing Consent Order and certain air permitting issues. Adverse determinations
regarding either the Consent Decree or the air permits could have a material
adverse effect on the Company's business and financial condition. Additionally,
the Company could become subject to environmental laws in the future which could
have a negative effect on the earnings or competitive position of the Company.
The Consent Order with the State of Ohio that the Company is currently
subject to is related to certain closure activities in connection with
historical releases of hazardous substances at the Company's Macedonia facility.
Further, the State of Ohio has threatened litigation against the Company over
alleged violations of the Consent Order. Although the Company believes it has
materially complied with the requirements of the Consent Order, the State of
Ohio could proceed with litigation against the Company, resulting in significant
expenses for the Company which could have a material adverse effect on the
Company's business. Additionally, the Ohio Environmental Protection Agency has
requested the Company to re-evaluate and re-permit certain air emissions at its
Macedonia facility. This air permit evaluation is currently in process. See "The
Company -- Environmental Matters and Legal Proceedings."
LEGAL PROCEEDINGS
From time to time, the Company is sued as a result of the operation of
its business. Most of these lawsuits arise during the ordinary course of
business and are not expected to materially adversely affect the Company's
business or financial results. Currently, however, the Company is involved in
two separate lawsuits, which if decided against the Company could have a
material adverse effect on the Company's business. See "The Company --
Environmental Matters and Legal Proceedings."
14
<PAGE> 17
YEAR 2000
Many computer systems and software products will have trouble
processing data related to the Year 2000. The Company has reviewed its computer
systems and software products for Year 2000 problems and has determined that its
operational systems and products should not have Year 2000 problems but certain
financial systems and products should be upgraded or replaced. The Company
intends to begin the upgrade and replacement of its computer systems and
software products in early 1999 and is confident that new systems and products
will be in place by the middle of 1999. The Company has had conversations with
its material suppliers and vendors and does not believe that they have Year
2000 problems that would have a material adverse effect on the Company.
However, if the Company's upgrade and replacement plan is not successful, or
the Company's material suppliers or vendors develop Year 2000 problems, then
the Company may suffer significant losses which would have a material adverse
effect on the Company's business.
USE OF PROCEEDS
The net proceeds available to the Company from the Rights Offering will
be approximately $1,600,000. Such net proceeds will be used to repay certain
indebtedness, along with accrued interest, to each of Edwin M. Roth, Martin
Trust and CEW Partners (collectively, the "Investors"). Such indebtedness is
represented by three Subordinated Promissory Notes (the "Bridge Notes"), each
entered into on June 15, 1998 and each in the principal amount of $500,000. The
Bridge Notes mature on December 15, 1998 and bear interest at a rate equal to
twelve percent (12%) per annum. The Company used the proceeds from the Bridge
Notes to meet current cash flow and working capital needs. The aggregate amount
of principal plus accrued interest to be repaid on the Bridge Notes is expected
to be $1,590,000. The remaining net proceeds will be used for general working
capital purposes of the Company.
In connection with entering into the Bridge Notes, the Investors and
the Company agreed at the time these loans were made that the Bridge Notes would
be refinanced with the net proceeds of a pro rata rights offering of Company
debt to its stockholders and its holders of Original Notes. This debt was to be
convertible into, or include detachable warrants to purchase, at least 3,000,000
shares of common stock for a price not greater than approximately $.50 per
share. As part of this agreement, the Investors agreed that one-third of the
aggregate number of rights distributed to each of the Investors would be
exercisable by each Investor, or their affiliates (which in the case of Edwin M.
Roth includes Corey B. Roth), regardless of the actual number of rights issued
to each Investor.
The Investors may cancel all or a portion of the indebtedness
represented by the Bridge Notes as payment of the Subscription Price. In this
case, the net proceeds available to the Company will be less than $1,600,000 and
the indebtedness to be repaid with such net proceeds will be reduced by the same
amount.
15
<PAGE> 18
THE COMPANY
OVERVIEW
The Company is a leading custom formulator and packager of speciality
chemical products, primarily for the automotive service, industrial maintenance
and janitorial/sanitation 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
that do not have the expertise or volume to maintain captive research and
development departments and manufacturing operations. The Company produces and
sells over 850 "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 expertise of its
employees. These proprietary formulations are not generally patented.
In 1997, the Company sold approximately 31 million units. Approximately
92% 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 8% 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; filling and packaging; component and raw materials
purchasing; vendor verification; regulatory compliance; inventory control and
overall program management. As such, the Company differentiates itself from
contract packagers, which can fill aerosol cans for a fee but do not provide the
same range of services. The Company believes that it is one of three companies
providing such a wide range of services in the Company's product markets.
The Company's customers are principally distribution companies. The
Company sells to approximately 350 core accounts, with no single customer
accounting for more than 10% of the Company's net sales. The Company provides
customers with prompt shipment, normally within four 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
arts and crafts. Less than 3% 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
16
<PAGE> 19
packager in its principal markets that provides this wide range of services,
offers delivery within four weeks and routinely produces as few as 100 cases of
a product.
The Company is a Delaware corporation with its principal executive
offices located at 9055 S. Freeway Drive, Macedonia, Ohio 44056; its telephone
number is (330) 468-1380.
ENVIRONMENTAL MATTERS AND LEGAL PROCEEDINGS
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
hazardous waste and other materials. These facilities are also subject to other
federal, state and local laws and regulations regarding health and safety
matters.
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 "1990 Consent Order"),
relating to the release of hazardous substances at the Company's manufacturing
facility located at 9150 Valley View Road, Macedonia, Ohio (the "Macedonia
Plant"). These concerns preceded the Company's acquisition of ASI in 1988. ASI
is now operated as a division of the Company.
The Company was required to submit to the Ohio Environmental Protection
Agency ("Ohio EPA"), a closure plan to address contamination identified at the
Macedonia Plant. Further, the 1990 Consent Order enjoined the Company to comply
with all applicable requirements of Ohio Revised Code Chapter 3734, Ohio's
hazardous waste law, and Ohio Revised Code Chapter 6111, Ohio's water protection
law. The 1990 Consent Order provides for stipulated (automatic) penalties in the
event the Company violates the requirements of the 1990 Consent Order or
applicable Ohio environmental law.
The Company submitted the closure plan as required. Ohio EPA also
requested, in the event the remedial measures in the proposed closure plan were
not successful within a two-year period, that at that time the Company provide
supplemental or alternative measures to clean up the remaining contamination. On
May 17, 1994, the Ohio EPA approved the revised closure plan which included
unilateral modifications as deemed necessary by the Ohio EPA. On June 17, 1994,
the Company appealed the Ohio EPA's action on the grounds that the unilateral
modifications were unreasonable and unlawful. On January 6, 1995, the Company
and the State of Ohio entered into a settlement agreement, which resulted in a
termination of the Company's appeal of this matter before the Environmental
Board of Review. On May 3, 1995, the Ohio EPA 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. As of September 23,
1998, the Company believes that the total costs of necessary closure
activities are consistent with previously disclosed cost estimates which range
from $1,526,300 to $2,000,000. In fact, based on a recent risk assessment
performed by one of the Company's environmental consultants, the Company
believes that necessary remedial activities have been substantially completed.
17
<PAGE> 20
Notwithstanding the Company's progress on the closure plan, on October
15, 1997 the Company received a letter from the Ohio Attorney General's Office
alleging that the Company has failed to comply with certain terms of the 1990
Consent Order. The State alleges that the Company has committed numerous
violations of applicable Ohio hazardous waste laws and regulations. Ohio EPA
asserts that the Company is liable for stipulated penalties of up to $5,000 per
day for each violation of the 1990 Consent Order. Ohio EPA bases these
allegations upon the results of a number of inspections conducted from 1993
through 1997. These inspections were documented by Ohio EPA in the form of
Notices of Violation ("NOVs"). The Company prepared detailed written responses
to each NOV and without admitting liability, took specific actions in response
to the allegations identified by Ohio EPA. Nonetheless, the Attorney General, on
behalf of Ohio EPA, demanded that the Company pay the State of Ohio the sum of
$1,080,000 as stipulated penalties for alleged violations of the
above-referenced rules. Through the October 15, 1997 letter, the Attorney
General invited the Company to enter into negotiations to resolve the
disagreement regarding the Company's alleged violations of the 1990 Consent
Order. Such negotiations are currently in progress.
The Company believes that it has materially complied with the
requirements of the Consent Order. However, there can be no assurance that
negotiations with the State of Ohio will be successful and will not result in
extended litigation between the Company and the State of Ohio. Further, the
Company cannot predict whether a court would find the Company liable for
stipulated penalties significantly in excess of the initial demand proposed by
the State of Ohio.
On May 21, 1998, the Company received a letter from Ohio EPA alleging
that odors from the Macedonia Plant and dust from its unpaved parking lot
constituted a nuisance. Further, Ohio EPA contends that the Company must submit
revised permit applications for its can filling and gassing lines, which
according to Ohio EPA have been erroneously granted permits allowing the
filling part of each line to be a separate emissions unit. The Company does not
believe that odors from its Macedonia Plant or dust from its parking lot
constitute a nuisance as defined by applicable law. However, Ohio EPA's request
for the Company to re-evaluate and re-submit its existing air permits
ultimately may require the addition of supplemental air pollution control
technology at the Macedonia Plant or lead to litigation regarding such
permitting issues.
The Company is currently involved in two separate legal proceedings
related to its operations and business. On October 30, 1995, 9150 Group v.
Aerosol Systems, Inc., a Division of Specialty Chemical Resources, Inc., was
filed in the Cuyahoga County Court of Common Pleas and is currently in the
discovery stage of litigation. The plaintiff alleges damages in an unspecified
amount, together with interest and costs, arising out of the alleged improper
removal of certain manufacturing equipment by the Company following the
termination of a commercial lease under which the Company was a tenant.
In August, 1998, Hysan Corporation filed a demand for arbitration
before the American Arbitration Association in Chicago in connection with its
asset purchase agreement with the Company. In its demand, Hysan Corporation
seeks compensatory damages from the Company (from a post-closing escrow account)
in the amount of $251,000. The Company has denied the material allegations in
the arbitration demand and has asserted a counterclaim against Hysan Corporation
18
<PAGE> 21
seeking $542,863.96 from the post-closing escrow account and, to the extent that
the amount sought exceeds the escrow account, from Hysan Corporation.
WHERE YOU CAN FIND MORE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Copies of such reports, proxy and information statements and
other information filed by the Company with the Commission can be inspected and
copied at the Public Reference Room 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. Please call the Commission at 1-800-SEC-0330 for further information on
the public reference rooms. Such material may also be accessed electronically by
means of the Commission's web site 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.
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, 1997, filed with the Commission on April 15, 1998
(File No. 1-11013); (ii) the Company's Proxy Statement for its 1998 Annual
Meeting of Stockholders, filed with the Commission on April 30, 1998; (iii) the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
filed with the Commission on May 15, 1998; (iv) the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998, filed with the Commission on
August 14, 1998; (v) the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, filed with the Commission on November __, 1998; (vi)
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-
19
<PAGE> 22
43092); and (vii) 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., 9055 S.
Freeway Drive, Macedonia, Ohio 44056, telephone (330) 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.
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 the
Record Date and to the record holders of the Original Notes as of the close of
business on the Record Date. The Company will distribute, at no cost to the
record holders, one Right for each ___ shares of common stock held on the Record
Date and one Right for each ___ shares of common stock that the Original Notes
(including accrued and compounded interest) would be convertible into as of 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 and Original
Notes 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 or Original Notes 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.
20
<PAGE> 23
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
an additional principal amount of New 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
__________, 1998. 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 New Notes at par (the "Basic
Subscription Privilege"). Notes representing the principal amount of New 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 an additional principal
amount of New Notes (the "Oversubscription Privilege"). Only Rights Holders who
exercise their 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 all New 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 New Notes that they
are entitled to purchase pursuant to the Oversubscription Privilege.
Additional principal amounts of New Notes will be available for
subscription pursuant to the Oversubscription Privilege only to the extent that
any principal amounts of New Notes are not purchased through the Basic
Subscription Privilege. If the aggregate principal amount of New 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 New
Notes
21
<PAGE> 24
subscribed for pursuant to the Oversubscription Privilege, but to the principal
amount of New 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 the New Notes not issued will be returned without
interest or deduction. All Rights Holders who exercise the Basic Subscription
Privilege in full, including members of the Stockholders Group, will be entitled
to subscribe pursuant to the Oversubscription Privilege. Notes representing the
principal amount of New 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 New Notes that is 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 New Notes
purchased pursuant to the Basic Subscription Privilege or the Oversubscription
Privilege. Edwin M. Roth, CEW Partners and Martin Trust may cancel all or a
portion of the indebtedness represented by the Bridge Notes as payment of the
Subscription Price. See "-- Exercise of Rights."
EXERCISE OF RIGHTS
Rights may be exercised by delivering to National City Bank (the
"Subscription Agent"), on or prior to 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 New 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, or in the case of the holders of the Bridge Notes,
such payment may also be by delivery of the original Bridge Note with the
Subscription Certificate to National City Bank for cancellation by the Company
(or any combination thereof). The Subscription Price will be deemed to have been
received by the Subscription Agent only upon (i) clearance of any uncertified
check, (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
22
<PAGE> 25
order or (iii) receipt by the Subscription Agent of a stockholder's original
Bridge Note. IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS
PAID THEREBY MAY TAKE AT LEAST FIVE BUSINESS DAY 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.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered, as well as the address to which a DTC
Participant Oversubscription Subscription Form must be delivered, is:
If by mail: National City Bank, Subscription Agent
Corporate Trust Operations
P.O. Box 94720
Cleveland, Ohio 44101-4720
If by overnight courier
or hand delivery: National City Bank, Subscription Agent
Corporate Trust Operations
3rd Floor - North Annex
4100 West 150th Street
Cleveland, Ohio 44135-1385
If an exercising Rights Holder does not indicate the number of Rights
being exercised, or does not forward full payment of the aggregate Subscription
Price for the number of Rights that the Rights Holder indicates are being
exercised, then the Rights Holder will be deemed to have exercised the Basic
Subscription Privilege with respect to the maximum number of Rights that may be
exercised for the aggregate Subscription Price payment delivered by the Rights
Holder, and to the extent that the aggregate Subscription Price payment
delivered by the Rights Holder exceeds the product of the Subscription Price
payment 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 the maximum principal amount
of New Notes that such Rights Holder is entitled to purchase pursuant to the
Oversubscription Privilege. Any amount remaining after such divisions 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 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 New Notes not issued will be returned by mail
without interest or deduction as soon as practicable after the Expiration Date.
23
<PAGE> 26
Unless a Subscription Certificate provides that the New 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 OR
PAYMENTS TO THE COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., CLEVELAND,
OHIO LOCAL TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY
TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights or subscriptions pursuant to the Oversubscription
Privilege will be determined by the Company in its sole discretion. The Company,
in its sole discretion, may also 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 the 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
24
<PAGE> 27
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 New Notes are convertible until
shares of common stock are issued upon conversion of the New 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 Form, together with payment of the appropriate
Subscription Price for the number of Units 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 business
days after the mailing of the new definitive Prospectus, shall be provided with
a form of Consent to Amended Rights Offering Terms ("Consent"), 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 business
days after the mailing of the new definitive Prospectus, and who does not return
such Consent within ten business days after the mailing of such Consent by the
Company will be deemed to have canceled his or her exercise of Rights, and the
full amount of the Subscription Price theretofore paid by such Rights Holder
will be returned promptly by mail, without interest or deduction. Any completed
Subscription Certificate received by the Subscription Agent five 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 New
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
25
<PAGE> 28
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 the
Company's objective of achieving the maximum net proceeds obtainable from the
Rights Offering while providing the holders of common stock or Original Notes
with an opportunity to make an additional investment in the Company, thus
avoiding 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 National City Bank, Subscription Agent
or hand delivery: 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
facsimile 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 New Notes that they are entitled
to purchase pursuant to the Oversubscription Privilege. As of October 22, 1998,
the members of the Stockholders Group owned beneficially an aggregate of
1,247,991 shares of common stock, or
26
<PAGE> 29
approximately 32% of the outstanding common stock, and an aggregate of
$3,661,000 principal amount of Original Notes, which, if convertible at such
date, would be convertible, along with accrued interest, into 2,733,678 shares
of common stock (which when taken together with their beneficial
ownership is approximately 58% of the outstanding common stock on a fully
diluted basis). See "The Allocation Agreement and Voting Agreement."
NO BOARD RECOMMENDATION
An investment in the common stock must be made pursuant to each Rights
Holder's evaluation of his, her or its best interests. ACCORDINGLY, THE BOARD
DOES NOT MAKE ANY RECOMMENDATION TO ANY RIGHTS HOLDER OR PROSPECTIVE INVESTOR
REGARDING THE EXERCISE OF HIS, HER OR ITS RIGHTS.
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 "Where You
Can Find More 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 October 22, 1998, 3,947,762 shares of common stock were
issued and outstanding, and 555,249 shares of common stock 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 and 4,798,236 shares of
common stock were reserved for issuance upon conversion of the Original Notes.
As of such date, there were 490 record holders of common stock. Shares of
common stock will be reserved for issuance upon the conversion of the principal
amount of New Notes issued pursuant to this Rights Offering. Upon an election by
the Company to pay any accrued and unpaid interest on the New Notes in shares of
common stock upon conversion or maturity, the Company intends to reserve
sufficient shares of common stock for such issuance and intends to register
such shares under the Securities Act.
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. 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 out of funds legally available
thereof. However, it is not presently anticipated that dividends will be paid on
the common stock 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 common stock will be entitled to share
ratably in all assets remaining after payment of liabilities. Holders of common
stock do not have preemptive rights. All of the issued
27
<PAGE> 30
and outstanding shares of common stock are, and the shares of common stock to
be issued upon conversion of the New Notes will 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 Board has the authority to issue up to 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.
Issuances. Although the Company has no present intention to issue
shares of preferred stock, because the Board 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 New Notes). The
issuance of 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 New
Notes). The issuance of the preferred stock could have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the stockholders.
DESCRIPTION OF THE NEW NOTES
The Company will issue the New Notes under an Indenture (the
"Indenture") between the Company and Bank One, N.A., as trustee (the "Trustee").
Holders of the New Notes (the "New 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 the terms and provisions of the New
Notes. The following summary of the terms and provisions of the New 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 New Notes will accrue and compound
semi-annually on each _________ and _____________, commencing on the first
business day following the Expiration Date, at the rate of 6% per annum. The New
Notes mature on ___________, 2008 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 New Notes. At the Company's
option, accrued interest on the New Notes will be paid in cash or shares of
common stock.
28
<PAGE> 31
The New Notes are general unsecured obligations of the Company. The New
Notes are in registered form in denominations of $100 and multiples of $100.
They are subordinate in right of payment to the 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 New 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 New Notes.
The New Notes rank in pari passu to the Original Notes which were
issued in October, 1996 pursuant to a rights offering to the Company's
stockholders. At October 22, 1998, $3,985,000 principal amount of the Original
Notes was outstanding, along with $492,546 aggregate accrued interest. The
Original Notes have substantially similar terms as the New Notes except with
respect to maturity date and conversion price.
Initially, the Trustee will act as Paying Agent, Conversion Agent and
Registrar. The Company may change the Paying Agent, Conversion Agent and
Registrar without notice.
Conversion. The New Notes (or portions thereof in denominations of $100
or any integral multiple of $100), plus, at the Company's option, 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 the election of directors of the Company (an "Election
Contest"), at the Conversion Rate of $0.50 per share of common stock, subject to
adjustment as described below. The Conversion Rate was determined by the Company
based primarily on (y) the average of the closing sale price of the common stock
on the AMEX during the 30 active trading days between August 28, 1998 and
October 26, 1998, which was approximately $0.45 per share, and (z) the closing
sale prices of the common stock on the AMEX during the week ending October 30,
1998, which prices ranged from $0.50 to $0.625 per share.
In addition, if a New Note is called for redemption (upon a Change of
Control or otherwise), it is convertible at any time prior to the redemption
date. If the New Notes are called for redemption, conversion rights with respect
to such New Notes expire at the close of business on the day 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.
The Conversion Rate 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 Rate is required
unless such adjustment causes a change of at least one percent in the number of
shares of common stock for which the New Notes may be converted; any adjustment
that would be required to be made but for the preceding
29
<PAGE> 32
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 New 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 an individual, corporation, partnership, limited liability
company, 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 New Noteholders' rights to convert the New
Notes, the New Notes may be redeemed at the option of the Company at any time on
or after December __, 2001 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 New
Noteholder's last address as it appears on the New Note register, at premiums
declining ratably to par value on or after December __, 2006, plus an amount
equal to accrued and unpaid interest, as set forth below:
December __, 2001 110%
December __, 2002 108%
December __, 2003 106%
December __, 2004 104%
December __, 2005 102%
December __, 2006 100%
In addition, the Company may offer to redeem all the then outstanding New Notes
at a premium equal to 105% of the principal amount thereof plus accrued interest
if a Change of Control occurs. If less than all of the New Notes are to be
redeemed, the Trustee will select the New Notes to be redeemed pro rata or by
lot or in such other manner as the Trustee deems fair to the New Noteholders.
Sinking Fund. There is no sinking fund or other similar mandatory
prepayments of principal on the New Notes.
Subordination. The indebtedness evidenced by the New 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
30
<PAGE> 33
shall first be paid in full before any payment is made on, or in respect of, the
New 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 New 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, New 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 New 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 New 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 Original
Notes and their indenture and the New 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. Except for the indebtedness represented by the
Original Notes, which ranks in pari passu with the indebtedness represented by
the New Notes, indebtedness of the Company that is not expressly subordinate to
the indebtedness represented by the New Notes will generally 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 October 30, 1998, the Senior Debt of the
Company was approximately $10,433,610, consisting of amounts borrowed
by the Company under its bank revolving credit agreement which provides for
extensions of credit up to $15,000,000 and amounts borrowed by the
Company under its mortgage.
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 New 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.
31
<PAGE> 34
"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.
Default and Remedies. An Event of Default is a default for 10 days in
payment of either interest on or principal of the New 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 New 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 New Noteholders 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 New 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 New Noteholders.
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 New Notes by
notice to the Trustee and the Company in writing may declare the principal of,
and accrued interest on, the New Notes to be due and payable immediately (but
payment thereof will be subordinated to payment in full of the Senior Debt as
described above and will be in pari passu to payment in full of the Original
Notes). If an Event of Default results from certain events of bankruptcy,
insolvency or reorganization, the principal amount of the New Notes, together
with accrued interest, will be due and payable without any declaration or any
act on the part of the Trustee or the New Noteholders. 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 New Notes upon conditions provided in the
Indenture. Except to enforce the right to receive payment of principal or
interest when due, no New Noteholder 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 New 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 New Noteholders may not exercise any rights or remedies against the
Company to enforce or collect upon the New Notes unless the Senior Debt has been
paid in full and all financing arrangements between the Company and the holders
of Senior Debt have been terminated. However, upon the occurrence of an Event of
Default involving a default for 10 days in a payment of either principal or
interest or certain events of bankruptcy, insolvency or reorganization, the New
32
<PAGE> 35
Noteholder 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 New Notes may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the New 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 New Notes. Without the
consent of the New Noteholders, the Company may amend or supplement the
Indenture or the New Notes to cure any ambiguity, defect or inconsistency or to
make any change that does not materially and adversely affect the rights of any
New Noteholders or the holders of Senior Debt. However, without the consent of
each New Noteholder affected thereby, the Company may not amend or supplement
the Indenture or the New 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 New Notes, change
redemption provisions in a manner adverse to the New Noteholders, impair the
right to convert the New Notes into common stock on the terms set forth in the
Indenture or reduce the percentage of New Noteholders necessary to amend or
supplement the Indenture.
Satisfaction and Discharge of Indenture. The Company may terminate its
obligations, with certain exceptions, under the New Notes and the Indenture if
all New Notes previously authenticated and delivered (other than destroyed, lost
or stolen New 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 New 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 New Noteholders. So long as any of the New Notes remain
outstanding, the Company will mail to the New 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.
33
<PAGE> 36
The Trustee also acts as Trustee, Registrar, Paying Agent and
Conversion Agent under the indenture dated October 15, 1996 which governs the
Original Notes. The Original Notes rank in pari passu to the New Notes.
The holders of a majority in principal amount of New 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 New
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 under no obligation to exercise any of its rights or powers under the
Indenture at the request of any of the New 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
---- ---
FISCAL YEAR 1996
<S> <C> <C>
First Quarter ................................... $ 2 7/8 $ 1 1/4
Second Quarter .................................. 3 7/8 1 1/4
Third Quarter ................................... 3 11/16 1 3/4
Fourth Quarter .................................. 2 1/16 1 1/8
FISCAL YEAR 1997
First Quarter ................................... $ 2 1/2 $ 1 3/8
Second Quarter .................................. 2 3/16 1 1/4
Third Quarter ................................... 2 1 1/4
Fourth Quarter .................................. 1 1/2 1
FISCAL YEAR 1998
First Quarter ................................... $ 1 7/16 $ 1
Second Quarter .................................. 1 1/16 3/4
Third Quarter ................................... 1 3/16
Fourth Quarter (through October 30, 1998)........ 5/8 1/2
</TABLE>
34
<PAGE> 37
October 30, 1998, the closing sale price of the common stock was $0.56 per
share. As of October 22, 1998, there were approximately 490 holders of
record of the common stock and 3,947,762 shares of common stock issued and
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 Board and will depend, among other factors, on earnings,
capital requirements and the operating and financial condition of the Company.
