<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarter ended June 30, 1998 Commission file number 1-11013
SPECIALTY CHEMICAL RESOURCES, INC.
Exact name of registrant as specified in its charter
Delaware 34-1366838
State of incorporation I.R.S. Employer I.D. No.
9055 S. Freeway Drive; Macedonia, Ohio 44056
Address of principal executive offices and zip code
(330)468-1380
Registrant's telephone number, including area code
Indicate by a check mark whether the Registrant(1)has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety(90) days. Yes__X__ No_____.
The number of outstanding shares of the Registrant's common stock as of
July 27, 1998 was 3,882,260.
- --------------------------------------------------------------------------------
_________________________________Page 1 of 16___________________________________
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Specialty Chemical Resources, Inc.
Form 10-Q
For the quarter ended June 30, 1998
Index
Part I Financial Information Page
Item 1. Financial Statements......................................3
Condensed Balance Sheets..................................3
Condensed Statements of Operations, 3 months..............5
Condensed Statements of Operations, 6 months..............6
Condensed Statements of Cash Flows, 3 months..............7
Condensed Statements of Cash Flows, 6 months..............8
Notes to Financial Statements.............................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............10
Part II Other Information
Item 1. Legal Proceedings........................................14
Item 4. Submission of Matters to a Vote of Security Holders......14
Item 6. Exhibits & Reports on Form 8-K...........................15
Page 2 of 16
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Specialty Chemical Resources, Inc.
Condensed Balance Sheets
June 30, 1998 December 31, 1997
(Unaudited) (Audited)
----------- ---------
Current assets
Cash and cash equivalents $ 3,100 $ 3,100
Accounts receivables 5,238,247 5,338,168
Receivable - Other 770,727 343,657
Inventories - LIFO 7,941,711 8,944,905
Prepaid expenses 527,254 360,196
----------- -----------
Total current assets 14,481,039 14,990,026
Property, plant and equipment
At cost 18,207,565 17,740,267
Less accumulated depreciation
and amortization (6,157,952) (5,536,789)
----------- -----------
12,049,613 12,203,478
Other assets
Goodwill 1,896,665 2,091,103
Other 243,698 233,271
----------- -----------
2,140,363 2,324,374
----------- -----------
Total assets $28,671,015 $29,517,878
=========== ===========
See accompanying Notes to Financial Statements.
Page 3 of 16
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Specialty Chemical Resources, Inc.
Condensed Balance Sheets
(continued)
June 30, 1998 December 31, 1997
(Unaudited) (Audited)
----------- ---------
Current liabilities
Current maturities $ 907,464 $ 1,057,497
Accounts payable 4,803,493 6,893,119
Accrued expenses 487,400 624,759
------------ ------------
Total current liabilities 6,198,357 8,575,375
Long-term obligations 17,543,170 15,445,820
Stockholders' equity
Preferred stock - $.01 par value;
authorized 1,996,500 shares
Common stock - $.10 par value;
authorized 13,000,000 shares;
issued and outstanding 3,947,760
and 3,947,760 394,777 394,777
Additional paid in capital 41,935,125 41,935,125
Less common stock in treasury,
At cost; 65,500 shares (118,722) (118,722)
Accumulated deficit (37,281,692) (36,714,497)
------------ ------------
4,929,488 5,496,683
------------ ------------
$ 28,671,015 $ 29,517,878
============ ============
See accompanying Notes to Financial Statements.
Page 4 of 16
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Specialty Chemical Resources, Inc.
Condensed Statements of Operations
(Unaudited)
For the 3 month periods ended:
June 30, 1998 June 30, 1997
------------- -------------
Net sales $9,314,165 $9,355,703
Cost of goods sold 7,295,234 7,532,557
---------- ----------
Gross profit 2,018,931 1,823,146
Selling, general and administrative
expenses 1,599,701 1,414,414
Amortization of intangibles 106,584 256,361
---------- ----------
Operating profit (loss) 312,646 152,371
Other (income) expense
Interest expense 407,056 341,109
Other -0- (27,771)
---------- ----------
407,056 313,338
---------- ----------
Earnings (loss) before income
taxes (94,410) (160,967)
Income taxes -0- -0-
---------- ----------
Earnings (loss) (94,410) (160,967)
========== ==========
Earnings (loss) per common share: $ (.02) $ (.04)
Weighted average shares outstanding 3,882,261 3,882,210
See accompanying Notes to Financial Statements.
Page 5 of 16
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Specialty Chemical Resources, Inc.
Condensed Statements of Operations
(Unaudited)
For the 6 month periods ended:
June 30, 1998 June 30, 1997
------------- -------------
Net sales $19,386,151 $19,552,782
Cost of goods sold 15,640,265 15,701,339
----------- -----------
Gross profit 3,745,886 3,851,443
Selling, general and administrative
expenses 3,298,443 2,991,539
Amortization of intangibles 213,134 515,322
----------- -----------
Operating profit 234,309 344,582
Other (income) expense
Interest expense 801,504 599,177
Other -0- (49,577)
----------- -----------
801,504 549,600
Earnings (loss) before income
taxes (567,195) (205,018)
Income taxes (benefit) -0- -0-
----------- -----------
Earnings (loss) (567,195) (205,018)
Earnings (loss) per common share: $ (.15) $ (.05)
Weighted average shares outstanding 3,882,261 3,882,156
See accompanying Notes to Financial Statements.
Page 6 of 16
<PAGE> 7
Specialty Chemical Resources, Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the 3 month periods ended:
June 30, 1998 June 30, 1997
------------- -------------
Net cash provided (used) by operating
activities $ (606,366) $ 1,695,068
Cash flows from investing activities:
Capital expenditures, other (159,545) (409,523)
Purchase of assets from Hysan Corp. -0- (6,785,000)
----------- -----------
Net cash (used) by investing
activities (159,545) (7,194,523)
Cash flows from financing activities:
Proceeds from notes 1,500,000 -0-
Payments on revolver (8,264,884) (15,098,316)
Proceeds on revolver 7,530,795 20,505,966
----------- -----------
Net cash provided (used) by
financing activities 765,911 5,407,650
----------- -----------
Net increase (decrease) in cash
and cash equivalents -0- (91,805)
Cash and cash equivalents at beginning
of period 3,100 134,414
----------- -----------
Cash and cash equivalents at end
of period $ 3,100 $ 42,609
=========== ===========
See accompanying Notes to Financial Statements.
Page 7 of 16
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Specialty Chemical Resources, Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the 6 month periods ended:
June 30, 1998 June 30, 1997
------------- -------------
Net cash provided (used) by operating
activities $ (1,330,473) $ 2,453,180
Cash flows from investing activities:
Capital expenditures, other (486,448) (575,797)
Purchase of assets from Hysan Corp. -0- (6,785,000)
------------ ------------
Net cash (used) by investing
activities (486,448) (7,360,797)
Cash flows from financing activities:
Proceeds from notes 1,500,000 -0-
Payments on revolver (21,771,929) (22,689,500)
Proceeds on revolver 22,088,850 27,471,085
------------ ------------
Net cash provided (used) by
financing activities 1,816,921 4,781,585
------------ ------------
Net increase (decrease) in cash
and cash equivalents -0- (126,032)
Cash and cash equivalents at beginning
of period 3,100 168,641
------------ ------------
Cash and cash equivalents at end
of period $ 3,100 $ 42,609
============ ============
See accompanying Notes to Financial Statements.
Page 8 of 16
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Specialty Chemical Resources, Inc.
Notes to Financial Statements
Note A - Summary of Significant Accounting Policies
The accompanying audited and unaudited financial statements have been
prepared in conformity with generally accepted accounting principles and all
adjustments are of a normal recurring nature and are, in the opinion of
management, necessary to present fairly the financial position of Specialty
Chemical Resources, Inc. (the "Company") at December 31, 1997 and June 30, 1998
and the results of operations and cash flows for the interim periods ended June
30, 1998 and 1997.
Any significant accounting policies employed in the preparation of the
financial statements are included in the Company's most recent Form 10-K.
Note B - Inventories
Inventories are stated at the lower of cost or market determined by the
last-in, first-out (LIFO) method for raw materials and the first-in, first-out
(FIFO) method for finished goods.
The Company's inventories consisted of the following at:
June 30, December 31,
1998 1997
---------- ----------
Raw materials $4,689,554 $5,416,048
Finished goods 3,947,714 4,224,414
---------- ----------
Total FIFO cost 8,637,268 9,640,462
Less: Excess of FIFO cost over
LIFO 695,557 695,557
---------- ----------
Total LIFO cost $7,941,711 $8,944,905
---------- ----------
Note C - Legal Proceedings
There have been no material changes in the status of legal proceedings
pending against the Company other than that which was reported on the Company's
most recent Form 10-K.
Page 9 of 16
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain items included in the Company's
Statement of Operations.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................... 80.7% 80.3% 78.3% 80.5%
Gross profit.............................. 19.3% 19.7% 21.7% 19.5%
Selling, general and administrative expenses 17.0% 15.3% 17.2% 15.1%
Operating profit.(loss).................... 1.2% 1.8% 3.4% 1.6%
Interest expense............................ 4.1% 3.1% 4.4% 3.6%
</TABLE>
Net sales of $19,386,000 for the six months ended June 30, 1998 were
$167,000, or 1% below the comparable period in the prior year. The decrease is
due to reduced unit volume of the Company's Automotive Products.
For the second quarter ended June 30, 1998, net sales of $9,314,000
were $42,000 below the comparable period in the prior year. The decrease in net
sales is due to the same reasons discussed above with respect to the six-month
period.
Cost of goods sold for the six-month period ended June 30, 1998, decreased by
$61,000 as compared to the same period in the prior year. This decrease was due
principally to a refund of Worker's Compensation Insurance premiums. Cost of
goods sold increased as a percentage of net sales from 80.3% to 80.7% for the
six-month periods ended June 30, 1997 and 1998, respectively.
Page 10 of 16
<PAGE> 11
Cost of goods sold decreased by $237,000 for the three-months ended June
30, 1998 as compared to the same period in the prior year. This decrease was due
principally to the same reason discussed above with respect to the premium
refund. Cost of goods sold decreased as a percentage of net sales from 80.5% to
78.3% for the three-months ended June 30, 1998 as compared to the same period in
the prior year. The decrease as a percentage of net sales was due to the same
reason discussed above with respect to the premium refund.
Selling, general and administrative expenses were $3,298,000 for the
six-month period June 30, 1998, or 17.0% of net sales. Selling, general and
administrative expenses were $2,992,000 or 15.3% of net sales for the six-month
period ended June 30, 1997. The increase in selling, general and administrative
expense dollars is due to increased staffing and compensation costs and
increased freight charges which were the result of the acquisition of the Hysan
assets in May, 1998. See "Liquidity and Capital Resources".
Selling, general and administrative expenses were $1,600,000 for the
quarter ended June 30, 1998, or 17.2% of net sales. Selling, general and
administrative expenses were $1,414,000, or 15.1% of net sales for the
three-month period ended June 30, 1997. The increase in selling, general and
administrative expense is due to increased compensation costs and increased
freight charges which were the result of the acquisition of the Hysan assets in
May, 1998. See "Liquidity and Capital Resources".
Interest expense for the six-months ended June 30, 1998, was 4.1% of
net sales versus 3.1% for the comparable period in the prior year. Interest
expense was $802,000 for the six-months ended June 30, 1998 as compared to
$599,000 for the six-months ended June 30, 1997. The increase in interest
expense is due to increased borrowing under the Company's senior credit facility
which was due to the acquisition of the Hysan assets in May, 1998. See
"Liquidity and Capital Resources".
Interest expense for the quarter ended, June 30, 1998, was 4.4% of net
sales versus 3.6% for the comparable period in the prior year. Interest expense
was $407,000 for the quarter ended June 30, 1998 as compared to $341,000 for the
same period in 1997. The increase in interest expense is due to increased
borrowings under the Company's senior credit facility. See "Liquidity and
Capital Resources".
Page 11 of 16
<PAGE> 12
The Company recorded a net loss for the six-months ended June 30, 1998 of
$567,195, or $.15 per share on weighted average shares outstanding of 3,882,261.
This compared to a net loss of $205,018, or $.05 per share on weighted average
shares outstanding of 3,882,156 for the same period in the prior year.
For the quarter ended June 30, 1998, the Company had a net loss of
$94,410, or $.02 per share on weighted average shares outstanding of 3,882,261
as compared to a net loss of $160,967, or $.04 per share on weighted average
shares outstanding of 3,882,210 for the same period in the prior year.
Liquidity and Capital Resources
As of June 30, 1998, the Company's ratio of current assets to current
liabilities was 2.34 to 1 and the quick ratio (cash, cash equivalents, and
accounts receivable, divided by current liabilities) was .97 to 1.
During the six-months ended June 30, 1998, the Company incurred
$802,000 in interest expense and made interest payments totaling $779,000.
Accrued interest at June 30, 1998 was $108,000. Most of the Company's interest
expense is related to the Company's credit agreement, the $4,000,000 of 6%
subordinated convertible debt, issued October, 1996 and the $1,500,000 12%
subordinated notes, issued June 15, 1998.