The terms of certain 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 and to
holders of the Original Notes upon the issuance (the "Issuance") of Rights and
to Rights Holders upon the exercise or lapse of the Rights and is not intended
as tax advice. This discussion is based on the provisions of the Code, final,
temporary and proposed Treasury regulations thereunder, and administrative and
judicial interpretations thereof, all as in effect as of the date hereof and all
of which are subject to change (possibly on a retroactive basis). Legislative,
judicial or administrative changes or interpretations could alter or modify the
tax discussion set forth below. This discussion does not purport to deal with
all aspects of federal income taxation that may be relevant to a particular
Rights Holder in light of such Rights Holder's personal investment circumstances
or to certain types of Rights Holders subject to special treatment under the
federal income tax laws (e.g., life insurance companies, tax exempt
organizations, foreign corporations and nonresident aliens). No attempt is made
to consider any aspects of state, local or foreign taxation. Finally,
substantial uncertainties resulting from the lack of definitive judicial or
administrative authority and interpretations apply to various tax issues
addressed herein. The Company has not sought, nor does it intend to seek, any
rulings from the Internal Revenue Service ("IRS") relating to such issues or any
other issues.
EACH RECIPIENT OF RIGHTS IS THEREFORE URGED TO CONSULT HIS OR ITS OWN
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE RIGHTS OFFERING ON HIS OR ITS
OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF THE 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 holders of its
common stock and to holders of the Original Notes will not result in the receipt
of taxable income by those stockholders
35
<PAGE> 38
and holders of Original Notes 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 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 (which, for purposes of Section 305 of the
Code, is defined to include holders of convertible securities) of rights
entitling them to subscribe to convertible debt securities will be nontaxable
under Section 305 of the Code if both of the following two requirements are
satisfied: (i) substantially all of 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 Code
applies.
The Company believes that any market value attributable to the Rights
would be attributable to the conversion privilege of the New 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 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 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) and could result in
taxable interest income to holders of Original Notes exercising the Rights. With
respect to stockholders and noteholders not exercising the Rights, the Company
believes that, although the matter is not free from doubt, such stockholders and
noteholders could, because the Rights are nontransferable, reasonably take the
position that they have not received taxable dividend income or interest income,
as the case may be. No assurance can be given that such position would
ultimately be sustained if challenged.
BASIS IN AND EXERCISE OF THE RIGHTS
Unless a Rights Holder 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 or the Original Notes with respect to which the
Rights are received, the basis of the Rights received by a stockholder or
Original Noteholder as a distribution with respect to such stockholder's common
stock or such holder's Original Note will be zero. If, however, either (i) the
fair market value 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 or Original
Notes with respect to which the Rights are received or (ii) the Rights Holder
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 or Original Note to 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 the Rights received as a
36
<PAGE> 39
distribution on a stockholder's common stock or on a holder's Original Note will
include the stockholder's or Original Noteholder's holding period for the common
stock or Original Note with respect to which the Rights were issued.
No gain or loss will be recognized by a Rights Holder upon exercise of
the Rights. The basis for federal income tax purposes of New Notes acquired upon
exercise of Rights will equal the sum of the holder's basis in the Rights
surrendered, if any, and the amount of cash paid for the New Notes. The holding
period of the New Notes thereby acquired will begin on the date of issuance of
the New Notes. No Rights Holder will recognize a loss upon expiration of the
Rights unless such Rights Holder 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 New Note into common stock. The tax basis of shares of common stock received
pursuant to the conversion of a New Note will be equal to the basis such holder
had in the New Note. The holding period for the common stock will include the
holding period of the New Note. Under certain circumstances, an adjustment to
the conversion price of the New Notes or the failure to adjust the conversion
price of the New Notes may result in a taxable dividend to the holders of the
New Notes.
ORIGINAL ISSUE DISCOUNT
Stated interest on the New Notes will not be paid until maturity.
Because of the delayed interest payment, the New Notes will be considered to
have been issued at an original issue discount ("OID"). Consequently, a holder
of a New Note will be required to recognize the OID as ordinary income
throughout the term of the New Note (assuming that the New Note is not converted
or redeemed prior to maturity) even though the holder of such New Note will not
be receiving cash related to the stated interest until the maturity date.
The amount of OID required to be included in a New Noteholder's income
for any taxable year (regardless of whether such 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 New Note, a portion of the OID that
accrues during the taxable year determined by utilizing a constant yield method.
In accordance with the foregoing, any interest payment received by a
holder of a New Note upon maturity of such New Note, will not be treated as
interest income. Instead, such interest payment will be treated as a return of
principal.
A New Noteholder's tax basis in a New Note will be increased by the
amount of OID which is included in such holder's income. Gain or loss upon a
sale or other disposition of a New Note will be measured by the difference
between the amount of cash, or fair market value of property received for the
New Note, and the holder's adjusted tax basis in such New Note.
37
<PAGE> 40
As required by law, the Company will report annually to the IRS and to
each holder of New Notes the amount of OID accrued with respect to each New
Note.
NON-DEDUCTIBILITY OF INTEREST ON NEW NOTES
Since the interest on the New Notes will be payable, at the option of
the Company, in shares of common stock, the Company will not be allowed a
deduction for federal income taxes for any interest paid or accrued on the New
Notes, regardless of whether such interest is ultimately paid in cash.
SALE OR REDEMPTION OF A NEW NOTE OR SALE OF THE COMMON STOCK
On a sale or redemption of the New Notes or a sale of the common stock,
a holder of New Notes or stockholder will generally recognize gain or loss
measured by the difference between the amount of cash and the fair market value
of property received and the holder's tax basis in the New Notes or the
stockholder's tax basis in the common stock. Subject to the market discount
rules of the Code, any gain or any loss on a New Note should be capital gain or
loss (assuming the New Note is held as a capital asset).
NET OPERATING LOSS CARRYOVERS
Section 382 of the 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 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.
Although the Company experienced an ownership change during 1992,
beginning in 1999 such ownership change will no longer materially limit the
Company's ability to utilize its pre-1992 ownership change NOLs. See
"Uncertainty of Availability of Net Operating Loss Carryovers."
Although no assurances can be given, the Company does not believe that
it has experienced an ownership change since 1992. 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 5.02% for ownership changes occurring in November,
1998). Such limitation would severely limit the Company's ability to use its
NOLs on a current basis. As of December 31, 1997, the Company's NOLs were
approximately $11,335,000. It should be noted,
38
<PAGE> 41
however, that approximately $6,450,000 of these NOLs, to the extent unused,
will expire by December 31, 1999 with respect to approximately $3,060,000 of
such NOLs, by December 31, 2000 with respect to approximately an additional
$2,475,000 of such NOLs and by December 31, 2001 with respect to the balance of
such NOLs.
PLAN OF DISTRIBUTION
The New Notes offered pursuant to the Rights Offering are being offered
by the Company directly to its holders of common stock and its holders of
Original Notes. The Company estimates that its expenses in connection with the
Rights Offering will be $200,000.
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 New Notes in the Rights Offering
are urged to complete, date and sign the Subscription Certificate accompanying
this Prospectus and return it to the Subscription Agent on or before the
Expiration Date of the Rights Offering, together with payment in full of the
aggregate Subscription Price. See "The Rights Offering -- Exercise of Rights."
Subscription Rights are nontransferable. See "Prospectus Summary -- Terms of the
Rights -- Nontransferability of Rights." Any questions concerning the procedure
for subscribing for the purchase of New Notes should be directed to the
Subscription Agent.
THE ALLOCATION AGREEMENT AND VOTING AGREEMENT
ALLOCATION 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 maximum principal amount of New Notes pursuant 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 New Notes that they are entitled to purchase pursuant to the
Oversubscription Privilege. The members of the Stockholders Group have entered
into the Allocation Agreement, dated ___________, 1998. Pursuant to the
Allocation Agreement, upon consummation of the Rights Offering, the aggregate
principal amount of New Notes received by all members of the Stockholders Group
will be re-allocated among the members of the Stockholders Group 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 and Corey B. Roth
(collectively referred to therein as the "Roth Group") will receive one-third of
the total aggregate principal amount of New Notes received in the Rights
Offering by all members of the Stockholders Group.
As of October 22, 1998, the members of the Stockholders Group
beneficially owned an aggregate of 1,399,608 shares of common stock,
approximately 34% of the outstanding common stock, and an aggregate of
$3,661,000 principal amount of Original Notes, which, if convertible at such
date, would be convertible, along with accrued interest, into 2,733,684
shares of
39
<PAGE> 42
common stock (which when taken together with their beneficial ownership was
approximately 58% of the outstanding common stock on a fully diluted basis). The
members of the Stockholders Group will receive an aggregate of $_____ principal
amount of New Notes upon exercise of their Basic Subscription Privileges. The
Stockholders Group could beneficially own as much as 100% of the principal
amount of New Notes outstanding immediately after consummation of the Rights
Offering if no other Rights Holders exercise their Basic Subscription
Privileges. In such event, as of October 22, 1998, the Stockholders Group would
have owned an aggregate of approximately 72% of the outstanding common stock on
a fully diluted basis.
VOTING AGREEMENT
Edwin M. Roth and Corey B. Roth (together, the "Roths"), CEW Partners
and Martin Trust, have entered into a Voting Agreement dated ___________, 1998
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; (ii) to vote
all shares of their voting stock in favor of the election to the Board 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 Board.
CEW Partners and Martin Trust have named Geoffrey J. Colvin and Terence J.
Conklin as such designees, each of whom has served as a director of the Company
since 1996 pursuant to the agreement dated August 30, 1996 and described below.
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 New Notes without extending to the others the right to purchase
such shares or New Notes on the same terms as those being offered by a third
party. The Voting Agreement also restricts the transferability of shares or New
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
dispose of any shares, or New Notes (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
40
<PAGE> 43
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.
In connection with the offering of the Original Notes, the Roths, CEW
Partners and Martin Trust entered into an agreement dated August 30, 1996
pursuant to which the parties agreed to vote their common stock and any common
stock they receive upon conversion of the Original Notes in the same manner as
described above with respect to the Voting Agreement. This agreement also
restricts the parties' transfer of common stock and Original Notes in the same
manner as described above with respect to the Voting Agreement. This agreement
contains termination provisions which are identical to those contained in the
Voting Agreement.
LEGAL MATTERS
Certain matters with respect to the validity of the issuance of the New
Notes offered hereby will be passed on for the Company by Benesch, Friedlander,
Coplan & Aronoff LLP, counsel for the Company. George N. Aronoff, the Secretary
and a Director of the Company, is a partner of Benesch, Friedlander, Coplan &
Aronoff LLP. As of October 22, 1998, Mr. Aronoff beneficially owned 39,074
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.
41
<PAGE> 44
<TABLE>
<S> <C>
=============================================== ===============================================
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 $1,800,000
relied upon as having been authorized by the
Company. 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 SPECIALTY CHEMICAL
Prospectus nor any sale made hereunder shall, RESOURCES, INC.
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.
- - - - - - - - - - - - - - - - - - - - - - - - 6% CONVERTIBLE SUBORDINATED
NOTES DUE 2008
TABLE OF CONTENTS
-----------------
PAGE ----------------
----
PROSPECTUS
----------------
Forward-Looking Statements...................2
Prospectus Summary...........................3
Risk Factors.................................10
Use of Proceeds..............................15
The Company..................................16
The Rights Offering..........................20
Description of Capital Stock.................27 NOVEMBER ___, 1998
Description of the New Notes.................28
Price Range of Common Stock..................34
Dividend Policy..............................35
Certain Federal Income Tax
Considerations..........................35
Plan of Distribution.........................39
The Allocation Agreement and
Voting Agreement .........................39
Legal Matters................................41
Experts......................................41
=============================================== ===============================================
</TABLE>
42
<PAGE> 45
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
<TABLE>
<S> <C>
Filing Fee -- Securities and Exchange Commission.......................... $ 501
Subscription Agent Fees and Expenses...................................... 8,000
Trustee Fees and Expenses................................................. 7,000
Accounting Fees and Expenses.............................................. 10,000
Legal Fees and Expenses................................................... 75,000
Blue Sky Fees and Expenses................................................ 1,000
Printing and Engraving Expenses........................................... 40,000
Miscellaneous Expenses.................................................... 58,499
Total Expenses .................................................. $200,000
</TABLE>
- --------------
*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 in 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, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person 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 their 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
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action
II-1
<PAGE> 46
or suit if the person acted under similar standards set forth above, 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 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 but in view
of all the circumstances of the case, 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 present or former
director or officer of a corporation has been successful in the defense of any
action, suit or proceeding referred to in the previous two paragraphs, or in the
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person 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 for monetary damages for breach of a director's fiduciary duty.
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, 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.
II-2
<PAGE> 47
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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<S> <C> <C>
4.1 -- Form of Indenture
4.2 -- Form of Note
4.3 -- Form of Subscription Certificate
4.4 -- Allocation Agreement among Edwin M. Roth, Corey B. Roth, CEW
Partners and Martin Trust
*5.1 -- Opinion of Benesch, Friedlander, Coplan & Aronoff LLP, 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 LLP (contained
in the opinion to be filed as Exhibit 5.1 to this Registration
Statement)
24.1 -- Power of Attorney (included in Part II of the Registration Statement)
99.1 -- Form of Agreement among CEW Partners, Martin Trust, Edwin M.
Roth and Corey B. Roth regarding voting of Common Stock
99.2 -- Form of Subscription Agency Agreement between the Company and National
City Bank, as Subscription Agent.
99.3 -- Agreement among the Company and Edwin M. Roth, CEW Partners
and Martin Trust regarding refinancing of the three $500,000
subordinated bridge notes.
</TABLE>
- --------------
*To be filed by amendment.
II-3
<PAGE> 48
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 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 (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:
(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.
II-4
<PAGE> 49
(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 the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
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.
(3) 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> 50
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on the 3rd day of
November, 1998.
SPECIALTY CHEMICAL RESOURCES, INC.
By: /s/ Corey B. Roth
-------------------------------------
Corey B. Roth, President and Chief
Operating Officer
II-6
<PAGE> 51
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each appoints Corey B. Roth and
David F. Spink, or any of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement on Form S-3 (including post-effective amendments),
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact, agent or their substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Dated: November 3, 1998 /s/ Edwin M. Roth
----------------------------------------
Edwin M. Roth
Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
Dated: November 3, 1998 /s/ Corey B. Roth
----------------------------------------
Corey B. Roth
President, Chief Operating Officer and
Director
Dated: November 3, 1998 /s/ David F. Spink
----------------------------------------
David F. Spink
Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
Dated: November 3, 1998 /s/ George N. Aronoff
----------------------------------------
George N. Aronoff
Director
Dated: November 3, 1998 /s/ Victor Gelb
----------------------------------------
Victor Gelb
Director
II-7
<PAGE> 52
Dated: November 3, 1998 /s/ Lionel N. Sterling
----------------------------------------
Lionel N. Sterling
Director
Dated: November 3, 1998 /s/ Terence J. Conklin
----------------------------------------
Terence J. Conklin
Director
Dated: November 3, 1998 /s/ Geoffrey J. Colvin
----------------------------------------
Geoffrey J. Colvin
Director
II-8
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
------ ------------------- ------
<S> <C> <C>
4.1 -- Form of Indenture................................................................................
4.2 -- Form of Note ....................................................................................
4.3 -- Form of Subscription Certificate.................................................................
4.4 -- Form of Allocation Agreement among Edwin M. Roth, Corey B. Roth,
CEW Partners and Martin Trust....................................................................
*5.1 -- Opinion of Benesch, Friedlander, Coplan & Aronoff LLP, 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 LLP (contained in the
opinion to be filed as Exhibit 5.1)..............................................................
24.1 -- Power of Attorney (included in Part II of the Registration Statement)............................
99.1 -- Form of Agreement, as amended, among CEW Partners, Martin Trust,
Edwin M. Roth and Corey B. Roth regarding voting of Common Stock.................................
99.2 -- Form of Subscription Agency Agreement between the Company and
National City Bank, as Subscription Agent........................................................
99.3 -- Agreement among the Company and Edwin M. Roth, CEW Partners and Martin
Trust regarding refinancing of the three $500,000 subordinated bridge notes.
</TABLE>
- ---------------
* To be filed by amendment.
II-9
<PAGE> 1
Exhibit 4.1
================================================================================
SPECIALTY CHEMICAL RESOURCES, INC.
and
BANK ONE, N.A., as TRUSTEE
-----------------
INDENTURE
Dated as of _________, 1998
----------------
6% Convertible Subordinated Notes Due 2008
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE ONE DEFINITIONS AND INCORPORATION
BY REFERENCE.......................................................... 1
Section 1.01. Definitions ........................................................... 1
Section 1.02. Incorporation by Reference of Trust Indenture Act ..................... 6
Section 1.03. Rules of Construction ................................................. 7
ARTICLE TWO THE SECURITIES........................................................ 7
Section 2.01. Form and Dating ....................................................... 7
Section 2.02. Execution and Authentication .......................................... 7
Section 2.03. Registrar, Paying Agent and Conversion Agent .......................... 8
Section 2.04. Paying Agent to Hold Money in Trust ................................... 9
Section 2.05. Securityholder Lists .................................................. 9
Section 2.06. Transfer and Exchange ................................................. 9
Section 2.07. Replacement Securities ................................................ 10
Section 2.08. Outstanding Securities ................................................ 10
Section 2.09. Treasury Securities ................................................... 11
Section 2.10. Temporary Securities .................................................. 11
Section 2.11. Cancellation .......................................................... 11
ARTICLE THREE REDEMPTION ............................................................ 11
Section 3.01. Notices to Trustee and Paying Agent ................................... 11
Section 3.02. Selection of Securities to be Redeemed ................................ 11
Section 3.03. Notice of Redemption .................................................. 12
Section 3.04. Effect of Notice of Redemption ........................................ 13
Section 3.05. Deposit of Redemption Price ........................................... 13
Section 3.06. Securities Redeemed in Part ........................................... 13
ARTICLE FOUR SUBORDINATION; RELATIONSHIP TO
ORIGINAL NOTES ........................................................ 13
Section 4.01. Securities Subordinated to Senior Debt ................................ 13
Section 4.02. Maturity of Senior Debt ............................................... 14
Section 4.03. Liquidation, Etc ...................................................... 14
Section 4.04. Senior Debt Default ................................................... 14
Section 4.05. Company's Obligations Unimpaired ...................................... 15
Section 4.06. Subrogation ........................................................... 15
Section 4.07. Subordination Unimpaired .............................................. 15
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.08. Standstill; Limitation on Actions ..................................... 16
Section 4.09. Relationship to Original Notes ........................................ 16
ARTICLE FIVE COVENANTS ............................................................. 16
Section 5.01. Payment of Securities ................................................. 16
Section 5.02. Limitation on Indebtedness for Borrowed Money ......................... 17
Section 5.03. Reports by the Company ................................................ 17
Section 5.04. Corporate Existence ................................................... 18
Section 5.05. Notice of Default ..................................................... 18
Section 5.06. Waiver of Stay, Extension or Usury Laws ............................... 18
ARTICLE SIX SUCCESSORS ............................................................ 18
Section 6.01. When Company May Merge, Etc ........................................... 18
Section 6.02. Successor Corporation Substituted ..................................... 19
ARTICLE SEVEN DEFAULT AND REMEDIES .................................................. 19
Section 7.01. Events of Default ..................................................... 19
Section 7.02. Acceleration .......................................................... 20
Section 7.03. Other Remedies ........................................................ 21
Section 7.04. Waiver of Past Defaults ............................................... 21
Section 7.05. Control by Majority ................................................... 22
Section 7.06. Limitation on Suits ................................................... 22
Section 7.07. Rights of Holders to Receive Payment .................................. 23
Section 7.08. Collection Suit by Trustee ............................................ 23
Section 7.09. Trustee May File Proofs of Claim ...................................... 23
Section 7.10. Priorities ............................................................ 23
Section 7.11. Undertaking for Costs ................................................. 24
ARTICLE EIGHT TRUSTEE ............................................................... 24
Section 8.01. Duties of Trustee ..................................................... 24
Section 8.02. Rights of Trustee ..................................................... 26
Section 8.03. Individual Rights of Trustee .......................................... 26
Section 8.04. Disclaimers ........................................................... 26
Section 8.05. Notice of Defaults .................................................... 27
Section 8.06. Reports by Trustee to Holders ......................................... 27
Section 8.07. Compensation and Indemnity ............................................ 27
Section 8.08. Replacement of Trustee ................................................ 28
Section 8.09. Successor Trustee by Merger, Etc ...................................... 29
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.10. Eligibility; Disqualification ......................................... 29
Section 8.11. Preferential Collection of Claims Against
the Company ........................................................... 29
ARTICLE NINE DISCHARGE OF INDENTURE ................................................ 29
Section 9.01. Termination of the Company's Obligation ............................... 29
Section 9.02. Application of Trust Money ............................................ 30
Section 9.03. Repayment to the Company .............................................. 30
Section 9.04. Reinstatement ......................................................... 30
<S> <C> <C>
ARTICLE TEN CONVERSION ........................................................... 31
Section 10.01. Right of Conversion; Conversion Price ................................ 31
Section 10.02. Procedures for Conversion ............................................ 31
Section 10.03. Adjustments to Conversion Price ...................................... 32
Section 10.04. Covenant to Reserve Shares ........................................... 33
Section 10.05. Compliance with Legal and Governmental
Requirements ......................................................... 34
Section 10.06. Payment of Taxes ..................................................... 34
Section 10.07. Responsibility of Trustee and Conversion Agent ....................... 34
ARTICLE ELEVEN AMENDMENTS, SUPPLEMENTS AND
WAIVERS .............................................................. 35
Section 11.01. Without Consent of Holders ........................................... 35
Section 11.02. With Consent of Holders .............................................. 35
Section 11.03. Revocation and Effect of Consents .................................... 36
Section 11.04. Notation on or Exchange of Securities ................................ 37
Section 11.05. Trustee to Sign Amendments, Etc ...................................... 37
ARTICLE TWELVE MISCELLANEOUS ........................................................ 38
Section 12.01. Notices .............................................................. 38
Section 12.02. Certificate and Opinion as to Conditions Precedent ................... 38
Section 12.03. Statements Required in Certificate or Opinion ........................ 39
Section 12.04. Rules by Trustee, Registrar, Paying Agent
and Conversion Agent ................................................. 39
Section 12.05. Legal Holidays ....................................................... 39
Section 12.06. Governing Law ........................................................ 39
Section 12.07. No Recourse Against Others ........................................... 39
Section 12.08. No Adverse Interpretation of Other Agreements ........................ 40
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 12.09. Successors ........................................................... 40
Section 12.10. Duplicate Originals .................................................. 40
Section 12.11. Separability ......................................................... 40
Section 12.12. Table of Contents, Headings and References ........................... 40
SIGNATURES ............................................................................... 41
EXHIBIT A ................................................................................ A-1
</TABLE>
<PAGE> 6
INDENTURE
INDENTURE, dated as of ______, 1998, between SPECIALTY CHEMICAL
RESOURCES, INC., a Delaware corporation (the "Company"), and BANK ONE, N.A., a
national banking association, as trustee (the "Trustee").
Each of the parties hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders (defined below)
of the Company's 6% Convertible Subordinated Notes Due 2008 issued pursuant to
this Indenture.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"CONTROL" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise, and the terms
"CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing.
"AGENT" means any Registrar, Paying Agent or Conversion Agent.
"BANKRUPTCY LAW" means Title 11 of the United States Code, 11 U.S.C.
ss.ss. 101 et seq., or any similar federal or state law for the relief of
debtors.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"BUSINESS DAY" means a day that is not a Saturday, Sunday, legal
holiday or other day on which banks and trust companies in the city where the
Trustee is located are not required to be open.
"CAPITALIZED LEASE OBLIGATION" means indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting
<PAGE> 7
purposes in accordance with generally accepted accounting principles, and the
amount of such indebtedness shall be the capitalized amount of such obligations
determined in accordance with such principles.
"CAPITAL STOCK" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
"CHANGE OF CONTROL" means the acquisition (or the announcement of an
intent to acquire), directly or indirectly, by any Person or group of Persons
acting together, for a similar purpose, other than the "Stockholders Group," or
any of them or their Affiliates, of beneficial ownership of shares of the
Capital Stock of the Company in such amount that, after giving effect to such
acquisition, such Person or Persons shall be entitled to vote 25% or more of the
shares entitled to vote, as at such date, in the election of directors of the
Company. The "Stockholders Group" means Edwin M. Roth, Corey B. Roth, CEW
Partners, and Martin Trust.
"COMMON STOCK" means all shares now or hereafter authorized of the
common stock, $0.10 par value, of the Company.
"COMPANY" means the party named as such in this Indenture, until a
successor replaces it pursuant to the Indenture, and thereafter means the
successor.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order
signed in the name of the Company by the Chairman or Vice Chairman of the Board
of Directors, the President or any Vice President and by the Treasurer, an
Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or
an Assistant Secretary of the Company and delivered to the Trustee.
"CONSOLIDATED NET WORTH" means with respect to any Person at any date
the total amount of non-redeemable preferred stock and common shareholders'
equity (excluding amounts attributable to securities which are exchangeable for
or convertible into securities, other than non-redeemable preferred stock or
common stock) which would appear on a consolidated balance sheet of any Person
as at such date prepared in accordance with generally accepted accounting
principles.
"CONVERSION AGENT" means an office or agency where Securities may be
presented for conversion. The term includes any additional conversion agent.
"CONVERSION PRICE" initially means $0.50.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
(2)
<PAGE> 8
"DEFAULT" means any event which is, or after notice or passage of time
would be, an Event of Default.
"ELECTION CONTEST" means any filing pursuant to Rule 14a-11 under the
Securities Exchange Act of 1934, as amended, by any Person or group of Persons
for the purpose of opposing a solicitation by the Company with respect to the
election of directors of the Company.
"EVENT OF DEFAULT" shall have the meaning provided in Section 7.01.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled (through
stock or capital ownership or otherwise) by any of the foregoing.
"HOLDER," "SECURITYHOLDER" or "NOTEHOLDER" means the Person in whose
name a Security is registered on the Registrar's books.
"INDEBTEDNESS" means (a) any indebtedness, obligation or liability
(whether matured or unmatured, liquidated or unliquidated, direct or indirect,
absolute or contingent or joint or several) of any Person (i) for or in respect
of borrowed money, (ii) evidenced by a note, debenture or similar instrument
(including a purchase money obligation) given in connection with the acquisition
of any property or assets, including securities, (iii) for the payment of money
relating to any other transaction (including forward sale or purchase
agreements, Capitalized Lease Obligations (but not operating leases) and
conditional sales agreements) having the commercial effect of a borrowing of
money entered into by such Person to finance its operations or capital
requirements; or (iv) for the maximum fixed repurchase price of any equity
securities of such Person which by their terms or otherwise are required to be
redeemed prior to the maturity of the Securities or at the option of the holder
thereof; (b) any liability of others described in the preceding clause (a) which
the Person has guaranteed or for which it is otherwise legally liable; and (c)
any deferral, renewal, refinancing, extension or refunding of, or amendment,
modification or supplement to, any liability of the types referred to in clauses
(a) and (b) above, but shall not include indebtedness or amounts owed (except to
banks or other financing institutions) for compensation to employees, or for
goods or materials purchased, or services utilized, in the ordinary course of
business of the Person. For purposes hereof, the "maximum fixed repurchase
price" of any equity securities, which price is based upon, or measured by, the
fair market value of such equity securities, means, as of any date, the fair
market value thereof as determined in good faith by the Board of Directors.
(3)
<PAGE> 9
"INDENTURE" means this Indenture as amended or supplemented from time
to time as provided for herein.
"MATURITY DATE" means ____________, 2008.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"NET INCOME" of any Person for any period means the net income (loss)
of such Person for such period determined in accordance with generally accepted
accounting principles.
"OFFICER" means the Chairman or Vice Chairman of the Board of
Directors, the President, any Vice President, the Chief Financial Officer, the
Treasurer, the Secretary or the Controller of the Company.
"OFFICER'S CERTIFICATE" means a certificate signed by the Chairman or
Vice Chairman of the Board of Directors, the President or any Vice President and
by any other Officer or an Assistant Treasurer or Assistant Secretary of the
Company.
"OPINION OF COUNSEL" means a written opinion from legal counsel, who
may be an employee of or counsel to the Company or the Trustee and who is
reasonably acceptable to the Trustee.
"ORIGINAL NOTES" means the Company's 6% Convertible Subordinated Notes
Due 2006, or any of them, as amended or supplemented from time to time, that
were issued pursuant to an Indenture dated as of October 15, 1996 between the
Company and Bank One, N.A., as Trustee.
"PAYING AGENT" means an office or agency where Securities may be
presented for payment, except that for purposes of Article Nine the Paying Agent
shall not be the Company or a Subsidiary. The term includes any additional
paying agent.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or any Governmental Authority.
"QUOTED PRICE" of the Common Stock means (i) if the Common Stock is
listed on a securities exchange, the last reported closing sales price of the
Common Stock on such exchange which shall be for consolidated trading if
applicable to such exchange, (ii) if the Common Stock is quoted on the NASDAQ
National Market System, the last reported closing sales price of the Common
Stock on such system, or (iii) if the Common Stock is not listed on a securities
exchange or quoted on the
(4)
<PAGE> 10
NASDAQ National Market System, the last reported closing bid price of the Common
Stock.
"REDEMPTION DATE," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture and the Securities.
"REDEMPTION PRICE," when used with respect to any Security to be
redeemed, means the price fixed for such redemption by or pursuant to this
Indenture and the Securities.
"REGISTRAR" means an office or agency where Securities may be presented
for registration of transfer or for exchange. The term includes any
co-registrar.
"SEC" means the Securities and Exchange Commission.
"SECURITY" or "SECURITIES" means the Company's 6% Convertible
Subordinated Notes Due 2008, or any of them, as amended or supplemented from
time to time, that are issued pursuant to this Indenture and which shall be
substantially in the form of EXHIBIT A annexed hereto and constituting a part
hereof for all purposes.
"SENIOR DEBT" means all principal of and interest on, and any other
payment due pursuant to the terms of instruments or agreements creating,
relating to or evidencing Indebtedness of the Company (other than the Securities
and this Indenture and the Original Notes and their indenture), whether
outstanding on the date of this Indenture or thereafter created, incurred,
assumed or guaranteed by the Company for money borrowed from others or in
connection with the acquisition by it or any Subsidiary of any other business or
entity or of any properties or assets, and, in each case, all renewals,
extensions, refinancings or refundings thereof, unless the terms of the
instrument or agreement creating, relating to or evidencing such Indebtedness
expressly provide that such Indebtedness is not superior in right of payment to
the payment of principal and interest on the Securities. Notwithstanding the
foregoing, Senior Debt shall not include (i) any Indebtedness or liability for
compensation to employees, or for goods or materials purchased in the ordinary
course of business or for services, and (ii) any Indebtedness of the Company to
a Subsidiary for money borrowed or advanced from such Subsidiary. Senior Debt
does not include the Original Notes.
"SUBSIDIARY" means (i) a corporation in which the Company owns,
directly or indirectly, a majority of the Capital Stock with voting power, under
ordinary circumstances, to elect directors, (ii) a corporation in which a
Subsidiary of the Company owns, directly or indirectly, a majority of the
Capital Stock with voting power, under ordinary circumstances, to elect
directors, or (iii) a corporation in which
(5)
<PAGE> 11
the Company and a Subsidiary, or two or more Subsidiaries, owns directly or
indirectly, a majority of the Capital Stock with voting power, under ordinary
circumstances, to elect directors, or (iv) any other Person (other than a
corporation) in which the Company, a Subsidiary of the Company, or the Company
and a Subsidiary, directly or indirectly, own at the date of determination
thereof, at least a majority of the ownership interests.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb), as in effect on the date of this Indenture.
"TRUSTEE" means the party named as such in this Indenture, until a
successor replaces it in accordance with the provisions of this Indenture, and
thereafter means the successor.
"TRUST OFFICER" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"U.S. GOVERNMENT OBLIGATIONS" means direct non-callable obligations of,
or noncallable obligations guaranteed by, the United States of America or any
Person or agency controlled or supervised by or acting as an instrumentality of
the United States of America pursuant to authority granted by the Congress of
the United States of America for the payment of which guarantee or obligation
the full faith and credit of the United States of America.
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA such provision is
incorporated by reference in and made a part of this Indenture, as if this
Indenture were governed by the same. The following TIA terms used in this
Indenture have the following meanings:
(i) "Commission" means the SEC;
(ii) "indenture securities" means the Securities;
(iii) "indenture security holder" means a Holder, Securityholder
or Noteholder;
(iv) "indenture to be qualified" means this Indenture;
(v) "indenture trustee" or "institutional trustee" mean the
Trustee; and
(vi) "obligor" on the indenture securities means the Company or
any other obligor on the Securities.
(6)
<PAGE> 12
All other terms used in this Indenture that are defined by the TIA or defined by
reference in the TIA to another statute or defined by SEC rule, and not
otherwise defined herein, shall have the meanings assigned to them in the TIA
such other statute, as if the Indenture were governed by the same, or SEC rule.
SECTION 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a capitalized term has the meaning assigned to it in this
Article or in the Section in which it is first used;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles in effect on the date hereof and any other reference in this
Indenture to "generally accepted accounting principles" refers to
generally accepted accounting principles on the date hereof;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural and words in the
plural include the singular;
(v) "herein," "hereof," "hereto" and other words of similar
import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and
(vi) any term connoting gender shall be deemed to include the
neuter, masculine and feminine gender.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. FORM AND DATING. The Securities and the Trustee's
certificate of authentication shall be substantially in the form of EXHIBIT A
annexed hereto. The Securities may have notations, legends or endorsements
required by law, securities exchange rule or usage. The Company shall approve
the form of the Security and any notation, legend or endorsement thereon. Each
Security shall be dated the date of its authentication. The terms and provisions
contained in the Securities shall constitute, and are hereby expressly made, a
part of this Indenture.
SECTION 2.02. EXECUTION AND AUTHENTICATION. (a) Two Officers shall sign
the Securities for the Company by manual or facsimile signature. The Company's
corporate seal, if required, shall be impressed, affixed, imprinted or
reproduced on the Securities and may be in facsimile form.
(7)
<PAGE> 13
(b) If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
(c) A Security shall not be valid until the Trustee manually signs the
certificate of authentication on the Security. The signature of the Trustee
shall be conclusive evidence that the Security has been authenticated under this
Indenture.
(d) The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to $1,800,000 upon a Company Order. Such
Company Order, and any subsequent Company Order made with respect to the
Securities from time to time, shall specify the amount of Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed $1,800,000, except as provided in Section 2.07.
(e) The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
(f) The Securities shall be issuable only in registered form without
coupons and only in denominations of $100 and any integral multiple thereof.
SECTION 2.03. REGISTRAR, PAYING AGENT AND CONVERSION AGENT. The Company
shall continuously employ a Registrar and a Conversion Agent. The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars, one or more additional paying agents
and one or more additional conversion agents. Except for purposes of Article
Nine, the Company or any Subsidiary may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any such Agent. If the Company fails to
maintain a Registrar, Paying Agent or Conversion Agent or fails to give the
foregoing notice, the Trustee shall act as such.
The Company initially appoints the Trustee as Registrar, Paying Agent
and Conversion Agent. The Trustee also acts as Registrar, Paying Agent and
Conversion Agent with respect to the Original Notes.
(8)
<PAGE> 14
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. (a) On or prior to
the due date of the principal of and interest on any Securities, the Company
shall deposit with the Paying Agent cash or cleared funds in a sum sufficient to
pay such principal and interest so becoming due.
(b) Notwithstanding the foregoing, in the event the Company elects to
pay the accrued interest due to the Securityholders by delivery of Common Stock
in lieu of cash, the Company shall deposit with the Paying Agent, on or prior to
the due date of the interest payment, stock certificate(s) in the name of each
Securityholder representing the number of shares of Common Stock such
Securityholder is entitled to receive calculated by dividing the aggregate
amount of accrued interest due to such Securityholder by the Conversion Price.
(c) The Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money and/or stock certificates held by the
Paying Agent for the payment of principal of and interest on the Securities and
shall promptly notify the Trustee of any default by the Company in making any
such payment. If the Company or an Affiliate acts as Paying Agent, it shall
segregate the money and hold it as a separate trust fund. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
account for any funds disbursed and to deliver all stock certificates held by
it, if any, to the Trustee. The Trustee may at any time during the continuance
of any payment default, upon written request to a Paying Agent, require such
Paying Agent to pay all money held by it to the Trustee and to account for any
funds disbursed and to deliver all stock certificates held by it, if any, to the
Trustee. Upon doing so, the Paying Agent (if other than the Company) shall have
no further liability for the money or the stock.
SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee at such times as the Trustee
may request in writing, a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of Securityholders.
SECTION 2.06. TRANSFER AND EXCHANGE. (a) When Securities are presented
to the Registrar with a request to register the transfer of such Securities or
to exchange such Securities for an equal principal amount of Securities of other
authorized denominations, the Registrar shall register the transfer or make the
exchange as requested; provided that such Securities presented or surrendered
for registration of transfer or exchange shall be duly endorsed or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by the Holder thereof or his attorney
duly authorized in writing; provided further that the Registrar need not
register the transfer of or exchange any Securities selected for redemption or
register the transfer of or exchange any Securities for a
(9)
<PAGE> 15
period of 15 days before a selection of Securities to be redeemed. To permit
registrations of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the Registrar's request. The Company
may charge a reasonable fee for any transfer or exchange, and may require
payment of a sum sufficient to cover any transfer tax or other governmental
charge that may be imposed in connection therewith (other than any such transfer
taxes or similar governmental charge payable upon exchanges pursuant to Sections
2.10, 3.06 or 10.02).
(b) All Securities presented or surrendered for exchange, registration
of transfer, redemption or payment shall, if so required by the Trustee or the
Company, be accompanied by a written instrument or instruments of transfer and
other required documentation satisfactory in form to the Company and the
Trustee, duly executed by the registered owner or by his attorney duly
authorized in writing.
SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is
surrendered to the Trustee, or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, and neither the Company
nor the Trustee has received notice that such Security has been acquired by a
bona fide purchaser, the Company shall issue and the Trustee, at the Company's
request, shall authenticate a replacement Security if the Trustee's requirements
are met. If required by the Trustee or the Company, the applicant for a
replacement Security must provide (a) an indemnity bond which must be sufficient
in the judgment of both the Trustee and the Company to protect the Company, the
Trustee or any Agent from any loss which any of them may suffer if a Security is
replaced and (b) evidence to the satisfaction of the Company and the Trustee of
the loss, destruction or theft of such Security and the ownership thereof. The
Company may charge such Holder for its expenses in replacing a Security.
SECTION 2.08. OUTSTANDING SECURITIES. (a) The Securities outstanding at
any time are all Securities that have been authenticated by the Trustee, except
for those cancelled by it, those delivered to it for cancellation and those
described in this Section 2.08 as not outstanding. Subject to Section 2.09, a
Security does not cease to be outstanding because the Company or one of its
Affiliates holds the Security.
(b) If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding, until the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
(c) If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on a Redemption Date money, or on the Maturity Date money and/or
stock certificates, sufficient to pay principal of and accrued interest on
Securities payable on that date, then on and after that date such Securities
cease to be outstanding and interest on them ceases to accrue.
(10)
<PAGE> 16
SECTION 2.09. TREASURY SECURITIES. In determining whether the Holders
of the required principal amount of Securities have concurred in any notice,
direction, waiver or consent, Securities owned by the Company or any of its
Affiliates shall be disregarded, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such notice, direction,
waiver or consent, only Securities which the Trustee knows are so owned shall be
so disregarded. Securities so owned which have been pledged in good faith shall
not be disregarded if the pledgee establishes to the satisfaction of the Trustee
that the pledgee has the right so to act with respect to the Securities and that
the pledgee is not the Company or any of its Affiliates.
SECTION 2.10. TEMPORARY SECURITIES. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and, upon receiving an appropriate Company Order, the Trustee
shall authenticate definitive Securities in exchange for temporary Securities.
SECTION 2.11. CANCELLATION. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar, Paying Agent and
Conversion Agent shall forward to the Trustee any Securities surrendered to them
for transfer, exchange, payment or conversion. The Trustee and no one else shall
cancel all Securities surrendered for transfer, exchange, payment, conversion or
cancellation and shall destroy canceled Securities and shall deliver a
certificate of such destruction to the Company. Subject to Section 2.07, the
Company may not issue new Securities to replace Securities it has paid or
delivered to the Trustee for cancellation or that any Securityholder has
converted pursuant to Article Ten.
ARTICLE THREE
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE AND PAYING AGENT. (a) If the Company
elects to redeem Securities pursuant to Section 5 of the Securities, it shall
notify the Trustee and the Paying Agent in writing of the Redemption Date and
the principal amount of Securities to be redeemed.
(b) The Company shall give the notice provided for in subsection
3.01(a) at least 45 days before the Redemption Date (unless a shorter notice is
satisfactory to the Trustee).
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If less than all
of the Securities are to be redeemed, the Trustee shall select the Securities to
be redeemed
(11)
<PAGE> 17
pro rata or by lot or in such other manner as the Trustee shall deem fair to the
Securityholders. The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption. Securities in
denominations of $100 may be redeemed only in whole. The Trustee may select for
redemption portions (equal to $100 or any integral multiple thereof) of the
principal of securities that have denominations larger than $100. The Trustee
shall promptly notify the Company in writing of such Securities selected for
redemption and, in the case of any Security selected for partial redemption, the
principal amount to be redeemed. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.03. NOTICE OF REDEMPTION. (a) At least 30 days before a
Redemption Date, the Company shall mail or cause the mailing of a notice of
redemption by first class mail to each Holder whose Securities are to be
redeemed.
(b) The notice shall identify the Securities to be redeemed and shall
state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the Conversion Price;
(iv) the amount of interest accrued on the Securities called
for redemption up to but not including the Redemption Date and that
interest on such Securities ceases to accrue on and after the
Redemption Date;
(v) the name and address of the Paying Agent and the
Conversion Agent;
(vi) that Securities called for redemption may be converted at
any time before the close of business on the day prior to the
Redemption Date;
(vii) that Holders who want to convert Securities must satisfy
the requirements in Section 7 of the Securities;
(viii) that Securities called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(ix) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after
the Redemption Date, upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed
portion thereof will be issued without charge to the Securityholder;
(12)
<PAGE> 18
(x) if the Security is being redeemed based upon the relation
of the Quoted Price to the conversion price then in effect for the
Common Stock, the amount of the Quoted Price and the beginning and end
of the 30 trading days when the Quoted Price was determined.
(c) At the Company's request, and after receiving a Company Request,
the Trustee shall give the notice of redemption in the Company's name and at the
Company's expense. Any such notice, if given in accordance with this Indenture,
shall be deemed properly given, regardless of whether it is actually received.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption
is mailed, Securities called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender to the Paying Agent,
Securities called for redemption shall be paid at the Redemption Price plus
accrued interest to the Redemption Date. Interest on Securities called for
redemption ceases to accrue on and after the Redemption Date unless the Company
fails to pay the Redemption Price.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. On or before the Redemption
Date, the Company shall deposit with the Paying Agent (or if the Company is its
own Paying Agent, shall segregate and hold in trust) cash or cleared funds in an
amount sufficient to pay the Redemption Price of all Securities or portions
thereof to be redeemed on that date other than Securities or portions thereof
called for redemption on that date which have been delivered by the Company to
the Trustee for cancellation. The Paying Agent shall return to the Company any
money previously deposited but no longer required for that purpose because of
conversion of Securities.
SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a Security
that is redeemed in part, the Company shall execute, and the Trustee shall
authenticate for the Holder, a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
ARTICLE FOUR
SUBORDINATION; RELATIONSHIP TO ORIGINAL NOTES
SECTION 4.01. SECURITIES SUBORDINATED TO SENIOR DEBT. (a) The Company
agrees, and each Holder of the Securities by his acceptance thereof likewise
agrees, that the payment (i) of the principal and interest on, and any other
amount due in respect of, the Securities, and (ii) to acquire any of the
Securities is subordinated to the extent and in the manner provided in this
Article Four, to the prior payment in full of all Senior Debt and the
termination of all financing arrangements between the Company and the holders of
Senior Debt.
(13)
<PAGE> 19
(b) This Article Four shall constitute a continuing offer to all
persons who, in reliance upon such provisions, become holders of, or continue to
hold, Senior Debt, and such provisions are made for the benefit of the holders
of Senior Debt, and such holders are made obligees hereunder and any one or more
of them may enforce such provision. Each Holder of a Security, by virtue of his
acceptance thereof, specifically agrees to be bound by the provisions of this
Article Four and the other related provisions of this Indenture.
SECTION 4.02. MATURITY OF SENIOR DEBT. Upon maturity of any Senior Debt
by lapse of time, acceleration or otherwise, then all principal of, premium, if
any, and interest on, and any other amount due pursuant to the terms of the
instruments or agreements creating, relating to or evidencing all such matured
Senior Debt shall first be paid in full before any payment on account of
principal, interest, mandatory redemption provisions or any other amount due is
made upon a Security.
SECTION 4.03. LIQUIDATION, ETC. In the event of any insolvency,
bankruptcy, liquidation, reorganization or other similar proceedings, or any
receivership proceedings in connection therewith, relative to the Company or
its creditors or its property, and in the event of any proceedings for voluntary
liquidation, dissolution, or other winding up of the Company, whether or not
involving insolvency or bankruptcy proceedings, then all principal, premium, if
any, and interest due on and any other amount due pursuant to the terms of the
instruments or agreements creating, relating to or evidencing Senior Debt shall
first be paid in full before any payment on account of principal or interest or
any other amount due is made upon a Security. Except as may otherwise be ordered
by a court of competent jurisdiction, any payment or distribution of any kind or
character, whether in cash, property, stock, or obligations, which may be
payable or deliverable in respect of a Security in any of the proceedings
referred to in the first sentence of this Section 4.03 shall be paid or
delivered directly to the holders of Senior Debt for application in payment
thereof, unless and until all principal and interest on, and any other amount
due in respect of, Senior Debt shall have been paid in full.
SECTION 4.04. SENIOR DEBT DEFAULT. The Company shall not make any, and
the Holders of the Securities shall not accept or receive, payment of principal
or interest on, or any amounts in respect of, or purchase or acquire for value
(and the Holders of the Securities shall not offer for sale or otherwise cause
the Company to purchase or acquire for value) (including, without limitation, on
account of the mandatory redemption provisions of the Securities) a Security if,
either immediately before or after any such payment is received by a Holder of a
Security, an event of default as defined in any indenture, agreement or
instrument creating or evidencing Senior Debt shall exist or any event which,
with the passage of time or the giving of notice or both, would constitute an
event of default as defined in any indenture, agreement or instrument creating
or evidencing Senior Debt shall exist. The Company shall give prompt written
notice to the Trustee of any default or of any
(14)
<PAGE> 20
event which, with the passage of time or the giving of notice or both, would
constitute an event of default, under any Senior Debt or under any agreement
pursuant to which Senior Debt may have been issued, but failure to give such
notice shall not affect the subordination of the Securities to the Senior Debt
provided in this Article Four. Should any payment or distribution be received by
a Holder of a Security prior to the payment in full of all Senior Debt and
termination of all financing arrangements between the Company and the holders of
the Senior Debt, and such payment violates any provision of this Article Four,
such Holder shall receive and hold the same in trust for the benefit of the
holders of the Senior Debt.
SECTION 4.05. COMPANY'S OBLIGATIONS UNIMPAIRED. The provisions of this
Article Four are for the purpose of defining the relative rights of the holders
of Senior Debt, on the one hand, and the Holders of the Securities on the other
hand, and, as between the Company and such Holders, nothing herein shall impair
the obligation of the Company, which is unconditional and absolute, to pay the
Holders the principal of and interest on the Securities in accordance with the
terms of the Securities, nor shall anything herein prevent the Holders of the
Securities from exercising all remedies otherwise permitted by applicable law
upon an Event of Default thereunder, subject to the rights, under this Article
Four, of holders of Senior Debt in respect of cash, property, stock or other
securities received upon the exercise of such remedies and subject to the other
provisions of this Indenture relating to the exercise of remedies by the Trustee
and/or the Holders of the Securities.
SECTION 4.06. SUBROGATION. Subject to the payment in full of all Senior
Debt, the Holders of the Securities shall be subrogated to the rights of the
holders of Senior Debt to receive payments or distributions of assets of the
Company payable or distributable to the holders of Senior Debt until all of the
Securities shall be paid in full and, as between the Company, its creditors,
other than the holders of Senior Debt, and the Holders of the Securities, no
payments or distributions otherwise payable or deliverable in respect of the
Securities, but, by virtue of the provisions thereof or of this Indenture, paid
or delivered to the holders of Senior Debt, shall be deemed to be a payment by
the Company on account of Senior Debt, and no payments or distributions paid to
the Holders of the Securities, by virtue of the subrogation herein provided for,
shall be deemed to be a payment by the Company on account of the Securities. The
holders of the Senior Debt shall be subrogated to the Holders of the Securities
with respect to their claims against the Company and their rights, liens and
security interests, if any, in any of the Company's assets and the proceeds
thereof until all Senior Debt shall have been paid and all financing
arrangements between the Company and the Holders of the Senior Debt have been
terminated.
SECTION 4.07. SUBORDINATION UNIMPAIRED. No right of any present or
future holder of Senior Debt to enforce subordination as herein provided shall
at any time in any way be prejudiced or impaired by any act or failure to act on
the part of the
(15)
<PAGE> 21
Company or by any act or failure to act in good faith by any such holder, or by
any noncompliance by the Company with the terms, provisions, and covenants of
any agreement relating to Senior Debt, regardless of any knowledge thereof any
such holder may have or be otherwise charged with. Each holder of a Security
authorizes each holder of Senior Debt to (i) change any terms relating to the
Senior Debt or any agreement relating thereto, (ii) make new loans or extend
further credit to the Company, grant renewals, increases or extensions for time
of payment of the Senior Debt, (iii) take or omit to take any action for the
enforcement of, or waive any rights with respect to, any Senior Debt, and (iv)
enter into such agreements as the holders of the Senior Debt may deem proper
affecting any collateral for the Senior Debt, or exchange, sell, release,
surrender or otherwise deal with such collateral, in each such case without
invalidating or impairing the subordination provided for herein.
SECTION 4.08. STANDSTILL; LIMITATION ON ACTIONS. No Holder of any
Securities may exercise any rights or remedies against the Company to enforce or
collect upon any Security or any amounts due in connection with such Security,
take possession of assets of the Company or foreclose upon any such assets,
whether by judicial action or otherwise, unless and until all of the Senior Debt
shall have been fully and finally paid and satisfied with interest and all
financing arrangements between the Company and the holders of Senior Debt have
been terminated; PROVIDED, HOWEVER, that, subject to the right of the holders of
Senior Debt to receive prior payment in full under the terms hereof, if an Event
of Default under any of Sections 7.01(i), 7.01(iv) or 7.01(v) occurs, then the
Holders of the Securities may exercise any and all rights and remedies in
respect of such Event of Default, but only after expiration of the 179-day
period commencing upon actual receipt by the holder of the Senior Debt of notice
of such an Event of Default.