On May 22, 1997 the Company, in connection with the acquisition of the
Hysan Assets, executed an amendment to its current credit agreement (the "Credit
Agreement") with its senior lender Star Bank, N.A. The amended Credit Agreement
provides for a $15,000,000 facility which expires on December 31, 2000,
comprised of a revolving line of credit and three term loans. Borrowings on the
revolving line of credit and two of the term loans bear interest at the prime
rate plus 1.5%, subject to decrease if certain ratios and financial test are
met. Under the terms of the Credit Agreement, the Company is required to comply
with various covenants, the most restrictive of which relates to the maintenance
of certain financial ratios, levels of tangible net worth, limits on capital
expenditures and restrictions on distributions from the Company to its
stockholders. Based on 1997 financial performance, the senior lender has revised
the various covenants by amending the Credit Agreement. Such amendment further
required that the Company provide an acceptable plan to the bank to provide
additional capital for the Company. The Company is currently in compliance with
all of the covenants and with all terms of the amended Credit Agreement. On May
20, 1998 the Company and its senior lender executed a third amendment to the
Credit Agreement
Page 12 of 16
<PAGE> 13
related to the implementation of the Company's recapitalization plan. The
amendment supercedes the repayment schedules on the two continuing term loans
from the first amendment. The first of these two term loans amortizes in
forty-seven consecutive monthly installments of $55,833 commencing December 1,
1998 with a forty-eighth and final principal payment of $55,849. The second
remaining term loan, as amended, bears interest at the prime rate plus 4.5%,
subject to decrease if certain financial tests are met. The second remaining
term loan had an unamortized balance of $444,450 as of April 30, 1998 and is
payable in consecutive monthly installments of $55,555 commencing August 1,
1998. Further, the senior lender has agreed to lend to the Company an additional
$300,000 based on the meeting of certain financial tests in April, May and June
of 1998. As of June 30, 1998, these tests were met.
As of June 30, 1998, approximately $460,000 was unused and available
under the Credit Agreement.
During January, 1998, the Company refinanced the mortgage on its
distribution center and corporate offices with a $1,125,000 note with a new
bank. The note, which bears interest at 8.75%, requires twelve monthly interest
only payments until February 1, 1999. Commencing on February 1, 1999, the note
requires 167 monthly principal and interest payments of $11,790, the final
payment being due on November 1, 2012. The borrowing is collateralized by a
facility which serves as the Company's distribution center and corporate
offices.
On May 20, 1998, the Company issued three $150,000 principal amount
subordinated promissory notes to Martin Trust, CEW Partners and Edwin M. Roth,
respectively (the "Investors"). Such notes were due June 22, 1998. On June 15,
1998, the Company issued three $500,000 principal amount subordinated promissory
notes (the "Subordinated Notes") to such Investors in part to refinance the
original notes issued on May 20, 1998. Such Subordinated Notes are due December
15, 1998. The Company and the Investors have acknowledged in writing, subject to
preparation of definitive documentation, their intent to refinance the
Subordinated Notes as a part of a proposed rights offering to equity security
holders of the Company (including, on an as converted basis, the holders of the
Company's 6% subordinated convertible notes) with a debt instrument either
convertible into or with detachable warrants to purchase no less than three
million shares of the Company's Common Stock for a price not greater than $.50
per share, or a similar security. Each Investor would receive the right to
exercise a proportionate number of otherwise unexercised rights. Further, with
respect to the rights distributed to the Investors, one-third of the aggregate
amount thereof distributed to such parties would be exercisable by each of them
regardless of the actual number of rights actually issued to each. The form of
the rights offering as well as the security to be offered has not yet been
determined.
Page 13 of 16
<PAGE> 14
The Company spent $468,000 on capital improvements during the six-month
period ended June 30, 1998. In addition, the Company expects to spend up to
$162,000 on capital improvements during the balance of the current fiscal year,
which are to be funded from operating cash flows and borrowings under the credit
agreement. Subject to the Company's ability to refinance the Subordinated
Convertible Notes through the rights offering referred to above, or otherwise,
the Company believes it has funds available to it under its Credit Agreement and
from operations that will enable it to satisfy its operating needs and capital
improvements for the current fiscal year.
Part II - Other Information
Item 1. Legal Proceedings
There have been no material changes in the status of legal proceedings
pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual Meeting of Stockholders of the Company held on June 11, 1998,
the stockholders considered and voted on the election of seven directors for
one-year terms expiring in 1999, or until their successors have been duly
elected and qualified, and a resolution by the Board of Directors ratifying the
appointment of Grant Thornton LLP as independent auditors for the Company for
the year ended December 31, 1998.
All of management's nominees for directors, as listed in the proxy
statement, were elected by the following votes :
Edwin M. Roth For 2,263,369
Against 223,347
Withheld -0-
Corey B. Roth For 2,279,119
Against 207,597
Withheld -0-
George N. Aronoff For 2,283,925
Against 202,791
Withheld -0-
Victor Gelb For 2,281,675
Against 205,041
Withheld -0-
Geoffrey J. Colvin For 2,299,025
Against 187,691
Withheld -0-
Page 14 of 16
<PAGE> 15
Terence J. Conklin For 2,299,525
Against 187,191
Withheld -0-
Lionel N. Sterling For 2,284,525
Against 202,191
Withheld -0-
The proposal to ratify the appointment of Grant Thornton LLP as the
Company's independent auditors was passed by the following vote :
Shares voted for 2,444,081
Shares voted against 38,280
Abstentions 4,355
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Amendment to the Credit Agreement changing the
payment structure and financial covenants between
the Company and Star Bank N.A. dated May 20,
1998. . . . . . . . . . . . . . . . . . . . . . .
4.2 $500,000, 12% Subordinated Promissory Note
between the Company and CEW Partners dated June
15, 1998. . . . . . . . . . . . . . . . . . . . .
4.3 $500,000, 12% Subordinated Promissory Note
between the Company and Edwin M. Roth dated June
15, 1998. . . . . . . . . . . . . . . . . . . . .
4.4 $500,000, 12% Subordinated Promissory Note
between the Company and Martin Trust dated June
15, 1998. . . . . . . . . . . . . . . . . . . . .
4.5 Term Sheet pertaining to Proposed Rights Offering
dated June 15, 1998 between the Company and CEW
Partners, Edwin M. Roth and Martin Trust. . . . .
Page 15 of 16
<PAGE> 16
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Specialty Chemical Resources, Inc.
By:/s/ DAVID F. SPINK August 13, 1998
-------------------------------
David F. Spink
Vice President, Chief Financial
Officer
Page 16 of 16
<PAGE> 1
Exhibit 4.1
EXECUTION COPY
THIRD AMENDMENT
TO
FINANCING AGREEMENT
This Third Amendment to Financing Agreement (the "Amendment") is made
as of the 20th day of May, 1998 (the "Effective Date"), by and between Specialty
Chemical Resources, Inc., a Delaware corporation ("Borrower") and Star Bank,
National Association, a national banking association ("Bank").
WITNESSETH:
WHEREAS, Borrower and Bank have entered into that certain Financing
Agreement, dated as of September 18, 1996, as amended by that First Amendment to
Financing Agreement, dated as of May 22, 1997 and as amended by that Second
Amendment to Financing Agreement, dated as of April 14, 1998 (the "Financing
Agreement"), pursuant to which Bank has made certain financial accommodations
available to Borrower;
WHEREAS, Borrower hereby acknowledges that it has discussed with Bank
Borrower's need for additional capitalization in the form of an equity
investment, subordinated debt or other form of credit support;
WHEREAS, Borrower and Bank desire to amend the Financing Agreement as
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Bank and Borrower do hereby agree as
follows:
SECTION 1. DEFINED TERMS.
Each defined term used herein and not otherwise defined herein shall
have the meaning ascribed to such term in the Financing Agreement.