SECTION 4.09. RELATIONSHIP TO ORIGINAL NOTES. The Securities are in
pari passu to the Original Notes which were issued in October 1996 in connection
with a rights offering by the Company to its Stockholders. The Trustee also acts
as Trustee, Registrar, Paying Agent and Conversion Agent under the Indenture
dated October 15, 1996 governing the Original Notes.
ARTICLE FIVE
COVENANTS
SECTION 5.01. PAYMENT OF SECURITIES. Subject to the terms of Article
Four hereof, the Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities and this
Indenture. No installments of principal or interest are payable until the
Maturity Date. Such principal amount or interest due shall be considered paid on
the date due if the Trustee or Paying Agent (other than the Company or its
Affiliates) holds on that date cash or cleared funds and/or stock certificates
for Common Stock designated for and
(16)
<PAGE> 22
sufficient to pay such installment. The Company shall pay interest on overdue
principal at a rate per annum equal to the rate set forth in the title of the
Securities; it shall pay interest on overdue interest at the same rate of
interest to the extent lawful.
SECTION 5.02. LIMITATION ON INDEBTEDNESS FOR BORROWED MONEY. The
Company will not, and will not permit any Subsidiary to, incur any indebtedness
for borrowed money that would rank senior to the Securities, except (i) any such
indebtedness existing on the date hereof or under the Company's existing
revolving credit facility; (ii) any renewals, refinancings, extensions or
refundings under any indebtedness referred to in clause (i) above; (iii) any
indebtedness secured by purchase money security interests; (iv) any other senior
bank or other institutional indebtedness; (v) any indebtedness of a Subsidiary
to another Subsidiary; (vi) any indebtedness of any other entity existing at the
time such entity merged with or into or became a Subsidiary of the Company or of
a Subsidiary, including indebtedness incurred in connection with, or in
contemplation of, such other entity merging with or into or becoming a
Subsidiary of the Company or of a Subsidiary or assumed by the Company or a
Subsidiary in connection with its acquisition of the assets owned by such other
entity, (vii) any indebtedness incurred in connection with a merger with or
into, or the acquisition of the stock or assets of, a Person and (viii) any
indebtedness to holders of the Securities.
SECTION 5.03. REPORTS BY THE COMPANY. (a) The Company shall file with
the Trustee within 15 days after filing with the SEC copies of the annual
reports and the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and such
additional information, documents and reports with respect to compliance by the
Company with the conditions and covenants set forth in this Indenture as the
SEC may by rules and regulations prescribe.
(b) So long as any Security is outstanding, the Company shall cause its
annual report to stockholders and any quarterly or other financial reports
furnished by it to stockholders to be mailed to the Holders at their addresses
appearing in the register of Securities maintained by the Registrar.
(c) The Company shall promptly furnish such additional information
concerning the Company as may be reasonably requested and deemed necessary by
the Trustee in the conduct of its duties hereunder; provided, however, that the
Company shall have no such obligation with respect to information constituting
restricted information under any law or governmental regulation at the time
applicable thereto.
(17)
<PAGE> 23
SECTION 5.04. CORPORATE EXISTENCE. Subject to Article Six, the Company
shall not liquidate or discontinue its normal operations with intention to
liquidate.
SECTION 5.05. NOTICE OF DEFAULT. (a) In the event that the Company or
any of its Subsidiaries receive written notice from any holder of Indebtedness
that the full amount of such Indebtedness has been declared due and payable
before its maturity because of an acceleration of such Indebtedness or the
occurrence of any default under such Indebtedness, the Company shall promptly
give written notice to the Trustee of such declaration.
(b) The Company shall deliver to the Trustee within 120 days after the
end of each fiscal year an Officer's Certificate stating whether or not there
has been any Default or Event of Default by the Company that occurred during
such fiscal year. If there has been a Default or Event of Default, the
certificate shall describe the Default or Event of Default and its status. The
first certificate to be delivered by the Company pursuant to this Section 5.05
shall be for the first fiscal year beginning after the date of the Indenture.
SECTION 5.06. WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay or extension law or any usury law or other law that
would prohibit or forgive the Company from paying all of any portion of the
principal or interest on overdue principal, if any, of the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
ARTICLE SIX
SUCCESSORS
SECTION 6.01. WHEN COMPANY MAY MERGE, ETC. (a) The Company shall not
consolidate with or merge into any other corporation or transfer all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to any Person, unless:
(i) either the Company shall be the continuing Person, or the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged, or the Person to which the properties and
assets of the Company as an entirety or substantially as an entirety
are transferred, shall
(18)
<PAGE> 24
be a Person organized and existing under the laws of the United States
of America, any State thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form reasonably satisfactory to the
Trustee and in compliance with Article Eleven, all the obligations of
the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and
(iii) immediately after giving effect to such transaction the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged or to which the properties and assets of
the Company as an entirety or substantially as an entirety are
transferred shall have a positive Consolidated Net Worth equal to not
less than the Consolidated Net Worth of the Company immediately
preceding such transaction.
(b) The Company shall deliver to the Trustee, and the Trustee shall be
fully protected in relying upon, an Officer's Certificate and an Opinion of
Counsel, each to the effect that such consolidation, merger or transfer and the
entering into any such supplemental indenture comply with this Indenture and
that all conditions precedent herein provided for relating to such transaction
have been complied with.
SECTION 6.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation
or merger, or any transfer of all or substantially all of the assets of the
Company in accordance with Section 6.01, the successor corporation formed by
such consolidation or into which the Company is merged or the Person to which
such transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor corporation had been named as the Company herein. When such
a successor assumes all obligations of its predecessor under this Indenture and
the Securities, the predecessor shall be released from such obligations.
ARTICLE SEVEN
DEFAULT AND REMEDIES
SECTION 7.01. EVENTS OF DEFAULT. (a) Each of the following shall
constitute an "Event of Default":
(i) the Company defaults in the payment of the principal of
and interest on any Security when the same becomes due and payable at
maturity, upon redemption or otherwise, and the default continues for a
period of 10 days;
(19)
<PAGE> 25
(ii) the Company fails to observe or perform any of its other
covenants contained in the Securities or this Indenture, or any
material representation of the Company in the Securities or this
Indenture shall prove to be untrue in any material respect on the date
made, and, in any case, such default continues for the period and after
the notice specified below;
(iii) there shall be a default under any Indebtedness of the
Company or any Subsidiary, whether such Indebtedness now exists or
shall hereafter be created, which default shall have resulted in such
Indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable or at
maturity, without such acceleration having been rescinded or annulled
or such Indebtedness having been discharged; provided, however, that no
default under this clause (a)(iii) shall exist if all such defaults
taken as a whole relate to Indebtedness with an aggregate principal
amount of less than $1,000,000;
(iv) the Company pursuant to or within the meaning of any
Bankruptcy Law (i) commences a voluntary case or proceeding, (ii)
consents to the entry of an order for relief against it in an
involuntary case or proceeding, (iii) consents to the appointment of a
Custodian of it or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of its creditors;
(v) a court of competent jurisdiction enters a decree or order
under any Bankruptcy Law that (i) is for relief against the Company in
an involuntary case or proceeding, (ii) appoints a Custodian of the
Company or for all or substantially all of its property or (iii) orders
the liquidation of the Company; and in each case the decree or order
remains unstayed and in effect for a period of 45 days;
(b) A Default under clause (a)(ii) is not an Event of Default until the
Trustee, with actual knowledge of a Default, notifies the Company or until the
Holders of at least 25% in principal amount of the Securities then outstanding
notify the Company and the Trustee of the Default, and the Company does not cure
the Default within 30 days after receipt of the notice. The notice called for by
this subsection (b) must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default."
(c) When a Default is cured or waived, it will be deemed never to have
existed.
SECTION 7.02. ACCELERATION. If an Event of Default (other than an Event
of Default specified in clause 7.01(a)(iv) or 7.01(a)(v)) occurs and is
continuing, the Trustee by written notice to the Company, or the Holders of at
least 25% in principal
(20)
<PAGE> 26
amount of the Securities then outstanding by written notice to the Company and
the Trustee, may declare the principal of and accrued interest on the Securities
then outstanding to be due and payable. Upon such declaration, the principal and
interest shall become due and payable immediately (but payment thereof shall be
subject to the terms of Article Four hereof). If an Event of Default specified
in clause 7.01(a)(iv) or 7.01(a)(v) occurs, all unpaid principal of and accrued
interest on the Securities then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Securityholder (but payment thereof shall be subject to the
terms of Article Four hereof). Upon payment of such principal and interest, all
of the Company's obligations under such Securities and this Indenture, other
than its obligations under Section 8.07, shall terminate. The Holders of a
majority in principal amount of the Securities then outstanding by written
notice to the Trustee may rescind an acceleration with respect to such Security
and its consequences if (a) all existing Events of Default, other than the
nonpayment of the principal of such Securities which has become due solely by
such declaration of acceleration, have been cured or waived, (b) to the extent
the payment of such interest is lawful, interest on overdue principal and
interest, which has become due otherwise than by such declaration of
acceleration, has been paid, (c) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction, and (d) all payments
due to the Trustee and any predecessor Trustee under Section 8.07 have been
made. Anything herein contained to the contrary notwithstanding, in the event of
any acceleration pursuant to this Section 7.02, the Company shall not be
obligated to pay any premium which it would have had to pay if it had then
elected to redeem the Securities pursuant to the terms of the Securities.
SECTION 7.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may, subject to the terms of this Indenture, pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of or interest on the Securities or to enforce the performance of any
provision of the Securities or this Indenture. The Trustee may maintain a
proceeding even if it does not possess any of the Securities or does not produce
any of them in the proceeding. A delay or omission by the Trustee or any
Securityholder in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
SECTION 7.04. WAIVER OF PAST DEFAULTS. Subject to Sections 7.07 and
11.02, the Holders of a majority in principal amount of the outstanding
Securities by written notice to the Trustee may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of or interest on any Security. When a Default or Event of Default is
waived, it is cured and ceases.
(21)
<PAGE> 27
SECTION 7.05. CONTROL BY MAJORITY. The Holders of a majority in
principal amount of the outstanding Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with any law or this Indenture that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder or that may involve the Trustee in personal liability; provided,
that the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
SECTION 7.06. LIMITATION ON SUITS. Notwithstanding anything to the
contrary set forth herein, neither a Holder nor the Trustee may pursue any
remedy with respect to this Indenture or the Securities unless:
(i) the Holder gives to the Trustee and the Company written
notice of a continuing Event of Default;
(ii) the Holders of at least 25% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue
the remedy and a copy thereof is forwarded to the Company;
(iii) such Holder or Holders offer to the Trustee indemnity
and security therefor satisfactory to the Trustee against any loss,
liability or expense;
(iv) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of satisfactory
indemnity and security therefor;
(v) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee
a direction which, in the opinion of the Trustee, is inconsistent with
the request; and
(vi) the provisions of Section 4.08 hereof shall have been
complied with.
Neither a Securityholder nor the Trustee may use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over such
other Securityholder.
This Section 7.06 shall constitute a continuing offer to all persons who, in
reliance on such section, become holders of, or continue to hold, Senior Debt,
and this section is made for the benefit of the holders of Senior Debt, and such
holders are made obligees hereunder and any one or more of them may enforce this
section.
(22)
<PAGE> 28
SECTION 7.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Subject to Article
Four, notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest on a Security on or after
the respective due dates expressed in the Security, or to bring suit for the
enforcement of any such payment on or after such date, shall not be impaired or
affected without the consent of such Holder. Notwithstanding any other provision
of this Indenture, the right of any Holder of a Security to bring suit for the
enforcement of the right to convert the Security shall not be impaired or
affected without the consent of the Holder.
SECTION 7.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default in
payment of interest or principal specified in clause 7.01(a)(i) occurs and is
continuing, subject to the terms of Article 4 hereof and Section 7.06 above, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or any other obligor on the Securities for the whole amount
of unpaid principal and accrued interest remaining unpaid, together with
interest on overdue principal and, to the extent permitted by law, interest on
overdue interest, in each case at a rate per annum equal to the rate set forth
in the title of the Securities, and such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel and any other amounts due the Trustee pursuant to Section 8.07.
SECTION 7.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and the Securityholders allowed in any judicial
proceedings relative to the Company (or any other obligor upon the Securities),
its creditors or its property, and subject to the terms of Article 4 hereof and
Section 7.06 above, shall be entitled and empowered to collect and receive any
monies or other property payable or deliverable on any such claims and to
distribute the same, and any Custodian in any such judicial proceedings is
hereby authorized by each Securityholder to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 8.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 7.10. PRIORITIES. If the Trustee collects any money pursuant
to this Article Seven, it shall pay out the money in the following order:
(23)
<PAGE> 29
First: to the Trustee for amounts due under Section 8.07;
Second: to holders of Senior Debt, to the extent required by
Article Four;
Third: to holders thereof for amounts due and unpaid on the
Securities and on the Original Notes, in pari passu, for principal and
interest or interest on overdue principal, if any, and, to the extent
permitted by law, interest on overdue interest, if any, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Securities and the Old Notes for principal and
interest, respectively; and
Fourth: to the Company.
The Trustee, upon prior written notice to the Company, may fix a record date and
payment date for any payment to Securityholders pursuant to this Section 7.10.
SECTION 7.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking including
security therefor to pay the costs of the suit, and the court in its discretion
may assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This Section 7.11 does not
apply to a suit by the Trustee, a suit by a Holder pursuant to Section 7.07 or a
suit by Holders of more than 10% in principal amount of the outstanding
Securities or a suit by any holder of Senior Debt.
ARTICLE EIGHT
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed. The Trustee
also acts as Trustee, Registrar, Paying Agent and Conversion Agent under the
Indenture dated October 15, 1996 governing the Original Notes.
SECTION 8.01. DUTIES OF TRUSTEE. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(24)
<PAGE> 30
(b) Except during the continuance of an Event of Default:
(i) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no others; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; however, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liability for its own gross
negligent action, its own gross negligent failure to act or its own willful
misconduct, except that:
(i) this subsection (c) does not limit the effect of
subsection (b) of this Section 8.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 7.05.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to subsections (a), (b), (c) and (d) of this Section 8.01
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree with the Company in a writing separate
from this Indenture. Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(25)
<PAGE> 31
SECTION 8.02. RIGHTS OF TRUSTEE. Subject to Section 8.01:
(i) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(ii) Before the Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel, which shall
conform to Section 12.03. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(iii) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(iv) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or
within its rights or powers.
(v) The Trustee may consult with counsel and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
(vi) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Securityholders, pursuant to the
provisions of this Indenture, unless such Securityholders shall have
offered, to the satisfaction of the Trustee, security against the
costs, expenses and liabilities which might be incurred by the Trustee
thereby.
SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Agent may do the same with like
rights. However, the Trustee must comply with Sections 8.10 and 8.11.
SECTION 8.04. DISCLAIMERS. The Trustee makes no representation as to
the validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities or for the
use or application of any money, securities or assets by any Paying Agent (other
than the Trustee) and it shall not be responsible for any statement in the
Securities other than its certificate of authentication.
(26)
<PAGE> 32
SECTION 8.05. NOTICE OF DEFAULTS. If a Default or an Event of Default
occurs and is continuing and if it is known to the Trustee, the Trustee shall
mail to each Securityholder and the Company notice of the Default or Event of
Default within 90 days after it occurs or becomes known to the Trustee,
whichever is later; provided, however, that except in the case of a Default or
an Event of Default in payment of principal or interest on any Security, the
Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the interest
of the Securityholders.
SECTION 8.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each
May 15 beginning with May 15, 1999, the Trustee shall mail to each
Securityholder a brief report dated as of such May 15 that complies with Section
313(a) of the TIA, as if this Indenture were governed by the same. The Trustee
also shall comply with Section 313(b) and (c) of the TIA, as if this Indenture
were governed by the same. A copy of each such report at the time of its mailing
to Securityholders shall be mailed to the Company and filed with the SEC and
each securities exchange, if any, on which the Securities are listed. The
Company shall notify the Trustee if the Securities become listed on any
securities exchange.
SECTION 8.07. COMPENSATION AND INDEMNITY. (a) The Company shall pay to
the Trustee such compensation as the Company and the Trustee shall from time to
time agree in writing for its services. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable disbursements,
expenses and advances incurred or made by it. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
(b) The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability incurred by it in connection with the
administration of this Indenture and its duties hereunder, including the
reasonable expenses of defending itself against any claim of liability
hereunder. The Trustee shall notify the Company promptly of any claim asserted
against the Trustee for which it may seek indemnity. The Company need not
reimburse any expense or indemnify against any loss or liability incurred by the
Trustee through negligence or bad faith on its part.
(c) To secure the Company's payment obligations in this Section 8.07,
the Trustee shall have a senior lien to which the Securities are hereby made
subordinate on all money or property held or collected by the Trustee, in its
capacity as Trustee, except money or property (including stock certificates)
held in trust to pay principal of and interest on particular Securities.
(d) When the Trustee incurs expenses or renders services after an Event
of Default specified in clause 7.01(a)(iv) or 7.01(a)(v) occurs, the expenses
and the
(27)
<PAGE> 33
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 8.08. REPLACEMENT OF TRUSTEE. (a) The Trustee may resign by so
notifying the Company in writing. The Holders of a majority in principal amount
of the outstanding Securities may remove the Trustee by so notifying the Trustee
and the Company in writing and may appoint a successor Trustee with the
Company's written consent. The Company may remove the Trustee if:
(i) the Trustee fails to comply with Section 8.10;
(ii) the Trustee is adjudged a bankrupt or an insolvent;
(iii) a receiver or other public officer takes charge of the
Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
(b) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
(c) A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately thereafter,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 8.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
(d) If a successor Trustee does not take office within 60 days after
the retiring or removed Trustee resigns or is removed, the retiring or removed
Trustee, the Company or the Holders of at least a majority in principal amount
of the outstanding Securities may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(e) If the Trustee fails to comply with Section 8.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
(f) Notwithstanding replacement of the Trustee pursuant to this Section
8.08, the Company's obligations under Section 8.07 shall continue for the
benefit of the retiring or removed Trustee.
(28)
<PAGE> 34
SECTION 8.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation, the successor,
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee.
SECTION 8.10. ELIGIBILITY; DISQUALIFICATION. This Indenture shall
always have a Trustee who satisfies the requirements of Section 310(a)(1) of the
TIA, as if this Indenture were governed by the same. The Trustee shall have a
combined capital and surplus of at least $1,000,000, as set forth in its most
recent published annual report of condition. The Trustee shall comply with
Section 310(b) of the TIA, including the optional provision permitted by the
second sentence of Section 310(b)(9) of the TIA, as if this Indenture were
governed by the same; provided, however, that there shall be excluded from the
operation of Section 310(b)(1) of the TIA any indenture or indentures under
which other securities, or certificates of interest or participation in other
securities of the Company are outstanding, if the requirements for such
exclusion set forth in Section 310(b)(1) of the TIA are met.
SECTION 8.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 311(a) of the TIA, excluding any creditor
relationship listed in Section 311(b) of the TIA, as if this Indenture were
governed by the same. A Trustee who has resigned or been removed shall be
subject to Section 311(a) of the TIA to the extent indicated, as if this
Indenture were governed by the same.
ARTICLE NINE
DISCHARGE OF INDENTURE
SECTION 9.01. TERMINATION OF THE COMPANY'S OBLIGATION. (a) The Company
may terminate its obligations under the Securities and this Indenture if all
such Securities previously authenticated and delivered (other than destroyed,
lost or wrongfully taken Securities which have been replaced or paid or
Securities for whose payment money or securities have theretofore been held in
trust and thereafter repaid to the Company, as provided in Section 9.03) have
been delivered to the Trustee for cancellation and the Company has paid all sums
payable by it hereunder, or if the Company has irrevocably deposited or caused
to be deposited with the Trustee or Paying Agent (if other than the Company),
under the terms of an irrevocable trust agreement in form and substance
reasonably satisfactory to the Trustee and any such Paying Agent, as trust funds
in trust solely for the benefit of the Holders for that purpose, money or U.S.
Government Obligations maturing as to principal and interest in such amounts and
at such times as are sufficient without consideration of any reinvestment of
such interest, to pay principal of and interest on the outstanding Securities to
maturity or redemption and all other sums payable hereunder by the Company, as
the case may be; provided, that the Trustee or such Paying Agent shall
(29)
<PAGE> 35
have been irrevocably instructed to apply such money or the proceeds of such
U.S. Government Obligations to the payment of said principal and interest and
such amounts with respect to the Securities. The Company shall also pay or cause
to be paid all other sums payable hereunder by the Company and shall deliver to
the Trustee an Officer's Certificate stating that all conditions precedent to
the satisfaction and discharge of this Indenture have been complied with and an
Opinion of Counsel to the same effect.
(b) Notwithstanding the foregoing subsection (a), the Company's and
Trustee's obligations under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 5.01, 8.07,
8.08, 9.03 and 9.04 and Article Ten shall survive until such Securities are no
longer outstanding. Thereafter, the Company's and the Trustee's obligations in
Sections 8.07, 9.03 and 9.04 shall survive.
(c) After any such delivery or irrevocable deposit, subject to Section
9.04, the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under the Securities and this Indenture except for those
surviving obligations specified above.
SECTION 9.02. APPLICATION OF TRUST MONEY. The Trustee or Paying Agent
shall hold in trust money or U.S. Government Obligations deposited with it
pursuant to Section 9.01. It shall apply the deposited money and the money from
U.S. Government Obligations in accordance with this Indenture to the payment of
principal and interest on the Securities. Money and U.S. Government Obligations
so held in trust are not subject to the subordination provisions of Article Four
if such money and U.S. Government Obligations were received in trust prior to
the occurrence of an event of default with respect to any Senior Debt.
SECTION 9.03. REPAYMENT TO THE COMPANY. Subject to Section 9.01, the
Trustee and the Paying Agent shall promptly pay to the Company upon request any
excess money or U.S. Government Obligations held by them at any time. The
Trustee and the Paying Agent shall pay or deliver to the Company upon request
any money held by them and/or any stock certificate(s) held by them, for the
payment of principal or interest that remains unclaimed for two years after the
date such payment shall have become due. After payment to the Company,
Securityholders entitled to money must look to the Company for payment as
general creditors unless an applicable abandoned property law designates another
Person, and the Trustee and the Paying Agent shall have no responsibility to the
Securityholders for such money or stock.
SECTION 9.04. REINSTATEMENT. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
9.01 by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such
(30)
<PAGE> 36
application, the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 9.01 until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with Section
9.01; provided, however, that if the Company has made any payment of principal
of or interest on any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE TEN
CONVERSION
SECTION 10.01. RIGHT OF CONVERSION; CONVERSION PRICE. The Holder of a
Security may convert the principal amount of the Security in whole, and, at the
Company's option accrued interest thereon, or, if less than the whole principal
amount, any portion thereof that is in an integral multiple of $100 and, at the
Company's option accrued interest on such portion, into Common Stock at the
Conversion Price: (i) at any time after __________, 2001 and before the close of
business on the Maturity Date, (ii) in the event of an Election Contest, and
(iii) upon a Change of Control. In addition, if a Security is called for
redemption, the Holder may convert it at any time before the close of business
on the last Business Day prior to the Redemption Date.
SECTION 10.02. PROCEDURES FOR CONVERSION. (a) To convert a Security, a
Holder must (i) complete and sign the conversion notice attached to a Security,
(ii) surrender a Security to the Company or its Conversion Agent, (iii) furnish
required endorsements and transfer documents and (iv) pay any transfer tax or
similar tax if required. A Holder may convert a portion of a Security only if
the portion is $100 or an integral multiple of $100.
(b) As promptly as practicable after the surrender of a Security for
conversion, the Company shall deliver, to or upon the written order of the
Holder, certificates representing the number of fully paid and nonassessable
shares of Common Stock into which the Security may be converted in accordance
with the provisions of the Security and this Indenture. Such conversion shall be
deemed to have been made at the close of business on the date that a Security
shall have been surrendered for conversion with a written notice of conversion
duly executed in satisfactory form for conversion. At such time, the rights of
the Holder of a Security as such a Holder shall cease, and, subject to the
provisions of subsection (c) below, the person or persons entitled to receive
the shares of Common Stock upon conversion of a Security shall be treated for
all purposes as having become the record holder or holders of such shares of
Common Stock at such time. Any such
(31)
<PAGE> 37
conversion shall be at the Conversion Price in effect at such time. Interest on
the Security surrendered for conversion will accrue through the date that such
Security has been duly surrendered for conversion and, at the Company's option,
will be paid in cash or will be converted into Common Stock at the Conversion
Price with the principal amount of the Security being surrendered.
(c) Notwithstanding the above, if the stock transfer books of the
Company shall be closed on the date of such surrender described in subsection
(b) above, such surrender shall be effective at the close of business on the
next succeeding day on which such stock transfer books are open. As of the
close of business on such succeeding day, the person or persons entitled to
receive such shares of Common Stock shall be deemed the record holder or holders
thereof for all purposes. Such conversion shall be at the conversion price in
effect on the date that a Security shall have been surrendered for conversion in
satisfactory form for conversion, as if the stock transfer books of the Company
had not been closed.
(d) Upon conversion of a Security in part only, the Company shall
execute and deliver to or on the order of the Holder thereof, at the expense of
the Company, a new Security of authorized denomination in principal amount equal
to the unconverted portion of a Security.
(e) If the last day for the exercise of the conversion right shall not
be a Business Day, then such conversion right may be exercised on the next
succeeding Business Day.
SECTION 10.03. ADJUSTMENTS TO CONVERSION PRICE. The number of shares of
Common Stock deliverable upon conversion of a Security shall be subject to
adjustment from time to time as follows:
(i) STOCK SPLITS, STOCK DIVIDENDS, ETC. If the Company (A) takes
a record of the holders of Common Stock for the purpose of entitling
them to receive a dividend payable in shares of Common Stock, (B)
subdivides its outstanding shares of Common Stock into a greater number
of shares, (C) combines its outstanding shares of Common Stock into a
smaller number of shares, or (D) issues by reclassification of its
Common Stock any shares of the Company of any class or series, the
Holder of a Security shall thereafter be entitled to receive upon the
conversion of a Security the number of shares of Common Stock or other
class or series which he would have owned or have been entitled to
receive had the Security been converted immediately prior to the
happening of such event, such adjustment to become effective
immediately after the opening of business on the day following such
record date or the day upon which such subdivision, combination or
reclassification becomes effective.
(32)
<PAGE> 38
(ii) DIVIDENDS OF CONVERTIBLE SECURITIES. If the Company pays the
holders of Common Stock a dividend payable in any security convertible
into Common Stock and the Holder of a Security thereafter converts the
Security, such Holder shall be entitled to receive upon such
conversion, in addition to the shares of Common Stock deliverable to
him in accordance with the provisions hereof, the number of shares or
principal amount of such security convertible into Common Stock as he
would have been entitled to receive if he had converted immediately
prior to the payment of such dividend.
(iii) CONSOLIDATION OR MERGER. If the Company is a party to a
consolidation or merger or a transfer or lease of all or substantially
all of its assets, the right to convert a Security into Common Stock
may be changed into a right to convert it into securities, cash or
other assets of the Company or another entity.
(iv) DE MINIMIS. No adjustment in the number of shares into which
a Security may be converted shall be required unless such adjustment
would require an increase or decrease of at least one percent of the
number of shares for which the Security may be converted; provided,
however, that any adjustment which by reason hereof is not required to
be made shall be carried forward and taken into account in any
subsequent adjustment.
(v) NO FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of a Security, but instead, to the
extent that any fraction of a share would otherwise be issuable, the
Company will round such fraction of a share up to the nearest whole
share.
SECTION 10.04. COVENANT TO RESERVE SHARES. The Company covenants that
it will reserve and keep available, free from preemptive rights, out of its
authorized Common Stock, solely for the purpose of issuance upon conversion of
Securities as herein provided, such number of shares of Common Stock as shall
then be issuable with respect to the principal portion of the outstanding
Securities upon the conversion of all outstanding Securities. The Company
covenants that in the event of any election by it to pay the accrued interest
due under the outstanding Securities in Common Stock upon the conversion of all
outstanding Securities or upon the Maturity Date of the Securities, the Company
will, prior to the issuance of such Common Stock, reserve and keep available,
free from preemptive rights, out of Common Stock which has been authorized by
the Company's stockholders, solely for the purpose of issuance upon conversion
of the Securities or upon payment on the Maturity Date as herein provided, such
number of shares of Common Stock as shall then be issuable with respect to the
accrued interest upon such conversion or payment on all outstanding Securities.
The Company covenants that all shares of Common Stock which shall be so issuable
shall be, when issued, duly and validly issued and fully paid and nonassessable.
For purposes of this Section 10.04, the number of
(33)
<PAGE> 39
shares of Common Stock which shall be deliverable upon the conversion of all
outstanding Securities with respect to the principal portion of the outstanding
Securities or upon the conversion or payment at the Maturity Date of all
outstanding Securities with respect to the accrued interest, as the case may be,
shall be computed as if at the time of computation all outstanding Securities
were held by a single Holder.
SECTION 10.05. COMPLIANCE WITH LEGAL AND GOVERNMENTAL REQUIREMENTS. (a)
Before taking any action which would cause an adjustment reducing the Conversion
Price below the then stated or par value of the shares of Common Stock issuable
upon conversion of the Securities, the Company will take any corporate action
which may, in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue fully paid and nonassessable shares of such Common
Stock at such adjusted Conversion Price.
(b) The Company covenants that if any shares of Common Stock to be
issued upon conversion of Securities hereunder or upon payment of accrued
interest upon the Maturity Date hereunder, require registration with or approval
of any governmental authority under any federal or state law, or listing upon
any national or regional securities exchange, before such shares may be issued
upon conversion or payment, the Company will in good faith and as expeditiously
as possible endeavor to cause such shares to be duly registered, approved or
listed, as the case may be.
SECTION 10.06. PAYMENT OF TAXES. The issuance of certificates for
shares of Common Stock upon the conversion of the Securities shall be made
without charge to the converting Securityholders for any tax in respect of the
issuance of such certificates, and such certificates shall be issued in the
respective names of, or in any such names as may be directed by, the Holders of
the Securities converted; PROVIDED, HOWEVER that neither the Company nor any
Conversion Agent shall be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate in a name other than that of the Holder of Securities converted, and
neither the Company nor any Conversion Agent shall be required to issue or
deliver such certificates unless or until the Person or Persons requesting the
issuance thereof shall have paid to the Company or the Conversion Agent the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
SECTION 10.07. RESPONSIBILITY OF TRUSTEE AND CONVERSION AGENT. Neither
the Trustee nor any Conversion Agent shall at any time be under any duty or
responsibility to any Holder of Securities to determine whether any facts exist
which may require any adjustment of the Conversion Price, or with respect to the
nature or extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the
(34)
<PAGE> 40
same. Neither the Trustee nor any Conversion Agent shall be accountable with
respect to the validity or value (or the kind or amount) of any shares of Common
Stock or of any securities or property or cash which may at any time be issued
or delivered upon the conversion of any Security; and neither the Trustee nor
any Conversion Agent makes any representation with respect thereto. Neither the
Trustee nor any Conversion Agent shall be responsible for any failure of the
Company to make any cash payment or to issue, transfer or deliver any shares of
Common Stock or stock certificates or other securities or property upon the
surrender of any Security for the purpose of conversion or for payment of
interest due, or, subject to Section 8.01, to comply with any of the covenants
of the Company contained in this Article Ten.
ARTICLE ELEVEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 11.01. WITHOUT CONSENT OF HOLDERS. The Company, when authorized
by a Board Resolution, and the Trustee may amend or supplement this Indenture or
the Securities without notice to or consent of any Securityholder:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to comply with Article Six;
(iii) to comply with any requirements of the SEC in connection
with the qualification of this Indenture under the TIA, if required; or
(iv) to make any change that does not adversely affect the rights
of any Securityholders or the holders of the Senior Debt.
Anything to the contrary notwithstanding, the Company may at any time
amend or supplement this Indenture or the Securities without notice to or
consent of any Securityholder to lower the Conversion Price.
SECTION 11.02. WITH CONSENT OF HOLDERS. (a) Subject to Section 7.07,
the Company, when authorized by a Board Resolution, and the Trustee may amend or
supplement this Indenture or the Securities without prior notice to any Holder
but with the written consent of the Holders of a majority in principal amount of
the outstanding Securities. Subject to Section 7.07, the Holders of a majority
in principal amount of the Securities then outstanding may waive compliance by
the Company with any provision of this Indenture or the Securities without prior
notice to any Holder. However, subject to Section 11.03, without the consent of
each Holder
(35)
<PAGE> 41
affected thereby, an amendment, supplement or waiver, including a waiver
pursuant to Section 7.04, may not:
(i) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the rate of or extend the time for payment of
interest on any Security;
(iii) reduce the principal of or extend the fixed maturity of any
Security, or alter the redemption or conversion provisions with respect
thereto, in a manner adverse to any Holder;
(iv) waive a Default in the payment of the principal of or
redemption payment with respect to, any Security;
(v) make any changes in Section 7.04, 7.07 or this third
sentence of this Section 11.02; or
(vi) make any Security payable in money or property other than
that stated in the Security.
(b) It shall not be necessary for the consent of the Holders under this
Section 11.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
(c) After an amendment, supplement or waiver under this Section 11.02
becomes effective, the Company shall mail to the Holders affected thereby and
the Trustee a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amendment,
supplement or waiver.
SECTION 11.03. REVOCATION AND EFFECT OF CONSENTS. (a) Until an
amendment, supplement or waiver becomes effective, a consent to it by a Holder
is a continuing consent by the Holder and every subsequent Holder of a Security
or portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security. However,
any such Holder or subsequent Holder may revoke the consent as to his Security
or portion of a Security. Such revocation shall be effective only if the Trustee
receives written notice of revocation before the date the amendment, supplement
or waiver becomes effective.
(36)
<PAGE> 42
(b) The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the last
two sentences of the subsection (a) above, those Persons who were Holders on
such record date (or their duly designated proxies), and only those Persons,
shall be entitled to consent to such amendment, supplement or waiver or to
revoke any consent previously given, whether or not such Persons continue to be
Holders after such record date. No such consent shall be valid or effective for
more than 90 days after such record date.
(c) After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder, unless it makes a change described in any of
clauses (i) through (vi) of subsection 11.02(a). In that case, the amendment,
supplement or waiver shall bind each Holder of a Security who has consented to
it and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security.
SECTION 11.04. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment,
supplement or waiver changes the terms of a Security, the Trustee may require
the Holder of the Security to deliver it to the Trustee. The Trustee may place
an appropriate notation on the Security describing the changed terms and return
it to the Holder. Alternatively, if the Company or the Trustee so determines,
the Company in exchange for the Security shall issue without cost to the Holder
thereof, and the Trustee shall authenticate, a new Security that reflects the
changed terms.
SECTION 11.05. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign
any amendment, supplement or waiver authorized pursuant to this Article Eleven
if the amendment, supplement or waiver does not adversely affect the rights,
duties, liabilities or immunities of the Trustee. If it does, the Trustee may,
but need not, sign it. In signing or refusing to sign such amendment, supplement
or waiver, the Trustee shall be entitled to demand and receive and, subject to
Section 8.01, shall be fully protected in relying upon, one or more Officer's
Certificates and/or Opinions of Counsel as conclusive evidence that the
execution of such amendment, supplement or waiver is authorized or permitted by
this Indenture, is not inconsistent herewith and will be valid and binding upon
the Company in accordance with its terms. The Company may not sign an amendment
until the Board of Directors approves it.
(37)
<PAGE> 43
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. NOTICES. (a) Any notice or communication shall be
given in writing and delivered in person or mailed by first-class mail addressed
as follows:
if to the Company:
SPECIALTY CHEMICAL RESOURCES, INC.
9055 South Freeway Drive
Macedonia, Ohio 44056
Attention: Corey B. Roth, President
and Chief Operating Officer
if to the Trustee:
BANK ONE, N.A.
100 East Broad Street
Columbus, OH 43271-0181
Attn: Corporate Trust Administration
(b) Such notices or communications shall be effective when received.
The Company or the Trustee by notice to the other may designate additional or
different addresses for subsequent notices or communications.
(c) Any notice or communication mailed to a Securityholder shall be
mailed to such Holder first class mail, postage prepaid, at such Holder's
address as it appears on the registration books of the Registrar and shall be
sufficiently given to such Holder if so mailed within the time prescribed.
(d) Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.02. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon
any request or application by the Company to the Trustee to take or to refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee at the request of the Trustee:
(i) an Officer's Certificate (which shall include the statements
set forth in Section 12.03) stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(38)
<PAGE> 44
(ii) an Opinion of Counsel (which shall include the statements
set forth in Section 12.03) stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.03. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
Officer's Certificate or Opinion of Counsel with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that the person(s) signing such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on one or more Officer's Certificates or certificates of public
officials if the Opinion of Counsel expressly states that nothing has
come to the attention of such Counsel to make it believe there is not
justification to rely thereon.
SECTION 12.04. RULES BY TRUSTEE, REGISTRAR, PAYING AGENT AND CONVERSION
AGENT. The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar, Paying Agent or Conversion Agent may make
reasonable rules and set reasonable requirements for its functions.
SECTION 12.05. LEGAL HOLIDAYS. If a payment date is not a Business
Day, payment may be made on the next succeeding Business Day, and no interest
shall accrue for the intervening period.
SECTION 12.06. GOVERNING LAW. The laws of the State of Ohio shall
govern this Indenture and the Securities without regard to principles of
conflicts of laws.
SECTION 12.07. NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability.
(39)
<PAGE> 45
SECTION 12.08. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or a Subsidiary. Any such indenture, loan or debt agreement may
not be used to interpret this Indenture.
SECTION 12.09. SUCCESSORS. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors. All agreements of the
Securityholders in this Indenture and in the Securities shall bind their
respective successors.
SECTION 12.10. DUPLICATE ORIGINALS. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
SECTION 12.11. SEPARABILITY. In case any provision in this Indenture or
in the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefor against
any party hereto.
SECTION 12.12. TABLE OF CONTENTS, HEADINGS AND REFERENCES. The Table of
Contents and headings of Articles and Sections of this Indenture have been
inserted for convenience of reference only, shall not be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof. All references herein to Articles and Sections are to articles and
sections of this Indenture, unless otherwise indicated.
(40)
<PAGE> 46
SIGNATURES
----------
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the date first above written.
SPECIALTY CHEMICAL
RESOURCES, INC.
By:________________________________
[SEAL] Name:______________________________
Title:_____________________________
Attest: __________________________
BANK ONE, N.A.
By:________________________________
[SEAL] Name:______________________________
Title:_____________________________
Attest: __________________________
(41)
<PAGE> 47
EXHIBIT A
[FACE OF SECURITY]
No._______________ $_____________
SPECIALTY CHEMICAL RESOURCES, INC.
6% CONVERTIBLE SUBORDINATED NOTE DUE 2008
SPECIALTY CHEMICAL RESOURCES, INC., a Delaware corporation, for value
received, hereby promises to pay to _______________________ or registered
assigns the principal sum of __________________________________________ Dollars
($____________) on ____________, 2008.
Interest on this Note shall be paid at maturity.
Additional provisions of this Note are set forth on the reverse side
hereof.
Dated: ______________, 1998 SPECIALTY CHEMICAL
RESOURCES, INC.
By: ______________________________
By: ______________________________
Certificate of Authentication:
Bank One, N.A., as Trustee
certifies that this is one of the
Securities referred to in the within
mentioned Indenture.
By:____________________________
Authorized Signatory
A-1
<PAGE> 48
[BACK OF SECURITY]
SPECIALTY CHEMICAL RESOURCES, INC.
6% CONVERTIBLE SUBORDINATED NOTE DUE 2008
1. INTEREST. Specialty Chemical Resources, Inc. ("Company"), a Delaware
corporation, promises to pay interest on the principal amount of this Note at
the rate per annum shown above. The interest on the Notes will accrue and
compound semi-annually on each and _______________ from the date of this Note
and will be paid along with the principal amount of this Note on __________,
2008 (the "Maturity Date"). The interest will be payable in cash, or at the
Company's option, in Company common stock, par value $.10 per share ("Common
Stock"), and will be computed on the basis of a 360-day year of twelve 30-day
months. Interest will not be paid until the Maturity Date or until redemption of
this Note as permitted below.
2. METHOD OF PAYMENT. The Holder must surrender this Note to a Paying
Agent to collect the principal payment and accrued interest thereon due at
maturity. The Company will pay principal and interest at the offices or the
agencies of the Company maintained for that purpose in such coin or currency of
the United States of America that at the time of payment is legal tender for
payment of public and private debts. The Company, however, may pay principal and
interest by its check or its agent's check payable in such money and may mail
such an interest check to the Holder's registered address. Notwithstanding the
foregoing, in the event the Company elects to pay the accrued interest due to
the Holder by delivery of Common Stock in lieu of cash, the Company will deliver
stock certificate(s) representing the number of shares of Common Stock such
Holder is entitled to receive calculated by dividing the aggregate amount of
accrued interest due under this Note by the Conversion Price (as discussed
below) to the Holder's registered address.
3. REGISTRAR AND PAYING AGENT. Initially, Bank One, N.A. ("Trustee")
will act as Registrar, Paying Agent and Conversion Agent. The Company may change
any Registrar, co-registrar, Paying Agent or Conversion Agent without notice to
the Holder of this Note. The Company or any of its Subsidiaries may act as
Paying Agent, Registrar, co-registrar or Conversion Agent, except under certain
circumstances specified in the Indenture.
4. INDENTURE. The Company issued this Note under an Indenture, dated as
of , 1998 (as the same may be amended, supplemented or otherwise modified from
time to time, the "Indenture"), between the Company and the Trustee. The terms
of this Note include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.
77aaa-77bbbb), as in effect on the date of the Indenture (the "Act"), as if the
A-2
<PAGE> 49
Indenture were governed by the same. This Note is subject to all such terms and
the holder of this Note is referred to the Indenture and such Act for a
statement of them. The Holder, by virtue of his acceptance of this Note, agrees
to be bound by the terms of this Note and by the terms of the Indenture. The
Notes are unsecured general obligations of the Company limited to $1,800,000 in
original principal amount.
5. REDEMPTION. The Company may redeem this Note at any time, or from
time to time, on or after __________, 2001 and prior to the Maturity Date, at a
Redemption Price equal to the applicable percentage of the principal amount so
being redeemed determined as set forth below, in each case together with
interest accrued to the Redemption Date:
<TABLE>
<CAPTION>
Redemption
From To (Inclusive) Price
---- -- ------
<S> <C> <C> <C>
___________, 2001 _________, 2001 110%
___________, 2002 _________, 2002 108%
___________, 2003 _________, 2003 106%
___________, 2004 _________, 2004 104%
___________, 2005 _________, 2005 102%
___________, 2006 and thereafter 100%
</TABLE>
In addition, the Company may offer to redeem all the then outstanding
Notes at a Redemption Price equal to 105% of the principal amount thereof plus
accrued interest if a Change of Control (as defined below) occurs.
6. NOTICE OF REDEMPTION. Notice of redemption containing the
information prescribed in the Indenture will be mailed at least 30 days before
the Redemption Date to each Holder of a Note to be redeemed at his registered
address. Notes in the denomination of $100 may be redeemed only in whole. Notes
in denominations larger than $100 may be redeemed in part, but only in integral
multiples of $100. On and after the Redemption Date, interest ceases to accrue
on this Note or the portions of this Note called for redemption.
7. CONVERSION. A Holder of this Note may convert the principal amount
of this Note only in whole if the principal amount is $100, or, if in a
denomination greater than $100, any portion hereof that is an integral multiple
of $100, into Common Stock of the Company at the Conversion Price: (i) at any
time after ___________, 2001 and before the close of business on the Maturity
Date, (ii) in the event of an "Election Contest," or (iii) in the event of a
"Change of Control." In addition, if this Note is called for redemption, the
Holder may convert it at any time before the close of business on the day prior
to the Redemption Date. "Election
A-3
<PAGE> 50
Contest" means any filing pursuant to Rule 14a-11 under the Securities Exchange
Act of 1934, as amended, by any Person or group of Persons for the purpose of
opposing a solicitation by the Company with respect to the election of directors
of the Company. Interest on this Note will accrue through the date that this
Note has been surrendered for conversion and will, at the Company's option, be
payable in cash or be converted into Common Stock of the Company along with the
principal amount of this Note. "Change of Control" means the acquisition (or the
announcement of an intent to acquire), directly or indirectly, by any Person (as
defined in the Indenture) or group of Persons acting together, for a similar
purpose, other than the "Stockholders Group," or any of them or the Affiliates
(as defined in the Indenture) of beneficial ownership of shares of the Capital
Stock of the Company in such amount that, after giving effect to such
acquisition, such Person or Persons shall be entitled to vote 25% or more of the
shares entitled to vote, as at such date, in the election of directors of the
Company. The "Stockholders Group" means Edwin M. Roth, Corey B. Roth, CEW
Partners, and Martin Trust.
The initial Conversion Price is $0.50 per share. The Conversion Price
is subject to adjustments as specified in the Indenture. No fractional shares
of Common Stock shall be issued upon conversion, but, instead, to the extent
that any fraction of a share would otherwise be issuable, the Company will
round such fraction of a share up to the nearest whole share.
To convert this Note under this Section 7, a Holder must (i) complete
and sign the conversion notice on the back of this Note, (ii) surrender this
Note to a Conversion Agent, (iii) furnish appropriate endorsements and transfer
documents if required by the Registrar or Conversion Agent and (iv) pay any
transfer tax or similar tax if required.
If the Company is a party to a consolidation or merger or a transfer or
lease of all or substantially all of its assets, the right to convert this Note
into Common Stock may be changed into a right to convert it into securities,
cash or other assets of the Company or another.
8. SUBORDINATION. The Notes are subordinated in right of payment to all
Senior Debt of the Company. To the extent provided in the Indenture, Senior Debt
must be paid before the Notes may be paid. Each Holder by accepting a Note
agrees to the subordination and authorizes the Trustee to give it effect. Each
Holder by accepting a Note also agrees to be bound by the provisions of the
Indenture and the limitations contained therein. The Notes are in pari passu to
the Company's 6% Convertible Subordinated Notes due 2006 issued pursuant to an
Indenture dated as of October 15, 1996 between the Company and the Trustee.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are issuable only in
registered form, without coupons, in denominations of $100 and integral
multiples
A-4
<PAGE> 51
of $100. The Holder may register the transfer of or exchange this Note in
accordance with the Indenture. The Registrar may require the Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
need not register the transfer of or exchange any Note selected for redemption
or register the transfer of or exchange any Note for a period of 15 days before
a selection of Notes to be redeemed.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
11. UNCLAIMED MONEY. If money or securities for the payment of
principal or interest on any Note remains unclaimed for two years, the Trustee
and the Paying Agent will pay the money and deliver any stock certificates back
to the Company at its request. After such time, Holders entitled to the money
and/or securities must look to the Company for payment unless a law governing
abandoned property designates another person.
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. The Indenture and Notes
will be discharged and canceled except for certain Sections thereof, subject to
the terms of the Indenture, upon the payment or conversion of all the Notes or
upon the irrevocable deposit with the Trustee or Paying Agent (if other than the
Company) of funds or U.S. Government Obligations sufficient to pay the principal
of and interest accrued on the Notes to the Maturity Date or Redemption Date. In
the case of such a deposit, Holders must look to the deposited money for
payment.
13. AMENDMENT AND WAIVER. The Indenture permits, with certain
exceptions as therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of
the Holders of at least a majority in aggregate principal amount of the Notes
at the time outstanding. The Indenture also contains provisions permitting the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding, on behalf of the Holders of all the Notes, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Subject to the Indenture, any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange herefore or in
lieu hereof, whether or not notation of such consent or waiver is made upon
this Note. Without the consent of any Holder, the Indenture or the Notes may be
amended to cure any ambiguity, defect or inconsistency, to provide for
assumption of Company obligations to Holders or to make any change that does
not adversely affect the rights of any Holder.
A-5
<PAGE> 52
14. SUCCESSORS. When a successor to the Company as a result of a
permitted merger, consolidation or sale of assets assumes all the obligations of
the Company under the Notes and the Indenture, the Company will be released from
those obligations.
15. DEFAULTS AND REMEDIES. If an Event of Default, as defined in the
Indenture, including but not limited to, failure to pay principal or interest
when such payment is due, occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of Notes may declare all the Notes together
with accrued interest thereon to be due and payable immediately in the manner,
with the effect and subject to the limitations provided in the Indenture.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee may require indemnity and security therefor
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of a majority in principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Notes notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interests. The Company is required to file
periodic reports with the Trustee as to the absence of Defaults or Events of
Default.
16. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in
its individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not Trustee.
17. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issue of
the Notes.
18. AUTHENTICATION. This Note shall not be valid until the Trustee
signs the certificate of authentication on the front side of this Note.
19. LEGAL HOLIDAYS. If a payment date is not a "Business Day" (i.e., a
day other than a Saturday, Sunday, legal holiday or other day on which banks and
trust companies in the city where the Trustee is located are not required to be
open), then payment may be made on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
20. DEFINITIONS. All capitalized terms used in this Note which are
defined in the Indenture and not otherwise defined in this Note shall have the
meanings assigned to them in the Indenture; provided, however, that as used
herein "Note" or
A-6
<PAGE> 53
"Notes" shall have the same meaning as "Security" or "Securities" under the
Indenture.
21. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder of a Debenture or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (=
Uniform Gifts to Minors Act).
22. COPY OF INDENTURE. The Company will furnish to any Holder upon
written request and without charge a copy of the Indenture which has in it the
text of this Note in larger type. Requests may be made to: Specialty Chemical
Resources, Inc., 9055 South Freeway Drive, Macedonia, Ohio 44056, Attention:
Secretary.
A-7
<PAGE> 54
ASSIGNMENT FORM
---------------
If you the Holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ___________________________________, agent to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.
Dated: ________________ Signature:__________________________________________
__________________________________________
(Sign exactly as name appears on the
other side of this Note)
Signature Guarantee: __________________________
(to be signed by a New York commercial bank
or trust company or a member of the New York
Stock Exchange)
A-8
<PAGE> 55
CONVERSION NOTICE
-----------------
To convert this Note into Common Stock of the Company, check the box.