SECTION 2. AMENDMENT TO SECTION 2 OF THE FINANCING AGREEMENT.
2.1 SECTION 2.3, TERM LOAN FACILITY, shall be hereby amended by
deleting the existing Section 2.3 in its entirety and by substituting in place
thereof the following Section 2.3:
1
<PAGE> 2
EXECUTION COPY
2.3 Term Loan A Facility. The Term Loan A under the Term Loan
A Facility will be made, in Bank's good faith discretion, to Borrower
with respect to its eligible machinery and equipment in an amount of up
to the lesser of (i) Two Million Six Hundred Eighty Thousand Dollars
($2,680,000) and (ii) an amount equal to seventy-five percent (75%) of
the orderly liquidation value of Borrower's owned machinery and
equipment on the Effective Date. The principal of Term Loan A shall be
payable in (i) forty-seven (47) consecutive equal monthly installments
of Fifty-Five Thousand Eight Hundred Thirty-Three Dollars ($55,833)
each, commencing on December 1, 1998, and thereafter on the first day
of each calendar month, with the last payment of principal being in the
amount of Fifty-Five Thousand Eight Hundred Forty-Nine ($55,849);
provided, further, that if an Event of Default occurs, the monthly
payment of the principal of Term Loan A in the above-stated dollar
amount by Borrower to Bank shall commence no later than the first day
of the calendar month immediately following the month in which such
Event of Default occurs and on the first day of each month thereafter;
provided, however, that notwithstanding the foregoing amortization
schedule for Term Loan A, upon the effective date of any termination of
this Agreement pursuant to Section 11 and/or Section 13 hereof, all
amounts then outstanding under Term Loan A shall become immediately due
and payable without notice or demand. No repayment or prepayment of
Term Loan A shall be reason for any relending or additional lending of
Term Loan A proceeds to Borrower. At Bank's option, the principal of
Term Loan A shall be payable in accordance with the payment terms set
forth above in this Section 2.3 by charging or increasing the Revolving
Loan balance of Borrower.
2.2 Section 2.5, Term Loan B Facility, shall be amended by deleting
existing Section 2.5 in its entirety and by substituting the following Section
2.5 in place thereof:
2.5 Term Loan B Facility. The Term Loan B under the Term Loan
B Facility has been made to Borrower in the amount of One Million
Dollars ($1,000,000) on May 22, 1997. The principal of Term Loan B is
payable in seventeen (17) consecutive equal monthly installments of
Fifty-Five Thousand Five Hundred Fifty-Five Dollars ($55,555) each,
commencing on the first day of August, 1997, and thereafter on the
first day of each calendar month, with the last payment of principal
being in the amount of the then outstanding and unpaid principal
balance of Term Loan B. On the Effective Date of this Amendment, Bank
will, subject to the terms and conditions set forth in the Financing
Agreement as amended hereby, (i) relend to Borrower an amount equal to
the principal payment made by Borrower to Bank on May 1, 1998, which
amount shall be added to the outstanding principal balance of Term Loan
B, repayable in accordance with the terms hereof, and (ii) contingent
upon the occurrence of each condition and event set forth in the
immediately succeeding sentence and in this Financing
2
<PAGE> 3
EXECUTION COPY
Agreement, the regularly scheduled monthly payments of principal of
Term Loan B due and payable on May 1, 1998, June 1, 1998 and July 1,
1998 shall be deferred for each respective month in which the
afore-referenced conditions are met and the amortization schedule for
principal payments for Term Loan B shall be extended the corresponding
number of months; provided, however, that if an Event of Default
occurs, payment of the principal of Term Loan B in the above-stated
dollar amount shall commence no later than the first day of the
calendar month immediately following the month in which such Event of
Default occurs and on the first day of each month thereafter; provided,
further, that notwithstanding the foregoing amortization schedule for
Term Loan B, upon the effective date of any termination of this
Agreement pursuant to Section 11 and/or Section 13 hereof, all amounts
outstanding under Term Loan B shall become immediately due and payable
without notice or demand. Subject to the provisions of this Financing
Agreement and provided that there has not occurred an Event of Default
at any time on or subsequent to the Effective Date of this Amendment,
Bank shall (i) relend to Borrower under Term Loam B the amount of One
Hundred Thousand ($100,000) provided that Borrower's Fixed Charge
Coverage Ratio (excluding capital expenditures made by Borrower during
the period) for the period from and including March 1, 1998 through
and including April 30, 1998 shall not be less than 1.00 to 1.00; (ii)
relend to Borrower under Term Loan B the amount of One Hundred Thousand
Dollars ($100,000) provided that Borrower's Fixed Coverage Ratio for
the period from and including May 1, 1998 through and including May 31,
1998 shall not be less than 1.00 to 1.00, and (iii) relend to Borrower
under Term Loan B the amount of One Hundred Thousand ($100,000)
provided that Borrower's Fixed Charge Ratio for the period from and
including June 1, 1998 through and including June 30, 1998 shall not be
less than 1.00 to 1.00. All amounts relent by Bank to Borrower pursuant
to the immediately preceding sentence shall be added to the principal
amount of Term Loan B and shall bear interest at the rate and be repaid
in accordance with the terms and conditions set forth in this Financing
Agreement. No repayment or prepayment of Term Loan B shall be any
reason for any relending or additional lending of Term Loan B proceeds
to Borrower other than as specifically set forth herein. At Bank's
option, the principal of Term Loan B shall be payable in accordance
with the payment terms set forth in this Section 2.5 by charging or
increasing the Revolving Loan balance of Borrower. The Term Loan B may
be prepaid at any time by Borrower to Bank without penalty.
2.3 Section 2.11 of the Financing Agreement shall be deleted in its
entirety and the following new Section 2.11 shall be substituted in place
thereof:
2.11 Excess Cash Flow Recapture. Each six (6) month period
during the term of this Agreement in which Term Loan A and/or Term Loan
B shall remain outstanding, Borrower shall make a payment to Bank
("Semi-Annual Cash Flow Payment") in an amount equal to a percent of
Borrower's Excess Cash Flow (as defined in Addendum to Exhibit L
attached hereto and incorporated herein by
3
<PAGE> 4
EXECUTION COPY
reference) for the applicable fiscal period ("Semi-Annual Cash Flow
Payment Amount"). The Semi-Annual Cash Flow Payment Amount with respect
to (x) from and including July 1 through and including December 31 and
(y) from and including January 1 through and including June 30 of each
fiscal year of Borrower, shall be an amount equal to fifty percent
(50%) of Borrower's Excess Cash Flow for such period of Borrower.