[ ]
To convert only part of this Note in the amount of $100 or integral
multiples thereof, state the amount: $____________________________
If you want the stock certificate made out in another person's name,
fill in the form below and have your signature guaranteed:
_______________________________________________________________________________
(Insert other persons's social security or tax ID number)
Dated: ________________ Signature: _____________________________
______________________________
(Sign exactly as name appears
on the other side of this
Note)
Signature Guarantee: _____________________
(to be signed by a New York commercial bank
or trust company or a member of the New York
Stock Exchange)
A-9
<PAGE> 1
Exhibit 4.2
No._______________ $_____________
SPECIALTY CHEMICAL RESOURCES, INC.
6% CONVERTIBLE SUBORDINATED NOTE DUE 2008
SPECIALTY CHEMICAL RESOURCES, INC., a Delaware corporation, for value
received, hereby promises to pay to _______________________ or registered
assigns the principal sum of _______________________________________________
Dollars ($____________) on _______________.
Interest on this Note shall be paid at maturity.
Additional provisions of this Note are set forth on the reverse side
hereof.
Dated: ____________, 1998 SPECIALTY CHEMICAL
RESOURCES, INC.
By:
------------------------------
By:
------------------------------
Certificate of Authentication:
Bank One, N.A., as Trustee
certifies that this is one of the
Securities referred to in the within
mentioned Indenture.
By:
------------------------------
Authorized Signatory
<PAGE> 2
SPECIALTY CHEMICAL RESOURCES, INC.
6% CONVERTIBLE SUBORDINATED NOTE DUE 2008
1. INTEREST. Specialty Chemical Resources, Inc. ("Company"), a Delaware
corporation, promises to pay interest on the principal amount of this Note at
the rate per annum shown above. The interest on this Note will accrue and
compound semi-annually on each ____________ and ____________ from the date of
this Note and will be paid along with the principal amount of this Note on
___________, 2008 (the "Maturity Date"). The interest will be payable in cash,
or at the Company's option, in Company common stock, par value $.10 per share
("Common Stock"), and will be computed on the basis of a 360-day year of twelve
30-day months. Interest will not be paid until the Maturity Date or until
redemption of this Note as permitted below.
2. METHOD OF PAYMENT. The Holder must surrender this Note to a Paying
Agent to collect the principal payment and accrued interest thereon due at
maturity. The Company will pay principal and interest at the offices or the
agencies of the Company maintained for that purpose in such coin or currency of
the United States of America that at the time of payment is legal tender for
payment of public and private debts. The Company, however, may pay principal and
interest by its check or its agent's check payable in such money and may mail
such an interest check to the Holder's registered address. Notwithstanding the
foregoing, in the event the Company elects to pay the accrued interest due to
the Holder by delivery of Common Stock in lieu of cash, the Company will deliver
stock certificate(s) representing the number of shares of Common Stock such
Holder is entitled to receive calculated by dividing the aggregate amount of
accrued interest due under this Note by the Conversion Price (as discussed
below) to such Holder's registered address.
3. REGISTRAR AND PAYING AGENT. Initially, Bank One, N.A. ("Trustee")
will act as Registrar, Paying Agent and Conversion Agent. The Company may change
any Registrar, co-registrar, Paying Agent or Conversion Agent without notice to
the Holder of this Note. The Company or any of its Subsidiaries may act as
Paying Agent, Registrar, co-registrar or Conversion Agent, except under certain
circumstances specified in the Indenture.
4. INDENTURE. The Company issued this Note under an Indenture, dated as
of ____________, 1998 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Indenture"), between the Company and the
Trustee. The terms of this Note include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S. Code Sec. 77aaa-77bbbb), as in effect on the date of the Indenture (the
"Act"), as if the Indenture were governed by the same. This Note is subject to
all such terms and the Holder of this Note is referred to the Indenture and such
Act for a statement of them. The Holder, by virtue of his acceptance of this
Note, agrees to be bound by the terms of this Note and by the terms of the
Indenture. The Notes are unsecured general obligations of the Company limited to
$1,800,000 in original principal amount.
5. REDEMPTION. The Company may redeem this Note at any time, or from
time to time, on or after ___________, 2001 and prior to the Maturity Date, at a
Redemption Price equal to the applicable percentage of the principal amount so
being redeemed determined as set forth below, in each case together with
interest accrued to the Redemption Date:
2
<PAGE> 3
<TABLE>
<CAPTION>
Redemption
From To (Inclusive) Price
---- -------------- -----
<S> <C> <C>
___________, 2001 __________, 2001 110%
___________, 2002 __________, 2002 108%
___________, 2003 __________, 2003 106%
___________, 2004 __________, 2004 104%
___________, 2005 __________, 2005 102%
___________, 2006 and thereafter 100%
</TABLE>
In addition, the Company may offer to redeem all the then outstanding
Notes at a Redemption Price equal to 105% of the principal amount thereof plus
accrued interest if a Change of Control (as defined below) occurs.
6. NOTICE OF REDEMPTION. Notice of redemption containing the
information prescribed in the Indenture will be mailed at least 30 days before
the Redemption Date to each Holder of a Note to be redeemed at his registered
address. Notes in the denomination of $100 may be redeemed only in whole. Notes
in denominations larger than $100 may be redeemed in part, but only in integral
multiples of $100. On and after the Redemption Date, interest ceases to accrue
on this Note or the portions of this Note called for redemption.
7. CONVERSION. A Holder of this Note may convert the principal amount
of this Note only in whole if the principal amount is $100, or, if in a
denomination greater than $100, any portion hereof that is an integral multiple
of $100, into Common Stock of the Company at the Conversion Price: (i) at any
time after ____________, 2001 and before the close of business on the Maturity
Date, (ii) in the event of an "Election Contest," or (iii) in the event of a
"Change of Control." In addition, if this Note is called for redemption, the
Holder may convert it at any time before the close of business on the day prior
to the Redemption Date. "Election Contest" means any filing pursuant to Rule
14a-11 under the Securities Exchange Act of 1934, as amended, by any Person or
group of Persons for the purpose of opposing a solicitation by the Company with
respect to the election of directors of the Company. Interest on this Note will
accrue through the date that this Note has been surrendered for conversion and
will, at the Company's option, be payable in cash or be converted into Common
Stock of the Company along with the principal amount of this Note. "Change of
Control" means the acquisition (or the announcement of an intent to acquire),
directly or indirectly, by any Person (as defined in the Indenture) or group of
Persons acting together, for a similar purpose, other than the "Stockholders
Group," or any of them or the Affiliates (as defined in the Indenture) of
beneficial ownership of shares of the Capital Stock of the Company in such
amount that, after giving effect to such acquisition, such Person or Persons
shall be entitled to vote 25% or more of the shares entitled to vote, as at such
date, in the election of directors of the Company. The "Stockholders Group"
means Edwin M. Roth, Corey B. Roth, CEW Partners, and Martin Trust.
3
<PAGE> 4
The initial Conversion Price is $0.50 per share. The Conversion
Price is subject to adjustments as specified in the Indenture. No fractional
shares of Common Stock shall be issued upon conversion, but, instead, to the
extent that any fraction of a share would otherwise be issuable, the Company
will round such fraction of a share up to the nearest whole share.
To convert this Note under this Section 7, a Holder must (i) complete
and sign the conversion notice on the back of this Note, (ii) surrender this
Note to a Conversion Agent, (iii) furnish appropriate endorsements and transfer
documents if required by the Registrar or Conversion Agent and (iv) pay any
transfer tax or similar tax if required.
If the Company is a party to a consolidation or merger or a transfer or
lease of all or substantially all of its assets, the right to convert this Note
into Common Stock may be changed into a right to convert it into securities,
cash or other assets of the Company or another.
8. SUBORDINATION. The Notes are subordinated in right of payment to all
Senior Debt of the Company. To the extent provided in the Indenture, Senior Debt
must be paid before the Notes may be paid. Each Holder by accepting a Note
agrees to the subordination and authorizes the Trustee to give it effect. Each
Holder by accepting a Note also agrees to be bound by the provisions of the
Indenture and the limitations contained therein. The Notes are in pari passu to
the Company's 6% Convertible Subordinated Notes due 2006 issued pursuant to an
Indenture dated as of October 15, 1996 between the Company and the Trustee.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are issuable only in
registered form, without coupons, in denominations of $100 and integral
multiples of $100. The Holder may register the transfer of or exchange this Note
in accordance with the Indenture. The Registrar may require the Holder, among
other things, to furnish appropriate endorsements and transfer documents and to
pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Note selected for
redemption or register the transfer of or exchange any Note for a period of 15
days before a selection of Notes to be redeemed.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
11. UNCLAIMED MONEY. If money or securities for the payment of
principal or interest on any Note remains unclaimed for two years, the Trustee
and the Paying Agent will pay the money and deliver any stock certificates back
to the Company at its request. After such time, Holders entitled to the money
and/or securities must look to the Company for payment unless a law governing
abandoned property designates another person.
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. The Indenture and Notes
will be discharged and canceled except for certain Sections thereof, subject to
the terms of the Indenture, upon the payment or conversion of all the Notes or
upon the irrevocable deposit with the Trustee or Paying Agent (if other than the
Company) of funds or U.S. Government Obligations sufficient to pay the principal
of and interest accrued on the Notes to the Maturity Date or Redemption Date. In
the case of such a deposit, Holders must look to the deposited money for
payment.
4
<PAGE> 5
13. AMENDMENT AND WAIVER. The Indenture permits, with certain
exceptions as therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of at least a majority in aggregate principal amount of the Notes at the
time outstanding. The Indenture also contains provisions permitting the Holders
of a majority in aggregate principal amount of the Notes at the time
outstanding, on behalf of the Holders of all the Notes, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Subject to the Indenture, any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Note. Without the consent of any Holder, the Indenture or the Notes may be
amended to cure any ambiguity, defect or inconsistency, to provide for
assumption of Company obligations to Holders or to make any change that does not
adversely affect the rights of any Holder.
14. SUCCESSORS. When a successor to the Company as a result of a
permitted merger, consolidation or sale of assets assumes all the obligations of
the Company under the Notes and the Indenture, the Company will be released from
those obligations.
15. DEFAULTS AND REMEDIES. If an Event of Default, as defined in the
Indenture, including but not limited to, failure to pay principal or interest
when such payment is due, occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of Notes may declare all the Notes together
with accrued interest thereon to be due and payable immediately in the manner,
with the effect and subject to the limitations provided in the Indenture.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee may require indemnity and security therefor
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of a majority in principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Notes notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interests. The Company is required to file
periodic reports with the Trustee as to the absence of Defaults or Events of
Default.
16. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in
its individual or any other capacity, may make loans to, accept deposits from,
and perform services for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not Trustee.
17. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issue of
the Notes.
18. AUTHENTICATION. This Note shall not be valid until the Trustee
signs the certificate of authentication on the front side of this Note.
5
<PAGE> 6
19. LEGAL HOLIDAYS. If a payment date is not a "Business Day" (i.e., a
day other than a Saturday, Sunday, legal holiday or other day on which banks and
trust companies in the city where the Trustee is located are not required to be
open), then payment may be made on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
20. DEFINITIONS. All capitalized terms used in this Note that are
defined in the Indenture and not otherwise defined in this Note shall have the
meanings assigned to them in the Indenture; provided, however, that as used
herein "Note" or "Notes" shall have the same meaning as "Security" or
"Securities" under the Indenture.
21. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder of a Debenture or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (=
Uniform Gifts to Minors Act).
22. COPY OF INDENTURE. The Company will furnish to any Holder upon
written request and without charge a copy of the Indenture which has in it the
text of this Note in larger type. Requests may be made to: Specialty Chemical
Resources, Inc., 9055 South Freeway Drive, Macedonia, Ohio 44056, Attention:
Secretary.
6
<PAGE> 7
ASSIGNMENT FORM
---------------
If you the Holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ___________________________________, agent to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.
Dated: Signature:
---------------- -----------------------------------------
-----------------------------------------
(Sign exactly as name appears on the
other side of this Note)
Signature Guarantee:
-----------------------
(to be signed by a New York commercial bank
or trust company or a member of the New York
Stock Exchange)
7
<PAGE> 8
CONVERSION NOTICE
-----------------
To convert this Note into Common Stock of the Company, check the box.
[ ]
To convert only part of this Note in the amount of $100 or integral
multiples thereof, state the amount: $____________________________
If you want the stock certificate made out in another person's name,
fill in the form below and have your signature guaranteed:
-----------------------------------------------------------------
(Insert other persons's social security or tax ID number)
Dated: Signature:
---------------- ------------------------------------------
------------------------------------------
(Sign exactly as name appears on the
other side of this Note)
Signature Guarantee:
-----------------------
(to be signed by a New York commercial bank
or trust company or a member of the New York
Stock Exchange)
8
<PAGE> 1
Exhibit 4.3
CUSIP NO. [ ]
----------------------
SPECIALTY CHEMICAL
RESOURCES, INC.
----------------------
SUBSCRIPTION SUBSCRIPTION PRICE $_______ PER NOTE RIGHTS
CERTIFICATE NO. R
Registered Holder
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
COMPANY'S PROSPECTUS DATED ________________, 1998 (THE "PROSPECTUS") AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON
REQUEST FROM THE COMPANY (ATTENTION: DAVID F. SPINK, VICE PRESIDENT), OR THE
SUBSCRIPTION AGENT.
THIS CERTIFICATE MUST BE RECEIVED BY THE SUBSCRIPTION AGENT WITH
PAYMENT IN FULL BY 5:00 P.M., CLEVELAND, OHIO LOCAL TIME, ON __________________,
1998 (THE "EXPIRATION DATE").
THIS SUBSCRIPTION CERTIFICATE IS NON-TRANSFERABLE AND MAY BE DIVIDED AS
SET FORTH IN THE INSTRUCTIONS AS TO USE OF SUBSCRIPTION CERTIFICATES (BUT ONLY
INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS) AT THE
OFFICE OF THE SUBSCRIPTION AGENT.
- --------------------------------------------------------------------------------
Subscriptions pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege may be made by duly completing Form 1. Rights holders
are advised to review the Prospectus and the instructions accompanying this
Subscription Certificate, copies of which are available from the Company
(Attention: David F. Spink, Vice President) or the Subscription Agent, before
exercising their Rights.
IMPORTANT: Complete appropriate FORM and, if applicable, delivery instructions,
and SIGN on reverse side.
- --------------------------------------------------------------------------------
RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR
TRANSFER LESS THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A
NEW SUBSCRIPTION CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS
EVIDENCED THEREBY.
EACH RIGHT ENTITLES THE RIGHTS HOLDER TO RECEIVE, UPON PAYMENT OF THE
SUBSCRIPTION PRICE, ONE 6% CONVERTIBLE SUBORDINATED NOTE DUE 2008 (the "Notes").
The registered owner whose name is inscribed hereon is entitled to
subscribe for 6% Convertible Subordinated Notes Due 2008 upon the terms and
subject to the conditions set forth in the Prospectus, the Subscription
Certificate and the Instructions as to Use of Subscription Certificates.
By:_____________________________________________________________________________
COREY B. ROTH
President and Chief Operating Officer
<PAGE> 2
FORM 1 -- EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably
exercises one or more Rights and subscribes for the number of 6% Convertible
Subordinated Notes Due 2008 indicated below, on the terms and subject to the
conditions specified in the Prospectus, receipt of which is hereby acknowledged.
(a) Number of Notes subscribed for pursuant to the Basic
Subscription Privilege (one Right needed to subscribe for each full
Note): _______________________ Notes
(b) Number of Notes subscribed for pursuant to the
Oversubscription Privilege. _______________________ Notes
(c) Total Subscription Price (total number of Notes subscribed
for pursuant to both the Basic Subscription Privilege in (a) above and
the Oversubscription Privilege in (b) above times the Subscription
Price of $________:
$______________________*
- ----------------------------
* Payment by uncertified check must be received and clear no later than
5:00 p.m., Cleveland, Ohio local time on the Expiration Date. Payment
by certified or cashier's check or money order must be received no
later than 5:00 p.m., Cleveland, Ohio local time on the Expiration
Date. Payment by delivery of an original Subordinated Promissory Note
of the Company entered into on June 15, 1998 in the principal amount of
$500,000 and bearing interest at a rate equal to twelve percent (12%)
per annum (the "Bridge Notes"), must be received no later than 5:00
p.m., Cleveland, Ohio local time on the Expiration Date. If the amount
enclosed or transmitted is not sufficient to pay the Subscription Price
for all Notes that are stated to be subscribed for, or if the number of
Notes being subscribed for is not specified, the number of Notes
subscribed for will be deemed to be the maximum number that could be
subscribed for upon payment of such amount. If the number of Notes to
be subscribed for pursuant to the Oversubscription Privilege is not
specified and the amount enclosed or transmitted exceeds the
Subscription Price for all Notes represented by this Subscription
Certificate (the "Subscription Excess"), the person subscribing
pursuant hereto shall be deemed to have subscribed for pursuant to the
Oversubscription Privilege, to the extent available, that number of
whole Notes equal to the quotient obtained by dividing the Subscription
Excess by the Subscription Price. Any amount remaining after such
division shall be returned to the subscriber.
METHOD OF PAYMENT
[ ] CERTIFIED CHECK, [ ] UNCERTIFIED CHECK (SEE PARAGRAPH 1 OF THE
INSTRUCTIONS), [ ] BANK DRAFT OR MONEY ORDER PAYABLE TO NATIONAL CITY BANK,
[ ] BRIDGE NOTE
FORM 2 -- SPECIAL DELIVERY INSTRUCTIONS: Name and/or address for
mailing any certificate representing 6% Convertible Subordinated Note Due 2008
or new Subscription Certificate or return of excess funds if other than as shown
on the reverse hereof:
Name:___________________________________________________
Address:________________________________________________
________________________________________________
(Including Zip Code)
IMPORTANT
RIGHTS HOLDER SIGN HERE
AND, IF SUBSCRIPTIONS ARE BEING MADE,
COMPLETE SUBSTITUTE FORM W-9
________________________________________________________________________________
________________________________________________________________________________
(Signature(s) of Holder(s))
Dated:____________________, 1998
(Must be signed by the registered holder(s) exactly as name(s)
appear(s) on this Subscription Certificate. If signature is by trustee(s),
executor(s), administrator(s), guardian(s), attorney(s)-in-fact, agent(s),
officer(s) of a corporation or another acting in a fiduciary or representative
capacity, please provide the following information. See Instructions.)
Name(s):________________________________________________________________________
________________________________________________________________________________
(Please Type or Print)
Capacity:_______________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
(Including Zip Code)
Area Code and
Telephone Number:_______________________________________________________________
(Home)
________________________________________________________________________________
(Business)
Tax Identification or
Social Security No:_____________________________________________________________
(Complete Substitute Form W-9)
SIGNATURE(S) GUARANTEED
Note: See paragraph 4(c) of Instructions
Authorized Signature____________________________________________________________
Pursuant to Rule 20.15 of the Stock Transfer Association, a dated signature
guarantee is unacceptable.
<PAGE> 1
Exhibit 4.4
ALLOCATION AGREEMENT
THIS ALLOCATION AGREEMENT (the "Agreement") is entered into this ___
day of _________, 1998 by and among Edwin M. Roth, Corey B. Roth, CEW Partners
and Martin Trust (individually, a "Purchaser" and collectively, "Purchasers").
RECITALS
1. Specialty Chemical Resources, Inc., a Delaware corporation (the
"Company"), intends to distribute to the record holders of its Common Stock, par
value $.10 per share (the "Common Stock"), and holders of its 6% Convertible
Subordinated Notes Due 2006, subscription rights (the "Rights") to subscribe for
and purchase up to $1,800,000 principal amount of the Company's Convertible
Subordinated Notes due 2008 (the "Notes").
2. The Company has filed with the Securities and Exchange Commission a
registration statement on Form S-3 under the Securities Act of 1933, as amended,
with respect to the offering and sale of the Notes and the Rights with respect
to same (the "Rights Offering"). The Prospectus included with the Registration
Statement sets forth the terms of the Rights Offering (the "Prospectus").
3. Capitalized terms not otherwise defined in this Agreement shall have
the meanings set forth in the Prospectus.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements of the parties hereto, and other good and valuable
consideration and subject to the conditions hereof, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. ALLOCATION. Each of the Purchasers agrees that the Notes
collectively purchased by the Purchasers shall be allocated among the Purchasers
as follows:
(a) Each of the Purchasers presently intends, but is not obligated,
to execute to the fullest extent his or its Rights to subscribe for and
to purchase the Notes.
(b) Immediately following completion of the Rights Offering, the
Purchasers, by transfers among themselves, will allocate the Notes
purchased by them such that the Roth Group (as defined below), CEW
Partners and Martin Trust will each own one-third (1/3) of such Notes.
The "Roth Group" means Edwin M. Roth and Corey B. Roth collectively.
2. CLOSING.
(a) The closing of the transactions provided for in this Agreement
(the "Closing") will take place at the offices of Benesch, Friedlander,
Coplan & Aronoff LLP, 2300 BP Tower, 200 Public Square, Cleveland, Ohio
44114 or at such other place as the parties hereto may mutually agree,
(x) on the fifth (5th) business day following the Expiration Date or
(y) at such other time and date as the parties hereto may designate by
mutual consent.
<PAGE> 2
(b) On the second (2nd) business day following the Expiration Date,
the Company shall send notice to each Purchaser which sets forth the
allocation of Notes provided for in Section 1 above (the "Allocation
Notice"). At the Closing, each Purchaser will deliver that number of
certificates representing the Notes, duly endorsed in blank, as is set
forth opposite his or its name on the Allocation Notice as is necessary
to fully effect the allocation set forth in this Agreement and each
transferee of such Notes shall pay for such Notes at the Rights
Offering price therefor.
3. NOTICES. Any notice or other communication required or permitted
hereunder must be in writing and delivered personally (including by courier),
sent by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice will be deemed given when so delivered
personally, or if telegraphed, telexed or sent by facsimile transmission, when
transmitted, or, if mailed, forty-eight (48) hours after the date of deposit in
the United States first-class mail, certified or registered, return receipt
requested, as follows:
Edwin M. Roth
Corey B. Roth
c/o Specialty Chemical Resources, Inc.
9055 South Freeway Drive
Macedonia, Ohio 44056
Telephone: (330) 468-1380
Facsimile: (330) 468-0287
and to:
CEW Partners
45 Rockefeller Plaza, Suite 2500
New York, New York 10020
Telephone: (212) 757-1544
Facsimile: (212) 956-2644
and to:
Martin Trust
c/o Trust Investments
52 Stiles Road
Salem, New Hampshire 03079
Telephone: (603) 898-2002
Facsimile: (603) 898-6650
Any party may, by notice given in accordance with this Section 3 to the other
party, designate another address or person for receipt of notices hereunder.
2
<PAGE> 3
4. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties with respect to the matters described
herein, and supersedes all prior discussions, agreements and undertakings,
written or oral, of any and every nature with respect thereto.
5. WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by authorized representatives of the parties or, in
the case of a waiver, by an authorized representative of the party waiving
compliance. No such written instrument will be effective unless it expressly
recites that it is intended to amend, supersede, cancel, renew or extend this
Agreement or to waive compliance with one or more of the terms hereof, as the
case may be. No delay on the part of any party in exercising any right, power or
privilege hereunder will operate as a waiver thereof, nor will any waiver on the
part of any party of any such right, power or privilege, or any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
6. GOVERNING LAW. This Agreement will be governed in all respects,
including validity, construction, interpretation and effect, by the laws of the
State of Ohio (without regard to principles of conflicts of law), except to the
extent that the Delaware General Corporation Law specifically and mandatorily
applies to the issuance of the certificates representing the Notes and the terms
thereof.
7. BINDING EFFECT; NO ASSIGNMENT. This Agreement will be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable without the prior written
consent of each of the parties hereto or by operation of law; provided, however,
that a Purchaser may assign all or a portion of his or its rights and
obligations hereunder to an "Affiliate." The term "Affiliate" as used herein
with respect to any person or entity shall mean (i) any person, corporation or
other organization which, directly or indirectly, controls, is controlled by or
is under common control with such person or entity, (ii) any trust or other
estate in which such person, corporation or other organization has a beneficial
interest or as to which such person, corporation or other organization serves as
a trustee or any similar fiduciary capacity, (iii) any spouse of such person and
any lineal descendants and ancestors of such person and such spouse and the
spouses of any such lineal descendants and ancestors, and (iv) any trust solely
for the benefit of the spouses and/or the lineal descendants and ancestors of
such person.
8. SEVERABILITY. In the event that any provision of this Agreement
shall be declared by a court of competent jurisdiction to be invalid, illegal or
otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
9. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts which together will constitute one and the same
instrument.
10. FURTHER ASSURANCES. Each party will, at the request of the other
party, at any time and from time to time following the Closing, promptly execute
and deliver, or cause to be executed and delivered, to such requesting party all
such further instruments and take all such further action as may
3
<PAGE> 4
be reasonably necessary or appropriate to confirm or carry out the provisions
and intents of this Agreement and of the instruments delivered pursuant to this
Agreement.
11. NO THIRD-PARTY BENEFICIARIES. It is understood and agreed between
the parties hereto that this Agreement and the representations, warranties and
covenants made herein are made expressly and solely for the benefit of the other
party hereto (or their respective successors or permitted assigns), and that no
other person will be entitled or be deemed to be a third-party beneficiary of
any party's rights under this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
_______________________________________
Edwin M. Roth, Individually
_______________________________________
Corey B. Roth, Individually
CEW PARTNERS
By:____________________________________
Name:__________________________________
Title:_________________________________
MARTIN TRUST
By:____________________________________
Name:__________________________________
Title:_________________________________
4
<PAGE> 1
Exhibit 12.1
SPECIALTY CHEMICAL RESOURCES, INC.
RATIO COMPUTATION S-K ITEM 503(d)
EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION> 6 Mos.