Borrower's Excess Cash Flow for the applicable period referred to above
shall be calculated on and due and payable on the first (1st) Business
Day after the earlier to occur of(i) the date on which Borrower shall
have actually delivered the financial information required to be
delivered under Section 8.5 hereof, and (ii) the date on which such
financial information is required to be delivered by Borrower in
accordance with the terms of Section 8.5 hereof (any such date on which
such calculation shall be made being referred to herein as the "Cash
Flow Calculation Date"); provided, however, that Borrower will not be
obligated to make a Semi-Annual Cash Flow Payment with respect to Term
Loan A until the first Cash Flow Calculation Date immediately following
the period of January 1, 1999 through and including June 30, 1999. Each
payment in respect of an Semi-Annual Cash Flow Payment Amount shall, at
Bank's sole determination, be applied to the monthly Term Loan A and/or
the monthly Term Loan B payments in inverse order of maturity until
each Term Loan A and Term Loan B shall have been paid in full. Borrower
shall continue to make Annual Cash Flow Payments in accordance with
this Section 2.11 until each Term Loan A and Term Loan B shall have
been paid in full. Each payment in respect of an Annual Cash Flow
Payment Amount shall be payable by charging or increasing the Revolving
Loan balance of Borrower.
SECTION 3. AMENDMENT TO SECTION 15. MISCELLANEOUS
3.1 Section 15.8 of the Financing Agreement shall be amended
by deleting the last sentence thereof in its entirety and by substituting the
following sentence in place thereof: "The Obligations described under this
Section 15.8 and under Section 15.16 below shall survive any termination of this
Agreement."
3.2 Section 15 to the Financing Agreement shall be amended by
adding new Section 15.16 as follows:
15.16 Deferred Amortization Fee. Borrower shall pay to Bank
deferred amortization fee (the "Deferred Amortization Fee"), which
Deferred Amortization Fee shall be Twenty-Five Thousand Dollars
($25,000), due and payable in four (4) consecutive monthly payments of
Six Thousand Two Hundred Fifty Dollars ($6,250.00) each, with the first
payment being due and payable on September 1, 1998 and thereafter on
October 1, 1998, November 1, 1998 and December 1, 1998. Failure of
Borrower to make any such Deferred Amortization Fee payment when the
same is due and payable shall constitute an Event of Default under
the Financing Agreement, as amended hereby.
4
<PAGE> 5
EXECUTION COPY
Section 4. ADDENDUM TO EXHIBIT L:
Exhibit L shall be amended by adding thereto the Addendum to Exhibit L
Financial Covenants, attached hereto and incorporated by reference herein.
SECTION 5. SECTION 10 REPRESENTATIONS AND WARRANTIES.
In order to induce Bank to enter into this Amendment and in addition to
all of the representations, warranties and covenants made by Borrower under the
Financing Agreement and Loan Documents, Borrower hereby represents, warrants and
covenants that, as of the date hereof, any date upon which a Loan is made
hereunder, and until the Obligations are fully paid, performed and satisfied,
the representations, warranties and covenants set forth in the Financing
Agreement and herein are and shall remain true. The Borrower further hereby
represents arid warrants to Bank as follows:
5.1 The Amendment. This Amendment has been duly and validly
executed by an authorized executive officer of Borrower and constitutes
the legal, valid and binding obligation of Borrower enforceable against
Borrower in accordance with its terms.
5.2 Financing Agreement. The Financing Agreement, as amended
by this Amendment, remains in full force and effect and remains the
valid and binding obligation of Borrower enforceable against Borrower
in accordance with its terms. Borrower hereby ratifies and confirms the
Financing Agreement as amended by this Amendment.
5.3 Nonwaiver. Except as specifically set forth in this
Amendment, the execution, delivery, performance and effectiveness of
this Amendment shall not operate nor be deemed to be nor construed as a
waiver (i) of any right, power or remedy of Bank under the Financing
Agreement, nor (ii) of any term, provision, representation, warranty or
covenant contained in the Financing Agreement or any other
documentation executed in connection therewith. Further, except as
specifically set forth in this Amendment, none of the provisions of
this Amendment shall constitute, be deemed to be or construed as, a
waiver of any Event of Default under the Financing Agreement as amended
by this Amendment.
5.4 Reaffirmation of Representations, Warranties and
Covenants. Borrower hereby reaffirms and agrees to be bound by all
representations, warranties and covenants made or entered into by it
under the Financing Agreement and under any and all Loan Documents.
Borrower hereby represents and warrants to Bank that no Default or
Event of Default shall exist as of the date of this Amendment after
giving effect to this Amendment and none shall be caused to exist as a
result of the execution, delivery and performance by Borrower of this
Amendment.
5
<PAGE> 6
EXECUTION COPY
5.5 Reference to and Effect on the Financing Agreement. Upon
the effectiveness of this Amendment, each reference in the Financing
Agreement to "this Agreement"; "hereunder", "hereof", "herein", or
words of like import shall mean and be a reference to the Financing
Agreement, as amended hereby, and each reference to the Financing
Agreement in any other document, instrument or agreement executed
and/or delivered in connection with the Financing Agreement shall mean
and be a reference to the Financing Agreement, as amended hereby.
SECTION 6. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT.
In addition to all of the other conditions and agreements set forth
herein, the effectiveness of this Amendment is subject to each of the following
conditions precedent:
6.1 Amendment to Financing Agreement. Bank shall have received
an original counterpart of this Third Amendment to Financing Agreement
executed and delivered by a duly authorized officer of Borrower.
6.2 Resolutions. Bank shall have received certified
resolutions of Borrower authorizing Borrower to execute, deliver and
perform this Amendment.
6.3 No Material Adverse Change. There shall have occurred no
material and adverse change in the Borrower's assets, liabilities or
financial condition since the date of the last Financials delivered by
Borrower to Bank nor shall there have been any material damage to or
loss of any of Borrower's assets or properties since such date.
6.4 Capitalization. Borrower shall have fully-consummated the
Capitalization Plan in a form acceptable to Bank in its sole discretion
and shall have received, at a minimum, (a) Four Hundred Fifty Thousand
Dollars ($450,000) cash on the Effective Date of this Amendment and (b)
the total amount of Five Hundred Fifty Thousand Dollars ($550,000) cash
(collectively, the "Capitalization Cash") no later than June 15, 1998.
Failure of Borrower to receive the full amount of the Capitalization
Cash by June 15, 1998 shall constitute an Event of Default under the
Financing Agreement, as amended hereby, and Borrower shall immediately
repay to Bank the amount of the principal payments relent by Bank to
Borrower as described at Section 2.5 above, as a result thereof.
SECTION 7. MISCELLANEOUS.
7.1 Governing Law. This Amendment shall be governed by and
construed in accordance with the law of the State of Ohio, without
regard to principles of conflict of law.
6
<PAGE> 7
EXECUTION COPY
7.2 Severability. In the event any provision of this Amendment
should be invalid, the validity of the other provisions hereof and of
the Financing Agreement shall not be affected thereby.
7.3 Counterparts. This Amendment may be executed in one or
more counterparts, each of which, when taken together, shall constitute
but one and the same agreement.