1998 1997 1996 1995 1994 1993
------ -------- ------- -------- ------- ------
In Thousands (except ratios)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Pre-tax earnings (loss) from
continuing operations $( 567) $(21,085)(1) $(1,891) $(4,990) $(2,479) $ 2,683
FIXED CHARGES
Interest expense 802 1,405 1,059 779 560 531
Amortization of debt expense - - - - - -
Portion of rent expense representative
of interest 102 173 136 171 202 182
------ -------- ------- ------- ------- -------
TOTAL FIXED CHARGES 904 1,578 1,195 950 762 713
TOTAL EARNINGS AND FIXED CHARGES $ 337 $(19,507) $( 696) $(4,040) $(1,717) $ 3,396
------ -------- ------- ------- ------- -------
EARNINGS TO FIXED CHARGES RATIO 0.37x - - - - 4.76x
------ -------- ------- ------- ------- -------
EARNINGS (DEFICIENCY OF EARNINGS)
OVER FIXED CHARGES $( 567) $(21,085) $(1,891) $(4,990) $(2,479) $ 2,683
------ -------- ------- ------- ------- -------
<FN>
(1) 1997 includes $18,501 loss on impairment of goodwill
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF GRANT THORNTON LLP
We have issued our reports dated March 6, 1998 accompanying the financial
statements and accompany schedules of Specialty Chemical Resources, Inc.
included in the Annual Report on Form 10-K for the year ended December 31, 1997
which is incorporated by reference in this Registration Statement. We consent to
the incorporation by reference in the Registration Statement of the
aforementioned reports and to the use of our name as it appears under the
caption "Experts."
GRANT THORNTON LLP
Cleveland, Ohio
November 3, 1998
<PAGE> 1
Exhibit 99.1
AGREEMENT
This Agreement made as of the ______ day of _________, 1998, among CEW
Partners and Martin Trust (together, the "Stockholders") and Edwin M. Roth
("E. Roth") and Corey B. Roth ("C. Roth") (E. Roth and C. Roth collectively
being referred to as the "Roths").
A. The Stockholders each own the number of shares of capital stock (the
"Capital Stock") of Specialty Chemical Resources, Inc., a Delaware corporation
(the "Company"), as set forth opposite their names on Schedule I attached hereto
and incorporated herein by reference, which numbers are exclusive of the shares
of stock issuable upon conversion of the Company's 6% Convertible Subordinated
Notes Due 2006 which are not convertible until December 31, 2001 unless there is
a change of control of the Company.
B. Pursuant to a rights offering (the "Rights Offering") of Convertible
Subordinated Notes due 2008 (the "Notes"), to be effected by the Company, the
Stockholders will receive Notes which will be convertible into shares of Common
Stock, $.10 par value, of the Company ("Common Stock"). The shares of Common
Stock acquired by the Stockholders on conversion of the Notes and any other
voting securities of the Company acquired by Stockholders from time to time are
collectively referred to in this Agreement as the "Shares."
C. With a view to the harmonious relationship among the Stockholders
and the Roths with respect to the business and management of the Company, the
Roths and the Stockholders desire to enter into this Agreement regarding the
voting of the Shares and other matters with respect thereto.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following respective meanings:
(a) "COMMON EQUIVALENT SHARES" shall mean, as of any time, the
aggregate number of shares of Common Stock that would be outstanding if
all outstanding Notes and any other convertible securities were
converted into Common Stock at the conversion prices then in effect.
(b) "PARTY" shall mean the Stockholders and the Roths.
(c) "PROPORTIONATE PERCENTAGE" shall mean the pro rata percentage of
Shares that a Party shall be entitled to purchase pursuant to Section 5
hereof. Such pro rata percentage, as to any Party, shall be the
percentage which expresses the ratio between the number of Common
Equivalent Shares owned by such Party and the number of Common
Equivalent Shares owned by all Parties other than the Selling Security
Holder.
(d) "SECURITIES ACT" shall mean the United States Securities Act of
1933, as amended from time to time.
<PAGE> 2
(e) "SELLING SECURITY HOLDER" shall mean any Stockholder or any Roth
proposing to sell, transfer, assign, distribute, encumber or otherwise
dispose of in any manner all or any portion of Common Shares or Notes
or any Stockholder or any Roth who or which has delivered a Notice of
Intention to Sell with respect to all or any portion of his or its
Common Shares or Notes pursuant to Section 3 hereof.
(f) "COMMON SHARES" shall mean shares of Common Stock, now or
hereafter outstanding.
2. VOTING. During the term of this Agreement, the Shares will be voted
by the Stockholders as follows:
(a) Each Stockholder agrees to vote or cause to be voted all Shares
beneficially owned by it in connection with any action to be taken by
the Company's stockholders in accordance with the written
recommendation of the Roths, or absent such recommendation, in
accordance with the recommendation of the Board of Directors of the
Company (the "Board"); provided, however, that each Stockholder shall
have no such obligation in connection with actions to be taken by the
Company's stockholders with respect to (i) a business combination
transaction between the Company and, or the transfer of all or
substantially all of the Company's assets to, a third party, or (ii)
the issuance of shares of Common Stock or securities convertible into
Common Stock (other than options to acquire Common Stock or awards of
restricted Common Stock to directors, officers, or employees of the
Company) if the effect thereof would be to reduce the ratio of the
number of Common Equivalent Shares owned by such Stockholder and the
total number of Common Equivalent Shares outstanding; and
(b) In favor of the election to the Board of the nominees for the
Board recommended in writing by the Roths, or absent such
recommendation, for the Company's nominees, and, in each case, no
others.
3. COVENANTS.
(a) Unless in any such case specifically authorized in writing to do
so by the Roths or otherwise set forth in this Agreement, a Stockholder
shall not, nor shall it permit any present or future affiliates to, in
each case directly or indirectly:
(i) acquire, offer to acquire or agree to acquire by purchase,
by joining a partnership, limited partnership, syndicate or other
"group" (as such term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), such term to
have such meaning throughout this Agreement) (any such act being
hereinafter, to "acquire"), any securities of the Company entitled
to vote generally in the election of directors, or securities
convertible into or exercisable or exchangeable for such securities
(to be included herein in the defined term "Shares") if any such
acquisition is pursuant to a tender or exchange offer made by a
person which has not been approved by the Roths.
2
<PAGE> 3
(ii) encourage, solicit or in any way participate in the
formation of any "person" (as such term is defined in Section
13(d)(3) of the Exchange Act, such term to have such meaning
throughout this Agreement) which owns or seeks to acquire beneficial
ownership of, or otherwise acts in respect of, the Shares;
(iii) conduct, encourage, solicit or in any way participate in,
any "solicitation" of "proxies" (as such terms are defined or used
in Regulation 14A under the Exchange Act, such terms to have such
meanings throughout this Agreement) or conduct, encourage, solicit
or in any way participate in any election contest with respect to
the Company;
(iv) initiate, encourage, solicit, execute, or in any way
participate in the execution or solicitation of, any written consent
in lieu of a meeting of the Company's stockholders, unless such
consent is solicited by the Company;
(v) initiate, propose or otherwise solicit the Company's
stockholders for the approval of one or more stockholder proposals
with respect to the Company or encourage, induce or attempt to
induce any other person to initiate any stockholder proposal;
(vi) seek to place a representative on the Board or seek the
removal of any director of the Company (except as provided in
Section 3(f) below);
(vii) call or seek to have called any meeting of the
stockholders of the Company;
(viii) deposit any Shares in a voting trust or subject them to a
voting agreement or other agreement or arrangement with respect to
the voting of such Shares, other than this Agreement;
(ix) encourage, solicit, propose, seek to effect or negotiate
with any other person with respect to any form of business
combination transaction with the Company or any affiliate thereof,
or any restructuring, recapitalization or similar transaction with
respect to the Company or any affiliate thereof;
(x) encourage, solicit, make, propose, seek to effect or
negotiate with any other person with respect to, or announce an
intent to make, any tender offer or exchange offer for any Shares,
or disclose an intent, purpose, plan or proposal with respect to the
Company or any Shares inconsistent with the provisions of this
Agreement, or assist, or in any way participate in, facilitate,
encourage or solicit any effort or attempt by any person to do or
seek to do any of the foregoing;
(xi) otherwise act, directly or indirectly, alone or in concert
with others, to seek to influence or control, or make any disclosure
or public statement critical of or in opposition to, the management,
Board, policies or affairs of the Company; and
3
<PAGE> 4
(xii) encourage or render advice to or make any recommendation
or proposal to any person or other entity to engage in any of the
actions covered by this Agreement.
Nothing in this Section 3(a) is intended or shall be deemed to restrict
the right or ability of a Stockholder or its Affiliates (as defined
below) to (i) acquire or hold any Shares in any transaction that does
not violate Section 3(a)(i), or (ii) discuss any matters relating to
the business of the Company with the members of the Board and/or
E. Roth.
(b) Each Stockholder agrees that, from and after the date hereof, he
will not, individually or in the aggregate, sell, assign, transfer,
grant an option with respect to or otherwise dispose of any interest in
any Notes or Shares (or enter into an agreement or understanding with
respect to the foregoing) (collectively, a "Disposition") to any person
or group (i) which has theretofore filed (or which to any Stockholder's
knowledge intends to file) a Scheduled 13D or 13G with the Securities
and Exchange Commission with respect to any class of shares of Capital
Stock of the Company even if, at the time of the Disposition, such
Schedule 13D or 13G reflects beneficial ownership of less than 5% of
any class of Shares or (ii) known to any Stockholder to be accumulating
stock on behalf of or acting in concert with any person or group
contemplated by clause (i) above.
(c) Notwithstanding Section 3(b) above, any Stockholder may make a
Disposition:
(i) pursuant to a tender or exchange offer made by a person
other than a Stockholder or any Affiliate of a Stockholder and
approved by the Roths (a "Third-Party Offer");
(ii) pursuant to a brokers' transaction but subject to volume
limitations not to exceed those described in Section e(i) and (ii)
of Rule 144 under the Securities Act;
(iii) pursuant to a bona fide pledge of Shares by Stockholders
as security for bona fide indebtedness for money borrowed to a major
brokerage firm or financial institution or an affiliate thereof not
affiliated with any Stockholder;
(iv) to the Company; or
(v) to any Affiliate of any Stockholder or to an institution
qualified under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended, so long as a condition to such Disposition such
Affiliates or institution agrees in a writing satisfactory to the
Roths to be a party to this Agreement and the Notes or Shares so
transferred are made subject to this Agreement.
(d) If any Stockholder or any affiliate thereof acquires any Shares
or other securities in violation of this Agreement, he or it will
immediately dispose of such Shares or other securities to persons which
are not Stockholders or affiliates of Stockholders in a
4
<PAGE> 5
manner permitted by Section 2(c) above; provided, however, that the
Roths may also pursue any other available remedy to which it may be
entitled as a result of such violation.
(e) If the Roths give notice to the Stockholders not less than ten
days prior to the date on which a vote by the stockholders of the
Company is to be taken with respect to the election of members of the
Board of the Company and such notice recommends that the Stockholders
and their Affiliates vote for one or more proposed nominees specified
in such notice, the Stockholders will vote all of their Shares and
cause each Affiliate of the Stockholders to vote any of the Common
Shares then owned by such Affiliate for the election of such nominees
specified in such notice; provided, however, that two of such proposed
nominees so specified shall be the person designated by the
Stockholders pursuant to Section 3(f) below.
(f) So long as the Roths and any Affiliate of either of them (the
"Roth Group") owns any Common Shares, the Roths will vote such Common
Shares and any other voting capital stock of the Company owned by them,
and cause each Affiliate thereof (other than the Company) to vote such
securities owned by it or them for two persons reasonably satisfactory
to the Roths and designated in writing to the Roths by the Stockholders
in any election of the Board. The Stockholders agree that, until
otherwise so designated, such persons shall be Terence Conklin and
Geoffrey J. Colvin.
(g) The term "Affiliate" as used herein with respect to any person
or entity shall mean (i) any person, corporation or other organization
which, directly or indirectly, controls, is controlled by or is under
common control with such person or entity, (ii) any trust or other
estate in which such person, corporation or other organization has a
beneficial interest or as to which such person, corporation or other
organization serves as a trustee or any similar fiduciary capacity,
(iii) any spouse of such person and any lineal descendants and
ancestors of such person and such spouse and the spouses of any such
lineal descendants and ancestors, and (iv) any trust solely for the
benefit of the spouse and/or the lineal descendants and ancestors of
such person.
4. TERM. This Agreement will be effective upon the issuance of the
Notes and will continue until the earliest of (A) March 31, 2000, or (B) upon
notice from the Stockholders to the Roths, E. Roth no longer being chief
executive officer of the Company or (C) the mutual written agreement of the
parties.
5. RIGHT OF FIRST REFUSAL.
(a) If a Stockholder wishes to sell all or any portion of the Shares
or Notes owned by such Stockholder (other than pursuant to Section 3(c)
hereof) such Stockholder (or the legal representative of such
Stockholder, as the case may be) (the "Selling Stockholder") shall
promptly deliver a notice of intention to sell (a "Notice of Intention
to Sell") to the Roths, which notice shall set forth, in such
Stockholder's good faith belief, the number of Shares or amount of
Notes to be sold (the "Subject Securities") and the proposed purchase
price therefor and terms of sale. Upon receipt of a Notice of Intention
to Sell, the Roths, on a pro
5
<PAGE> 6
rata basis based upon their Proportionate Percentage or as they
otherwise agree, shall have the right and option to elect to purchase
all of said Subject Securities at the purchase price and on the terms
stated in the Notice of Intention to Sell, such election to be made by
the Roths by written notice to the Selling Stockholder within 10
business days after receipt by the Roths of such Notice of Intention to
Sell from the Selling Stockholder. If the terms stated in the Notice of
Intention to Sell involve consideration other than cash, the value of
the non-cash consideration shall be determined by agreement of the
Roths and the Selling Stockholder or, absent such agreement, by an
appraiser mutually acceptable to the Roths and the Selling Stockholder,
in which event the Roths and the Selling Stockholder each shall bear
one half of the costs of compensating such appraiser.
(b) If effective acceptances shall not be received pursuant to
paragraph (a) above in respect of all the Subject Securities, then the
Selling Stockholder may, at its election, either (i) rescind its
original Notice of Intention to Sell, which rescission shall be
effected by notice in writing delivered to the Roths within five
business days after the last date on which the Roths shall be entitled
to make any election pursuant to paragraph (a) above, and sell all (but
not less than all) of the Subject Securities, as originally proposed to
be sold, or (ii) sell such Subject Securities which the Roths have
elected to purchase pursuant to the foregoing provisions of this
Section 5, and sell all (but not less than all) of the remaining
Subject Securities which were the subject of the Notice of Intention to
Sell to an outside purchaser, at a purchase price and upon terms not
more favorable to such purchaser than those stated in the original
Notice of Intention to Sell, at any time within 60 days after the last
date on which the Roths shall be entitled to make any election pursuant
to paragraph (a) above. In the event any such remaining Subject
Securities shall again be subject to the restrictions contained in this
Agreement and shall not thereafter be sold, transferred, assigned,
distributed, encumbered or otherwise disposed of except in compliance
with the applicable provisions of this Agreement.
(c) If either Roth wishes to sell any portion of the Common Shares
or Notes owned by him (other than pursuant to Section 3(c) hereof),
such Roth shall be able to do so only after having provided a right of
first refusal to the Stockholders on the same terms as the right of
first refusal described in Sections 5(a) and (b) above.
(d) The closing of the sale and delivery of the certificates
representing Subject Securities purchased and sold pursuant to
Section 5 hereof, and payment therefor (the "Closing"), shall be held
on the tenth business day after the last day upon which either any
Stockholder or either Roth, as the case may be, can elect to purchase
Subject Securities pursuant to Section 5. Any cash payment shall be
made by certified or official bank check, against delivery to the party
purchasing such Subject Securities of a certificate or instrument
representing the Subject Securities so sold, duly endorsed for transfer
to such party or accompanied by a stock or other transfer power duly
endorsed for transfer, with all signatures guaranteed and all requisite
stock transfer taxes paid and stamps affixed.
6
<PAGE> 7
6. RIGHT TO PARTICIPATE IN CO-SALE. Subject to the provisions of
Section 5 above:
(a) If (i) any Party or group of Parties in a substantially
simultaneous transaction proposes to sell, exchange or in any other
manner dispose of Common Shares (other than in a manner permitted by
Section 3 above) then such Party or Parties (the "Transferring Party")
shall give written notice (a "Co-sale Notice") to each other Party
("Other Party") setting forth the terms and conditions of such proposed
transaction. The Co-sale Notice may be provided concurrently with or as
part of the Notice of Intention to Sell. Each Other Party shall have
the right, exercisable upon written notice to the Transferring Party
within 10 business days after receipt by the Other Party of such
Co-sale Notice, to participate in the proposed disposition of Common
Shares (the "Eligible Shares"), on the terms and conditions set forth
in the Co-sale Notice. If Other Party elects to participate in such
proposed disposition (each Party making such election pursuant to this
Section 6, a "Participating Party"), each Participating Party will be
entitled to sell, at the price and otherwise on the same terms as the
Transferring Party, a number of Common Shares equal to a number of
Common Shares equal to the product of (i) the quotient determined by
dividing (A) the number of Common Equivalent Shares held by the
Participating Party, by (B) the sum of (1) the number of Common
Equivalent Shares held by the Participating Party, (2) the number of
Common Equivalent Shares held by the Transferring Party, and (3) the
number of Common Equivalent Shares held by all other Participating
Parties as a group, and (ii) the number of Common Equivalent Shares to
be sold in the proposed disposition.
(b) If (i) any Party or group of Parties in a substantially
simultaneous transaction proposes to sell, exchange or in any other
manner dispose of Notes (other than in a manner permitted by Section 3
above) then such Party (the "Transferring Noteholder") shall give a
Co-sale Notice to each Other Party setting forth the terms and
conditions of such proposed transaction. The Co-sale Notice may be
provided concurrently with or as part of the Notice of Intention to
Sell. Each Other Party shall have the right, exercisable upon written
notice to the Transferring Noteholder within 10 business days after
receipt by the Other Party of such Co-sale Notice, to participate in
the proposed disposition of Notes (the "Eligible Notes"), on the terms
and conditions set forth in the Co-sale Notice. If Other Party elects
to participate in such proposed disposition (each Party making such
election pursuant to this Section 6(b), a "Participating Noteholder"),
each Participating Noteholder will be entitled to sell, at a price and
otherwise on the same terms as the Transferring Noteholder, a principal
amount of Notes equal to the product of (i) the quotient determined by
dividing (A) the number of Common Equivalent Shares held by the
Participating Noteholder, by (B) the sum of (1) the number of Common
Equivalent Shares held by the Participating Noteholder, (2) the number
of Common Equivalent Shares held by the Transferring Noteholder, and
(3) the number of Common Equivalent Shares held by all other
Participating Noteholders as a group, and (ii) the number of Common
Equivalent Shares to be sold in the proposed disposition.
(c) Each Party shall use such Party's best efforts to obtain the
agreement of the prospective transferee(s) to the participation of the
Participating Parties in any contemplated transfer, and no Party shall
transfer any of his or its Shares or Notes to the prospective
7
<PAGE> 8
transferee(s) if the prospective transferee(s) declines to allow such
participation of any Participating Party.
(d) To the extent that a Party participates in any disposition
pursuant to this Section 6, that Party shall deliver to the Company for
delivery to the proposed acquiror, one or more certificates, properly
endorsed for transfer or accompanied by transfer instruments duly
endorsed for transfer, with all transfer taxes paid and stamps affixed,
which represent the number of Shares and/or amount of Notes that the
Party elects to dispose of pursuant to this Section 6. Except as
expressly provided in this Section 6, the consummation of such proposed
disposition shall be subject to the sole discretion of the Transferring
Party, and such Transferring Party shall have no liability whatsoever
to the Participating Parties other than to obtain for the Participating
Parties the same terms and conditions as those obtained by such
Transferring Parties, as set forth in the Co-sale Notice or any
amendment thereof.
7. LEGEND. The Stockholders agree that in addition to any other legend
set forth on any certificate representing the Shares owned by them, such
certificate will contain a statement that the Shares are subject to the
provisions of this Agreement.
8. OTHER MATTERS. The voting of the Shares pursuant to this Agreement
may be affected in person, by proxy or in any other manner permitted by
applicable law. The Stockholders acknowledge and agree that this Agreement will
be specifically enforceable.
9. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflict of laws principles thereof.
10. MODIFICATION OR AMENDMENT. This Agreement may be modified or
amended only by a written instrument executed by all parties to this Agreement.
11. PARTIES BOUND. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors, affiliates,
assigns, heirs and personal representations; provided, however, that no party
may assign this Agreement without the prior written consent of the other parties
hereto.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties with respect to the transactions contemplated by
it.
13. SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be unenforceable, the remaining provisions shall
remain in full force and effect. It is declared to be the intention of the
parties that they would have executed the remaining provisions without including
any that may be declared unenforceable.
14. NOTICE. All notices, consents, requests, recommendations,
instructions, approvals and other communications relating to this Agreement and
all legal process in regard to this Agreement will be validly given, made or
served, if in writing and delivered personally, by facsimile (which is
8
<PAGE> 9
confirmed) or sent by first-class certified, registered or express U.S. mail,
postage prepaid, return receipt requested, if to the Roths at:
c/o Specialty Chemical Resources, Inc.
9055 South Freeway Drive
Macedonia, Ohio 44056
Attn: Corey B. Roth, President and
Chief Operating Officer
Facsimile No.: (330) 468-0287
If to a Stockholder, at the address of such Stockholder last set forth
in the stock records of the Company, or to such other address as specified in
writing by such Stockholder to the Company pursuant to the provisions of this
Section 14.
Notice given (A) by certified, registered or express mail as set forth
above shall be deemed delivered forty-eight (48) hours after the date the same
is deposited in the U.S. first-class mail; (B) by facsimile as set forth above
shall be deemed delivered upon confirmation; and (C) by personal delivery shall
be deemed delivered when so delivered.
9
<PAGE> 10
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original and all of which
shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"STOCKHOLDERS" "ROTHS"
CEW PARTNERS
By:__________________________________ _______________________________________
Edwin M. Roth
Name:________________________________
Title:_______________________________
_______________________________________
Corey B. Roth
MARTIN TRUST
By:__________________________________
Name:________________________________
Title:_______________________________
10
<PAGE> 11
SCHEDULE I
----------
Specialty Chemical Resources, Inc.
Capital Stock Ownership
<TABLE>
<CAPTION>
Name Common Shares
---- -------------
<S> <C> <C>
CEW Partners 232,953
Martin Trust 232,953
Edwin M. Roth 674,472
Corey B. Roth 101,313
</TABLE>
<PAGE> 1
Exhibit 99.2
SPECIALTY CHEMICAL RESOURCES, INC.
AND
NATIONAL CITY BANK
__________________________
SUBSCRIPTION AGENCY AGREEMENT
DATED AS OF _______________, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Appointment of Subscription Agent.................................1
Section 2. Issue of Securities...............................................2
Section 3. Basic Subscription Privilege; Oversubscription Privilege;
Form of Subscription Certificates.................................2
Section 4. Signature and Registration........................................3
Section 5. Exchange of Subscription Certificates; Mutilated,
Destroyed, Lost or Stolen Subscription Certificates...............3
Section 6. Subsequent Issue of Subscription Certificates.....................4
Section 7. Exercise of Rights; Exercise Price; Expiration Date...............4
Section 8. Delivery of Notes.................................................6
Section 9. Fractional Rights and Notes.......................................6
Section 10. Reports...........................................................6
Section 11. Future Instruction and Interpretation.............................6
Section 12. Payment of Taxes..................................................7
Section 13. Cancellation and Destruction of Subscription Certificates.........7
Section 14. Right of Action...................................................7
Section 15. Concerning the Subscription Agent.................................7
Section 16. Merger or Consolidation of Subscription Agent.....................8
Section 17. Duties of Subscription Agent......................................8
Section 18. Notices to the Company, Holders and Subscription Agent...........10
Section 19. Supplements and Amendments.......................................10
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 20. Successors.......................................................10
Section 21. Termination......................................................10
Section 22. Governing Law....................................................11
Section 23. Benefits of this Agreement.......................................11
Section 24. Counterparts.....................................................11
Section 25. Descriptive Headings.............................................11
</TABLE>
(ii)
<PAGE> 4
SUBSCRIPTION AGENCY AGREEMENT, dated as of ________________, 1998 by
and between Specialty Chemical Resources, Inc., a Delaware corporation (the
"Company"), and National City Bank, as Subscription Agent (the "Subscription
Agent").