7.4 Confession of Judgment. Borrower hereby irrevocably
authorizes and empowers any attorney-at-law to appear for Borrower in
any action upon or in connection with this Amendment or the Financing
Agreement, as amended hereby, at any time after the Loans and/or other
Obligations become due, as herein provided, in any court in or of the
State of Ohio or elsewhere, and waives the issuance and service of
process with respect thereto, and irrevocably authorizes and empowers
any such attorney-at-law to confess judgment in favor of Bank against
Borrower, the amount due thereon or hereon, plus interest as herein
provided, and all costs of collection, and waives and releases all
errors in said proceedings and judgments and all rights of appeal from
the judgment rendered. The Borrower agrees and consents that the
attorney confessing judgment on behalf of the Borrower may also be
counsel to Bank or any of Bank's Affiliates, waives any conflict of
interest which might otherwise arise, and consents to Bank paying such
confessing attorney a reasonable legal fee or allowing such attorney's
reasonable fees to be paid from the proceeds of Collateral, the
Premises or any other security for the Loans and the other Obligations.
7
<PAGE> 8
EXECUTION COPY
IN WITNESS WHEREOF, Borrower has caused this Third Amendment to
Financing Agreement to be duly executed and delivered by its duly authorized
officer as of the date first above written.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP OUR RIGHT TO NOTICE AND COURT TRIAL.
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.
Signed in /s/ CLEVELAND, Ohio on May /s/ 20, 1998.
------------- ------
Signed and acknowledged SPECIALTY CHEMICAL RESOURCES,
in the presence of: INC.
- -----------------------------
Name: By: /s/ DAVID F. SPINK
------------------------ ------------------------
Its:/s/ CFO
------------------------
- -----------------------------
Name:
------------------------
8
<PAGE> 9
EXECUTION COPY
STATE OF OHIO )
) ss:
COUNTY OF )
----------
The foregoing instrument was acknowledged before me this 20th day of
May, 1998, by David F. Spink, Chief Financial Officer of Specialty Chemical
Resources, Inc., a Delaware corporation, on behalf of the corporation.
------------------------------
Notary Public
Accepted at Cincinnati, Ohio
as of May /s/ 20, 1998.
------
STAR BANK, NATIONAL ASSOCIATION
By: /s/ SUSAN GEIGER
-----------------
Its: /s/ VICE PRESIDENT
------------------
9
<PAGE> 10
ADDENDUM TO EXHIBIT L
Financial Covenants
Financial Covenants. Borrower agrees that it shall
(A) Capital Expenditures. Not make capital expenditures (including, but not
by way of limitation, expenditures for fixed assets or leases capitalized
or required to be capitalized on Borrower's books by purchase,
lease-purchase agreement, option or otherwise) in an aggregate amount
exceeding (i) $1,000,000 for the fiscal year ending December 31, 1997,
(ii) Nine Hundred Thousand ($900,000) for the fiscal year ending December
31, 1998 and (iii) $1,000,000 for each fiscal year, thereafter.
(B) Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).
Not permit Borrower's Earnings Before Interest, Taxes, Depreciation, and
Amortization ("EBITDA") to be less than the following amounts for the
following periods:
EBITDA Periods
------ -------
$740,000 04/01/98 to 06/30/98
$850,000 07/01/98 to 09/30/98
$800,000 10/01/98 to 12/31/98
(C) Fixed Charge Coverage Ratio. Not permit Borrower's ratio of EBITDA to its
Fixed Charges ("Fixed Charge Coverage Ratio") (excluding (i) any amounts
relent by Bank to Borrower under Section 2.5 hereof and (ii) the
Capitalization Cash actually received by Borrower) to be less than the
following:
Fixed Charge Coverage Ratio Period
--------------------------- ------
1.00 to 1.00 04/01/98 to 06/30/98
1.00 to 1.00 07/01/98 to 09/30/98
1.00 to 1.00 10/01/98 to 12/31/98
(D) Tangible Net Worth. Not permit Borrower's tangible net worth to be less
than the following amounts at any time by and after the following
periods:
Tangible Net Worth Date
------------------ ----
$8,000,000 06/30/98
$8,650,000 09/30/98
$9,100,000 12/31/98
1
<PAGE> 11
(E) Ratio of Total Liabilities to Tangible Net Worth. Not permit Borrower's
ratio of Total Liabilities to Tangible Net Worth to exceed the following
ratios on or after the following dates:
Ratio of Total Liabilities To
Tangible Net Worth Date
------------------ ----
2.69 to 1.00 06/30/98
2.32 to 1.00 09/30/98
2.01 to 1.00 12/31/98
2
<PAGE> 12
II. Definitions to Financial Covenants
(A) The term "Earnings Before Interest, Taxes, Depreciation and Amortization"
or "EBITDA" for purposes of this Exhibit L shall mean Borrower's earnings
from operations before income taxes, and interest or expense, plus
depreciation, plus amortization of all non-cash charges, all as
determined in accordance with generally accepted accounting principles on
a FIFO basis, and shall not include any gains from the sale of assets
outside the normal course of business or any other gains from
extraordinary accounting adjustments or non-recurring items.
(B) The term "Fixed Charge" for purposes of this Exhibit L shall mean
Borrower's cash interest expense, scheduled principal payments on debt
(including, but not limited to, the amount of principal payments on (i)
Term Loan A actually deferred for the months of May, June and July, 1998
and (ii) Term Loan B actually deferred for the months of May, June and
July, 1998), dividends, capitalized lease payments, capital expenditures,
prepayments or redemption of principal on subordinated debt, preferred
stock or common stock, tax, cash taxes paid.
(C) The term "Tangible Worth" for purposes of this Exhibit L, shall mean the
total of Borrower's book net worth, as determined in accordance with
generally accepted accounting principles, consistently applied, plus any
debt subordinate to Borrower's debt to Bank, plus any preferred stock
less any assets considered intangible.
(D) The term "Total Liabilities" for purposes of this Exhibit L shall
include any contingent liabilities and shall have the meaning and be
determined in accordance with generally accepted accounting principles
consistently applied in accordance with past practice. The portion of any
debt subordinate to Borrower's debt to Bank shall be excluded from Total
Liabilities.
(E) The term "Excess Cash Flow" shall mean EBITDA less Fixed Charges.
Upon receipt of fiscal 1999 and 2000 projections as required at Section 8.6
hereof Financial Covenants set forth herein will be established, upon terms
satisfactory to Bank.
3
<PAGE> 13
III. Interest Rate Reduction Tests
<TABLE>
<CAPTION>
Applicable Interest
Rate
<S> <C> <C>
1) Fixed Charge Coverage for previous four fiscal quarter period
2) Total Liabilities/Tangible Net Worth
3) Tangible Net Worth
1) 1.30-1.59
and P + 1.00%
2) 1.86-2.00
and
3) $8,000,000 - $8,499,000
1) 1.60-1.79
and P + 0.50%
2) 1.71-1.85
and
3) $8,500,000 - $8,999,000
1) 1.80 and greater
and P + 0.00%
2) Less than 1.70
and
3) $9,000,000 and greater
</TABLE>
4
<PAGE> 1
Exhibit 4.2
[CEW Partners]
SUBORDINATED PROMISSORY NOTE
$500,000.00 June /s/ 15, 1998
------
No. 2 Cleveland, Ohio
FOR VALUE RECEIVED, the undersigned, Specialty Chemical Resources, Inc., a
Delaware corporation ("Maker"), hereby promises to pay to CEW Partners ("Payee")
the principal sum of Five Hundred Thousand Dollars ($500,000.00) on December 15,
1998 together with accrued and unpaid interest thereon. All principal and
interest under this Note shall be payable in lawful currency of the United
States of America, in cash or by check, to Payee at 45 Rockefeller Plaza, Suite
2500, New York, New York 10020. This Note shall bear interest, commencing on the
date hereof and payable at maturity at a rate equal to twelve percent (12%) per
annum, based on a 360 day year.
All or any part of the outstanding principal and interest due under this Note
may be prepaid at any time without penalty or premium.
Maker hereby waives presentment, demand, notice of dishonor, protest and notice
of nonpayment and protest.
The payment of principal under and interest on this Note is subordinated to the
prior payment in full of all Senior Debt (defined below) and the termination of
all financing arrangements between Maker and the holders of Senior Debt, as
provided herein.
(a) 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 or interest or any other amount due is made upon this Note.
(b) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to Maker or its creditors
or its property, and in the event of any proceedings for voluntary
liquidation, dissolution, or other winding up of Maker, 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 this Note. 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 this Note in any of the
proceedings
1
<PAGE> 2
referred to in the first sentence hereof 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.
(c) Maker shall not make any, and the Payee shall not accept or
receive, payment of principal or interest on, or any amounts in respect
of; or purchase or acquire for value (and Payee shall not offer for
sale or otherwise cause Maker to purchase or acquire for value) this
Note if, either immediately before or after any such payment is
received by Payee, 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.
Maker shall give prompt written notice to Payee of any default or of
any event which, with the passage of time or the giving of notice or
both, would constitute an event of default, under any Senior Debt or
under any agreement pursuant to which Senior Debt may have been issued,
but failure to give such notice shall not affect the subordination of
this Note to the Senior Debt as provided herein, Should any payment or
distribution be received by Payee prior to the payment in full of all
Senior Debt and termination of all financing arrangements between Maker
and the holders of the Senior Debt, and such payment violates any
provision of this Note, Payee shall receive and hold the same in trust
for the benefit of the holders of the Senior Debt.
(d) The provisions of this Note are for the purpose of defining the
relative rights of the holders of Senior Debt, on the one hand, and
Payee on the other hand, and, as between Maker and Payee, nothing
herein shall impair the obligation of Maker, which is unconditional and
absolute, to pay Payee the principal of and interest on this Note in
accordance with the terms of this Note, nor shall anything herein
prevent Payee from exercising all remedies otherwise permitted by
applicable law upon a default under this Note, subject to the rights
under this Note of holders of Senior Debt in respect of cash, property,
stock or other securities received upon the exercise of such remedies.
(e) Subject to the payment in full of all Senior Debt, Payee shall be
subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of assets of Maker payable or distributable
to the holders of Senior Debt until this Note shall be paid in full
and, as between Maker, its creditors, other than the holders of Senior
Debt, and Payee, no payments or distributions otherwise payable or
deliverable in respect of Payee, but, by virtue of the provisions
hereof, paid or delivered to the holders of Senior Debt, shall be
deemed to be a payment by Maker on account of Senior Debt, and no
payments or distributions paid to Payee, by virtue of the subrogation
herein provided for, shall be deemed to be a payment by Maker on
account of this Note. The holders of the Senior Debt shall be
subrogated to Payee with respect to their claims against Maker and
their rights, liens and security interests, if any, in any of the
Maker's assets and the proceeds thereof until all Senior Debt shall
have been paid and all financing arrangements between Maker and the
Holders of the Senior Debt have been terminated.
2
<PAGE> 3
(f) 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
Maker or by any act or failure to act in good faith by any such holder,
or by any noncompliance by Maker 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. Payee 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 Maker, 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.
(g) Payee may not exercise any rights or remedies against Maker to
enforce or collect upon this Note or any amounts due in connection with
this Note, take possession of assets of 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 Maker 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 Maker defaults under this
Note, then Payee 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 a default.
(h) "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 (defined below) of
Maker (other this Note), whether outstanding on the date hereof or
thereafter created, incurred, assumed or guaranteed by Maker 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 this Note. 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 Maker to a subsidiary, direct or indirect, of Maker
for money borrowed or advanced from such subsidiary.
(i) "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 or
entity (i) for or in respect of borrowed money, (ii) evidenced by a
note, debenture or similar instrument (including a purchase money
3
<PAGE> 4
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 or entity to finance its operations or
capital requirements; or (iv) for the maximum fixed repurchase price of
any equity securities of such person or entity which by their terms or
otherwise are required to be redeemed prior to the maturity of this
Note or at the option of the holder thereof; (B) any liability of
others described in the preceding clause (A) which the person or entity
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
any person or entity. 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 of Maker.
(j) Notwithstanding anything to the contrary contained herein, this
Note may be paid and satisfied in full in connection with the
refinancing hereof, whether before, at or after the maturity hereof, on
terms reasonably satisfactory to a majority in principal amount of the
holders of Senior Debt.
This Note is non-transferable prior to its December 15, 1998 maturity date;
provided, however, that the holder hereof may transfer this Note prior to such
date to an affiliate (as defined in the Securities Exchange Act of 1934) of such
holder.
This Note is part of a series of Subordinated Promissory Notes issued by Maker
on the date hereof aggregating One Million Five Hundred Thousand Dollars
($1,500,000) in principal amount (the "Series"). No payment of principal on this
Note shall be made or accepted unless and until a pro rata payment of principal
is made as to all Notes in the Series.
This Note may not be amended or modified unless and until all Notes in the
Series are subject to the same amendment or modification. Any such amendment or
modification requires the written approval of the holder of this Note and all
other Notes in the Series.
This Note shall be governed by and construed in accordance with the laws of
State of Ohio.
SPECIALTY CHEMICAL RESOURCES, INC.
By:/s/ DAVID F. SPINK
----------------------------
Title:/s/ CFO
-------------------------
4
<PAGE> 1
Exhibit 4.3
[Roth]
SUBORDINATED PROMISSORY NOTE
$500,000.00 June /s/ 15, 1998
------
No. 1 Cleveland, Ohio
FOR VALUE RECEIVED, the undersigned, Specialty Chemical Resources, Inc., a
Delaware corporation ("Maker"), hereby promises to pay to Edwin M. Roth
("Payee") the principal sum of Five Hundred Thousand Dollars ($500,000.00) on
December 15, 1998 together with accrued and unpaid interest thereon. All
principal and interest under this Note shall be payable in lawful currency of
the United States of America, in cash or by check, to Payee at c/o Specialty
Chemical Resources, Inc., 9055 Freeway Drive, Macedonia, Ohio 44056. This Note
shall bear interest, commencing on the date hereof and payable at maturity at a
rate equal to twelve percent (12%) per annum, based on a 360 day year.
All or any part of the outstanding principal and interest due under this Note
may be prepaid at any time without penalty or premium.
Maker hereby waives presentment, demand, notice of dishonor, protest and notice
of nonpayment and protest.