WHEREAS, the Company has caused a Registration Statement on Form S-3
(Registration No. 333-___________) under the Securities Act of 1933, as amended
(the "Act"), to be filed with the Securities and Exchange Commission (the
"Commission") relating to a proposed distribution by the Company of
non-transferable subscription rights (the "Rights") and sale of newly issued 6%
Convertible Subordinated Notes due 2008 (the "Notes"), upon the exercise of such
Rights (such Registration Statement, in the form in which it first becomes
effective under the Act, and as it may thereafter be amended from time to time,
is referred to herein as the "Registration Statement"; the distribution of the
Rights and the sale of the Notes upon the exercise thereof and of the
Oversubscription Privilege (as defined below) as contemplated by the
Registration Statement is referred to herein as the "Rights Offering");
WHEREAS, the Rights will be distributed to holders of record (other
than the Company and its wholly-owned subsidiaries) of shares of Common Stock as
of the close of business on ____________, 1998 (the "Record Date") at a rate of
one Right for each ____________ shares of Common Stock held on the Record Date
and to holders of record of the Company's 6% Convertible Subordinated Notes due
2006 (the "Original Notes") as of the Record Date at a rate of one Right for
each ____________ shares of Common Stock that the Original Notes (including
accrued and compounded interest) would be convertible into as of the Record
Date;
WHEREAS, the Company has authorized the issuance of an aggregate number
of Notes (the "Underlying Notes") equal to the aggregate number of Rights to be
distributed pursuant to the Rights Offering;
WHEREAS, Rights holders will be entitled to subscribe to purchase at
$100 in cash, or cancellation of notes in the case of Edwin M. Roth, CEW
Partners and Martin Trust as described in Section 7 hereof (the "Subscription
Price"), one Underlying Note for each Right held (the "Basic Subscription
Privilege") and may also subscribe to purchase additional Underlying Notes, to
the extent that any such Notes are not purchased due to the non-exercise of
Rights (the "Oversubscription Privilege"); and
WHEREAS, the Company desires the Subscription Agent to act on its
behalf in connection with the Rights Offering as set forth herein, and the
Subscription Agent is willing so to so act.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto hereby agree as follows:
Section 1. Appointment of Subscription Agent. The Company hereby
appoints the Subscription Agent to act as agent for the Company in accordance
with the instructions set forth in this Agreement, and the Subscription Agent
hereby accepts such appointment. The Company may from time to time appoint such
co-subscription agents as it may deem necessary or desirable.
<PAGE> 5
Section 2. Issue of Securities.
(a) The Company has authorized the issuance of the Rights and,
following the effectiveness of the Registration Statement and the Record Date,
will issue such Rights to holders of record of shares of Common Stock and of
Original Notes as of the close of business on the Record Date as contemplated by
the Registration Statement. The Company will promptly notify the Subscription
Agent upon the effectiveness of the Registration Statement. As transfer agent
and registrar for the shares of Common Stock, the Subscription Agent shall
effect the distribution of the Rights to holders of record of shares of Common
Stock and of Original Notes as of the close of business on the Record Date,
including determination of the number of Rights to be distributed to each such
record holder and distribution of the Subscription Certificates (as defined in
Section 3(d) hereof) evidencing the Rights.
(b) The Company has authorized the issuance of and will hold in reserve
the Underlying Notes, and upon the valid exercise of Rights, the Company will
issue Underlying Notes to validly exercising Rights holders as set forth in the
Prospectus.
Section 3. Basic Subscription Privilege; Oversubscription Privilege;
Form of Subscription Certificates.
(a) Pursuant to each Right's Basic Subscription Privilege, the Right
grants to the holder hereof, upon the valid exercise of the Right pursuant to
Section 7 hereof, the right to purchase from the Company one Underlying Note at
the Subscription Price.
(b) Subject to the allocation described below, each Rights holder who
exercises such holder's Basic Subscription Privilege in full may subscribe, at
the Subscription Price, for additional Underlying Notes, pro rata. Underlying
Notes will be available for purchase pursuant to the Oversubscription Privilege
only to the extent that the maximum number of Underlying Notes are not
subscribed for through the exercise of all Basic Subscription Privileges by the
Expiration Date (as defined below). If the Underlying Notes so available (the
"Remaining Notes") are not sufficient to satisfy all subscriptions pursuant to
the Oversubscription Privilege, the Remaining Notes will be allocated pro rata
(subject to the elimination of fractional interests) among those holders of
Rights exercising the Oversubscription Privilege, in proportion, not to the
number of Notes requested pursuant to the Oversubscription Privilege, but to the
number of Notes they have purchased pursuant to the Basic Subscription
Privilege; provided, however, that if such pro rata allocation results in any
holder being allocated a greater number of Remaining Notes than such holder
subscribed for pursuant to the exercise of such holder's Oversubscription
Privilege, then such holder will be allocated only such number of Remaining
Notes as such holder subscribed for.
(c) Banks, brokers and other nominee holders of Rights who exercise
Rights and the Oversubscription Privilege on behalf of beneficial owners of
Rights shall be required to certify to the Subscription Agent and the Company
(by delivery to the Subscription Agent of a Nominee Holder Certification
substantially in the form of EXHIBIT A hereto), in connection with the exercise
of the Oversubscription Privilege, as to the aggregate number of Rights that
have been exercised, and the number of Oversubscription Notes that are being
subscribed for by each beneficial owner of
2
<PAGE> 6
Rights on whose behalf such nominee holder is acting. If more Underlying Notes
are subscribed for pursuant to the Oversubscription Privilege than are available
for sale, Underlying Notes will be allocated among persons exercising the
Oversubscription Privilege in proportion to such persons' exercise of Rights
pursuant to the Basic Subscription Privilege.
(d) The Rights shall be evidenced by subscription certificates (the
"Subscription Certificates"). The Subscription Certificates (and the form of
election to exercise the Rights to be printed on the reverse thereof) shall be
substantially in the form attached as EXHIBIT B hereto. The Subscription
Certificates shall be non-transferable.
Section 4. Signature and Registration.
(a) The Subscription Certificates shall be executed on behalf of the
Company by its President and Chairman of the Board by facsimile signature. Any
Subscription Certificate may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Subscription Certificate, shall
be a proper officer of the Company to sign such Subscription Certificate, even
if at the date of the execution of this Agreement or the date of the actual
issuance of such certificate any such person is not such an officer.
(b) The Subscription Agent will keep or cause to be kept, at its
principal offices in the State of Ohio, books for registration of the Rights
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Rights and the number of Rights evidenced by each
outstanding Subscription Certificate.
Section 5. Exchange of Subscription Certificates; Mutilated, Destroyed,
Lost or Stolen Subscription Certificates.
(a) Subject to the provisions of Section 9 hereof, a bank, trust
company, securities dealer or broker 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 Subscription
Certificates for the number of Rights which each such beneficial owner would
have been entitled to receive pursuant to Section 9(a) hereof had each such
beneficial owner been the holder of record of such beneficial owner's shares on
the Record Date; provided; however, that the Company reserves the right to
refuse to issue any such Subscription Certificate or Subscription Certificates
if such issuance would be inconsistent with the principle that each beneficial
owner's holding will be rounded up to the nearest whole Right. No Subscription
Certificates evidencing fractional Rights will be issued upon division of other
Subscription Certificates, and any instructions to divide Subscription
Certificates which would result in the issuance of Subscription Certificates
evidencing fractional Rights shall be rejected. Any holder desiring to divide
any Subscription Certificate or Subscription Certificates shall make such
requests in writing to the Subscription Agent, and shall surrender the
Subscription Certificate or Subscription Certificates to be divided to the
Subscription Agent. Thereupon the Subscription Agent shall deliver to the person
entitled thereto a Subscription Certificate or Subscription Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any division of Subscription Certificates.
3
<PAGE> 7
(b) Upon receipt by the Company and the Subscription Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Subscription Certificate, and, in case of loss, theft or destruction, of
indemnity and/or security satisfactory to them, which may be in the form of an
open penalty bond, and reimbursement to the Company and the Subscription Agent
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Subscription Certificate if mutilated, the Company will make
and deliver a new Subscription Certificate of like tenor to the Subscription
Agent for delivery to the registered owner in lieu of the Subscription
Certificate so lost, stolen, destroyed or mutilated. If required by the Company
or the Subscription Agent, an indemnity bond must be sufficient in the judgment
of both to protect the Company, the Subscription Agent or any agent thereof from
any loss which any of them may suffer if a Subscription Certificate is
replaced.
Section 6. Subsequent Issue of Subscription Certificates. Subsequent to
their original issuance, no Subscription Certificates shall be issued except (a)
Subscription Certificates issued upon any division of Rights pursuant to
Section 5(a) hereof, (b) Subscription Certificates issued in replacement of
mutilated, destroyed, lost or stolen Subscription Certificates pursuant to
Section 5(b) hereof and (c) Subscription Certificates issued pursuant to Section
7(d) hereof upon the partial exercise of any Subscription Certificate to
evidence the unexercised portion of such Subscription Certificate.
Section 7. Exercise of Rights; Exercise Price; Expiration Date.
(a) The holder of any Subscription Certificate may exercise some or all
of the Rights evidenced thereby (but not in amounts of less than one Right or an
integral multiple thereof) by delivering to the Subscription Agent, on or prior
to 5:00 p.m., Cleveland, Ohio local time, on _____________, 1998 (the
"Expiration Date"), a properly completed and executed Subscription Certificate
evidencing such Rights (with signature guarantees, if necessary, by a
participant in the Securities Transfer Agents Medallion Program, the Stock
Exchange Medallion Program or the American Stock Exchange Inc. Medallion
Signature Program (each, an "Eligible Institution")), together with payment of
the Subscription Price (as hereinafter defined) for each Underlying Note
subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege. In the case of holders of Rights that are held of
record through The Depository Trust Company ("DTC"), exercises of the Basic
Subscription Privilege (but not the Oversubscription Privilege) may be effected
by instructing DTC to debit down the Rights position for DTC held at the office
of the Subscription Agent (such Rights being "DTC Exercised Rights"), together
with payment of the Subscription Price for each Underlying Note subscribed for
pursuant to the Basic Subscription Privilege at or prior to 5:00 pm, Cleveland,
Ohio local time on the Expiration Date. The Oversubscription Privilege in
respect of DTC Exercised Rights may not be exercised through DTC. The holder of
DTC Exercised Rights may exercise the Oversubscription Privilege in respect of
such DTC Exercised Rights by properly executing and delivering to the
Subscription Agent at or prior to 5:00 pm, Cleveland, Ohio local time on the
Expiration Date, a DTC Participant Oversubscription Exercise Form, substantially
in the form of EXHIBIT C hereto, together with payment of the appropriate
Subscription Price for the number of Underlying Notes for which the
Oversubscription Privilege is to be exercised.
4
<PAGE> 8
(b) The Rights shall expire at 5:00 p.m, Cleveland, Ohio local time, on
the Expiration Date.
(c) The "Subscription Price" shall be $100 per Note subscribed for
pursuant to the Basic Subscription Privilege and the Oversubscription Privilege
payable (i) (in United States dollars) by check or bank draft drawn upon a U.S.
bank or postal, telegraphic or express money order payable to the Subscription
Agent, or (ii) by delivery to the Subscription Agent of the original Bridge Note
dated June 15, 1998 held by a stockholder for cancellation by the Company. The
Subscription Price shall be deemed to have been received by the Subscription
Agent only upon (A) clearance of any uncertified check, (B) receipt by the
Subscription Agent of any certified check or bank draft or postal telegraphic or
express money order, or (C) receipt by the Subscription Agent of a stockholder's
original Bridge Note.
(d) If an exercising Rights holder has not indicated the number of
Rights being exercised or if the Subscription Price payment forwarded by such
holder to the Subscription Agent is not sufficient to purchase the number of
Notes subscribed for, the Rights holder will be deemed to have exercised the
Basic Subscription Privilege with respect to the maximum number of whole Rights
which may be exercised for the Subscription Price delivered to the Subscription
Agent and, to the extent that the Subscription Price payment delivered by such
holder exceeds the Subscription Price multiplied by the number of Rights
exercised (such excess being the "Subscription Excess"), the holder will be
deemed to have exercised its Oversubscription Privilege to purchase, to the
extent available, a number of whole Underlying Notes equal to the quotient
obtained by dividing the Subscription Excess by the Subscription Price.
(e) Funds received by the Subscription Agent (as set forth in
Section 7(c) above) in payment of the Subscription Price for Underlying Notes
subscribed for pursuant to the Oversubscription Privilege shall be held in a
segregated account pending allocation pursuant to Section 3(b) hereto. If a
Rights holder exercising the Oversubscription Privilege is allocated less than
all of the Notes which such holder subscribed for pursuant to the
Oversubscription Privilege, the Subscription Agent as soon as practicable after
the Expiration Date, shall mail to such Rights holder the Subscription Price
paid by such holder in respect of the number of such Notes that were subscribed
for but not ultimately issued, without interest or deduction.
(f) The Subscription Agent shall pay to, credit to the account of or
otherwise transfer or deliver to the Company, all funds and Bridge Notes
received by the Subscription Agent in payment of the Subscription Price for
Underlying Notes subscribed for pursuant to the Basic Subscription Privilege, as
soon as practicable following receipt thereof.
(g) In case the holder of any Subscription Certificate shall exercise
less than all the Rights evidenced thereby, a new Subscription Certificate
evidencing the number of Rights remaining unexercised shall be issued by the
Subscription Agent to the registered holder of such Subscription Certificate or
to his duly authorized assigns, subject to the provisions of Section 9 hereof.
5
<PAGE> 9
(h) The Subscription Agent is authorized to accept only Subscription
Certificates, or exercises of Rights through DTC instructions received prior to
5:00 p.m, Cleveland, Ohio local time, on the Expiration Date.
(i) Once a holder of Rights has exercised a Right or subscribed
pursuant to the Oversubscription Privilege, such exercise or oversubscription
may not be revoked.
Section 8. Delivery of Notes. As soon as practicable after the
Expiration Date and all prorations have been made, the Subscription Agent, if
acting as authentication agent for the Trustee, shall deliver to each Rights
holder subscribing for Notes pursuant to the Basic Subscription Privilege and
the Oversubscription Privilege, certificates representing the Notes purchased
pursuant to such privileges.
Section 9. Fractional Rights and Notes.
(a) The Company shall not issue fractions of Rights, nor shall the
Subscription Agent distribute Subscription Certificates which evidence
fractional Rights. The number of Rights issued to each holder will be rounded up
to the nearest whole number.
(b) The Company shall not issue fractional Notes to exercising Rights
holders upon exercise and acceptance of Rights. The number of Notes that each
Rights holder shall be entitled to purchase pursuant to the Oversubscription
Privilege shall be rounded up to the nearest whole Note.
Section 10. Reports. The Subscription Agent shall notify both the
Company and its designated representatives by telephone as requested during the
period commencing with the mailing of Subscription Certificates and ending on
the Expiration Date, which notice shall thereafter be confirmed in writing, (i)
the number of Rights exercised on the day of such request, (ii) the number of
Underlying Notes subscribed for pursuant to the Basic Subscription Privilege and
the number of such Rights for which payment has been received, (iii) the number
of Underlying Notes subscribed for pursuant to the Oversubscription Privilege
and the number of such Rights for which payment has been received, (iv) the
number of Rights for which defective exercises have been received on such day,
and (v) cumulative totals derived from the information set forth in clauses (i)
through (iv) above. At or before 5:00 p.m., Cleveland, Ohio local time, on the
first NYSE trading day following the Expiration Date, the Subscription Agent
shall certify in writing to the Company the cumulative totals through the
Expiration Date derived from the information set forth in clauses (i) through
(v) above. The Subscription Agent shall also maintain and update a listing of
holders who have fully or partially exercised their Rights and holders who have
not exercised their Rights. The Subscription Agent shall provide the Company and
its designated representatives with the information compiled pursuant to this
Section 10 as any of them shall request.
Section 11. Future Instruction and Interpretation.
(a) All questions as to the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Company whose determinations
shall be final and binding. The
6
<PAGE> 10
Company in its sole discretion may waive any defect or irregularity, permit a
defect or irregularity to be corrected within such time as it may determine or
reject the purported exercise of any Right. 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 shall 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.
(b) The Subscription Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from an
authorized officer of the Company, or such officer's designee, and to apply to
such officer or designee for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer or
designee.
Section 12. Payment of Taxes. The Company covenants and agrees that it
will pay when due and payable all documentary, stamp and other taxes, if any,
which may be payable in respect of the issuance or delivery of any Subscription
Certificate or of the Underlying Notes; provided, however, that the Company
shall not be liable for any tax liability arising out of any transaction which
results in, or is deemed to be, an exchange of Rights or Notes or a constructive
interest payment with respect to the Notes.
Section 13. Cancellation and Destruction of Subscription Certificates.
All Subscription Certificates surrendered for the purpose of exercise or
exchange shall be canceled by the Subscription Agent, and no Subscription
Certificates shall be issued in lieu thereof except as expressly permitted by
the provisions of this Agreement. The Company shall deliver to the Subscription
Agent for cancellation and retirement, and the Subscription Agent shall so
cancel and retire, any other Subscription Certificate purchased or acquired by
the Company otherwise than upon the exercise thereof. The Subscription Agent
shall deliver all canceled Subscription Certificates to the Company, or shall at
the written request of the Company, destroy such canceled Subscription
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
Section 14. Right of Action. All rights of action in respect of this
Agreement are vested in the Company and the respective registered holders of the
Subscription Certificates; and any registered holder of any Subscription
Certificate, without the consent of the Subscription Agent or of the holder of
any other Subscription Certificate, may, on his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Subscription Certificate in the manner
provided in such Subscription Certificate and in this Agreement.
Section 15. Concerning the Subscription Agent.
(a) The Company agrees to pay to the Subscription Agent compensation in
accordance with the fee letter attached hereto as EXHIBIT D for all services
rendered by it hereunder and, from time to time, on demand of the Subscription
Agent, its reasonable expenses and counsel fees and other disbursements incurred
in the administration and execution of this Agreement and the exercise
7
<PAGE> 11
and performance of its duties hereunder. The Company also agrees to indemnify
the Subscription Agent for, and to hold it harmless against, any loss, liability
or expense incurred without gross negligence or bad faith on the part of the
Subscription Agent for anything done or omitted by the Subscription Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises. The foregoing notwithstanding, the Company shall not indemnify the
Subscription Agent with respect to any claim or action settled without its
consent, which consent shall not be unreasonably withheld.
(b) The Subscription Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any
Subscription Certificate, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement or other paper or document
reasonably believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged by the proper person or persons.
Section 16. Merger or Consolidation of Subscription Agent. Any
corporation into which the Subscription Agent or any successor Subscription
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Subscription Agent or
any successor Subscription Agent shall be a party, or any corporation succeeding
to the corporate trust business of the Subscription Agent or any successor
Subscription Agent, shall be the successor to the Subscription Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto.
Section 17. Duties of Subscription Agent. The Subscription Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, all of which the Company and the holders of
Subscription Certificates by their acceptance thereof shall be bound:
(a) The Subscription Agent may consult with legal counsel (who
may be, but is not required to be, legal counsel for the Company), and
the opinion of such counsel shall be full and complete authorization
and protection to the Subscription Agent as to any action taken or
omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Subscription Agent shall deem it necessary or desirable
that any fact or matter be proved or established by the Company prior
to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by
a certificate signed by the President or a Vice President (including
any Senior or Executive Vice President) and by the Treasurer or any
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Company and delivered to the Subscription Agent; and such certificate
shall be full authorization to the Subscription Agent for any action
taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Subscription Agent shall be liable hereunder only for
its own gross negligence or willful misconduct.
8
<PAGE> 12
(d) The Subscription Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained in this
Agreement or in the Subscription Certificates or be required to verify
the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.
(e) The Subscription Agent shall not be under any
responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the
Subscription Agent) or in respect of the validity or execution of any
Subscription Certificate; nor shall it be responsible for any breach
by the Company of any covenant or condition contained in this Agreement
or in any Subscription Certificate; nor shall it by any act hereunder
be deemed to make any representation or warranty as to the
authorization or reservation of any Note to be issued pursuant to this
Agreement or any Subscription Certificate or as to whether any Note
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments
and assurances as may reasonably be required by the Subscription Agent
for the carrying out or performing by the Subscription Agent of the
provisions of this Agreement.
(g) Nothing herein shall preclude the Subscription Agent from
acting in any other capacity for the Company.
(h) The Subscription Agent shall have no duties or obligations
other than those specifically set forth in this Agreement, or as may
subsequently be agreed to in writing by the Company and the
Subscription Agent.
(i) The Subscription Agent shall have the right to resign as
Subscription Agent upon 30 days prior written notice to the Company.
(j) The Company represents to the Subscription Agent that it
has and shall continue to solicit the advice of its counsel regarding
the compliance with all applicable state and federal securities laws in
connection with the transactions contemplated by this Agreement and
that it will act in accordance with such advice.
(k) If any question or dispute arises with respect to the
proper interpretation of this Agreement or the Subscription Agent's
duties hereunder or the rights of any person delivering a Subscription
Certificate pursuant to this Agreement, the Subscription Agent shall
not be required to act and shall not be liable for refusal to act until
the question or dispute has been judicially settled (and, if
appropriate, the Subscription Agent may file a suit in interpleader for
such purpose) by final judgment rendered by a court of competent
jurisdiction, binding on all parties interested in the matter or
settled by a written document in form and substance reasonably
satisfactory to the Subscription Agent and the parties to the dispute
or question.
9
<PAGE> 13
Section 18. Notices to the Company, Holders and Subscription Agent. All
notices and other communications provided for or permitted hereunder shall be
made by hand delivery, prepaid first-class mail or telecopier:
(a) if to the Company, to:
Specialty Chemical Resources, Inc.
9055 South Freeway Drive
Macedonia, Ohio 44056
Attention: David F. Spink
Telecopier: (330) 468-0287
(b) if to the Subscription Agent, to:
National City Bank
629 Euclid Avenue
Suite 635
Cleveland, Ohio 44114
Attention: David B. Davis
Telecopier: (216) 575-2649
(c) if to a registered holder, at the address shown on the
registry books of the Company.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; two business days after
being deposited in the mail postage prepaid, if mailed as aforesaid; when
answered back if telexed; and when receipt is acknowledged, if telecopied.
Section 19. Supplements and Amendments. The Company and the
Subscription Agent may from time to time supplement or amend this Agreement by
written agreement, without the approval of any holders of Subscription
Certificates.
Section 20. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Subscription Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 21. Termination. This Agreement shall terminate at 5:00 p.m.,
Cleveland, Ohio local time, on the 15th day following the Expiration Date. Upon
termination of this Agreement and provided that all Notes for Rights accepted
for execution prior to such termination are issued and delivered by the Company,
the Company shall be discharged from all obligations under this Agreement except
for its obligations to the Subscription Agent under Sections 12 and 15 hereof
and except with respect to the obligation of the Company to provide instruction
and direction to the Subscription Agent as may be provided in this Agreement;
provided, however, the Company may
10
<PAGE> 14
amend the terms and conditions of the Rights Offering or terminate the Rights
Offering at any time prior to delivery of the Underlying Notes.
Section 22. Governing Law. This Agreement and each Subscription
Certificate shall be deemed to be a contract made under the laws of the State of
Ohio and for all purposes shall be construed in accordance with the internal
laws of such State.
Section 23. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Subscription Agent and the holders of the Subscription Certificates any legal or
equitable right remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Subscription Agent and
the holders of the Subscription Certificates.
Section 24. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original but all such counterparts shall together constitute one and
the same instrument.
Section 25. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date first above written.
SPECIALTY CHEMICAL
RESOURCES, INC.
By:______________________________________________
David F. Spink
Vice President, Chief Financial
Officer and Treasurer
NATIONAL CITY BANK
Subscription Agent
By:______________________________________________
Name:_________________________________________
Title:________________________________________
11
<PAGE> 15
EXHIBIT A
NOMINEE HOLDER CERTIFICATION
<PAGE> 16
EXHIBIT B
SUBSCRIPTION CERTIFICATE
<PAGE> 17
EXHIBIT C
DTC PARTICIPANT OVERSUBSCRIPTION SUBSCRIPTION FORM
<PAGE> 18
EXHIBIT D
SUBSCRIPTION AGENT FEE LETTER
<PAGE> 1
Exhibit 99.3
Specialty Chemical Resources, Inc.
SUBORDINATED DEBT ISSUANCE
Set forth below are proposed terms for the issuance of an aggregate of
$1,500,000 principal amount of new subordinated notes of Specialty Chemical
Resources, Inc.
SUBORDINATED NOTES
PRINCIPAL AMOUNT: $1,500,000 principal amount of Subordinated Notes.
INTEREST: 12% per annum based on a 360-day year.
MATURITY DATE: December 15, 1998
SUBORDINATION: Subordinated to all senior bank debt on terms similar to
subordination under the currently outstanding subordinated
notes.
TRANSFER: Non-transferable prior to maturity date.
REFINANCING COMMITMENT
REFINANCE: The Subordinated Notes will be refinanced prior the maturity
date, pursuant to a pro rata rights offering to equity
security holders (including convertible debt holders) with a
debt instrument, or a debt-like preferred stock instrument,
with detachable warrants to purchase at least 3,000,000
shares of Common Stock of Specialty Chemical for a price not
greater than approximately $.50 per share.
ALLOCATION: Each right would entitle a holder to exercise a proportionate
number of otherwise unexercised rights. With respect to
rights distributed to CEW Partners, Martin Trust and Edwin M.
Roth, 1/3 of the aggregate amount thereof distributed of CEW
Partners, Martin Trust and Edwin M. Roth would be exercisable
by each of CEW Partners, Martin Trust and Edwin M. Roth, or
their affiliates regardless of the actual number of rights
actually issued to each.
INVESTORS
EDWIN M. ROTH: $500,000 principal amount of Subordinated Notes (including
exchange of $150,000 of currently outstanding subordinated
notes).
<PAGE> 2
CEW PARTNERS: Same
MARTIN TRUST: Same
The undersigned acknowledge and agree to the terms and conditions set forth
above, in all events subject to appropriate definitive documentation.
SPECIALTY CHEMICAL RESOURCES, INC.
By: /s/ David F. Spink /s/ Martin Trust
------------------------------ ----------------------------------
MARTIN TRUST
/s/ Edwin M. Roth
- ---------------------------------- CEW PARTNERS
EDWIN M. ROTH
By: /s/
-------------------------------
General Partner
By: /s/
---------------------------