The payment of principal under and interest on this Note is subordinated to the
prior payment in full of ail Senior Debt (defined below) and the termination of
all financing arrangements between Maker and the holders of Senior Debt, as
provided herein.
(a) 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 or interest or any other amount due is made upon this Note.
(b) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to Maker or its creditors
or its property, and in the event of any proceedings for voluntary
liquidation, dissolution, or other winding up of Maker, 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 this Note. 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 this Note in any of the
proceedings
1
<PAGE> 2
referred to in the first sentence hereof 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.
(c) Maker shall not make any, and the Payee shall not accept or
receive, payment of principal or interest on, or any amounts in respect
of, or purchase or acquire for value (and Payee shall not offer for
sale or otherwise cause Maker to purchase or acquire for value) this
Note if, either immediately before or after any such payment is
received by Payee, 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.
Maker shall give prompt written notice to Payee of any default or of
any event which, with the passage of time or the giving of notice or
both, would constitute an event of default, under any Senior Debt or
under any agreement pursuant to which Senior Debt may have been issued,
but failure to give such notice shall not affect the subordination of
this Note to the Senior Debt as provided herein. Should any payment or
distribution be received by Payee prior to the payment in full of all
Senior Debt and termination of all financing arrangements between Maker
and the holders of the Senior Debt, and such payment violates any
provision of this Note, Payee shall receive and hold the same in trust
for the benefit of the holders of the Senior Debt.
(d) The provisions of this Note are for the purpose of defining the
relative rights of the holders of Senior Debt, on the one hand, and
Payee on the other hand, and, as between Maker and Payee, nothing
herein shall impair the obligation of Maker, which is unconditional and
absolute, to pay Payee the principal of and interest on this Note in
accordance with the terms of this Note, nor shall anything herein
prevent Payee from exercising all remedies otherwise permitted by
applicable law upon a default under this Note, subject to the rights
under this Note of holders of Senior Debt in respect of cash, property,
stock or other securities received upon the exercise of such remedies.
(e) Subject to the payment in full of all Senior Debt, Payee shall be
subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of assets of Maker payable or distributable
to the holders of Senior Debt until this Note shall be paid in full
and, as between Maker, its creditors, other than the holders of Senior
Debt, and Payee, no payments or distributions otherwise payable or
deliverable in respect of Payee, but, by virtue of the provisions
hereof, paid or delivered to the holders of Senior Debt, shall be
deemed to be a payment by Maker on account of Senior Debt, and no
payments or distributions paid to Payee, by virtue of the subrogation
herein provided for, shall be deemed to be a payment by Maker on
account of this Note. The holders of the Senior Debt shall be
subrogated to Payee with respect to their claims against Maker and
their rights, liens and security interests, if any, in any of the
Maker's assets and the proceeds thereof until all Senior Debt shall
have been paid and all financing arrangements between Maker and the
Holders of the Senior Debt have been terminated.
2
<PAGE> 3
(f) 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
Maker or by any act or failure to act in good faith by any such holder,
or by any noncompliance by Maker 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. Payee 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 Maker, 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.
(g) Payee may not exercise any rights or remedies against Maker to
enforce or collect upon this Note or any amounts due in connection with
this Note, take possession of assets of 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 Maker 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 Maker defaults under this
Note, then Payee 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 a default.
(h) "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 (defined below) of
Maker (other this Note), whether outstanding on the date hereof or
thereafter created, incurred, assumed or guaranteed by Maker for money
borrowed 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 this Note. 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 Maker to a subsidiary, direct or indirect, of Maker
for money borrowed or advanced from such subsidiary.
(i) "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 or
entity (i) for or in respect of borrowed money, (ii) evidenced by a
note, debenture or similar instrument (including a purchase money
3
<PAGE> 4
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 or entity to finance its operations or
capital requirements; or (iv) for the maximum fixed repurchase price of
any equity securities of such person or entity which by their terms or
otherwise are required to be redeemed prior to the maturity of this
Note or at the option of the holder thereof; (B) any liability of
others described in the preceding clause (A) which the person or entity
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
any person or entity. 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 of Maker.
(j) Notwithstanding anything to the contrary contained herein, this
Note may be paid and satisfied in full in connection with the
refinancing hereof, whether before, at or after the maturity hereof, on
terms reasonably satisfactory to a majority in principal amount of the
holders of Senior Debt.
This Note is non-transferable prior to its December 15, 1998 maturity date;
provided, however, that the holder hereof may transfer this Note prior to such
date to an affiliate (as defined in the Securities Exchange Act of 1934) of such
holder.
This Note is part of a series of Subordinated Promissory Notes issued by Maker
on the date hereof aggregating One Million Five Hundred Thousand Dollars
($1,500,000) in principal amount (the "Series"). No payment of principal on this
Note shall be made or accepted unless and until a pro rata payment of principal
is made as to all Notes in the Series.
This Note may not be amended or modified unless and until all Notes in the
Series are subject to the same amendment or modification. Any such amendment or
modification requires the written approval of the holder of this Note and all
other Notes in the Series.
This Note shall be governed by and construed in accordance with the laws of
State of Ohio.
SPECIALTY CHEMICAL RESOURCES, INC.
By:/s/ DAVID F. SPINK
----------------------------
Title:/s/ CFO
-------------------------
4
<PAGE> 1
Exhibit 4.4
[Martin Trust]
SUBORDINATED PROMISSORY NOTE
$500,000.00 June /s/ 15, 1998
------
No. 3 Cleveland, Ohio
FOR VALUE RECEIVED, the undersigned, Specialty Chemical Resources, Inc., a
Delaware corporation ("Maker"), hereby promises to pay to Martin Trust ("Payee")
the principal sum of Five Hundred Thousand Dollars ($500,000.00) on December 15,
1998 together with accrued and unpaid interest thereon. All principal and
interest under this Note shall be payable in lawful currency of the United
States of America, in cash or by check, to Payee at c/o Trust Investments, Inc.,
52 Stiles Road, Salem, New Hampshire 03079. This Note shall bear interest,
commencing on the date hereof and payable at maturity at a rate equal to twelve
percent (12%) per annum, based on a 360 day year.
All or any part of the outstanding principal and interest due under this Note
may be prepaid at any time without penalty or premium.
Maker hereby waives presentment, demand, notice of dishonor, protest and notice
of nonpayment and protest.
The payment of principal under and interest on this Note is subordinated to the
prior payment in full of all Senior Debt (defined below) and the termination of
all financing arrangements between Maker and the holders of Senior Debt, as
provided herein.
(a) 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 or interest or any other amount due is made upon this Note.
(b) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to Maker or its creditors
or its property, and in the event of any proceedings for voluntary
liquidation, dissolution, or other winding up of Maker, 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 this Note. 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 this Note in any of the
proceedings
<PAGE> 2
referred to in the first sentence hereof 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.
(c) Maker shall not make any, and the Payee shall not accept or
receive, payment of principal or interest on, or any amounts in respect
of, or purchase or acquire for value (and Payee shall not offer for
sale or otherwise cause Maker to purchase or acquire for value) this
Note if, either immediately before or after any such payment is
received by Payee, 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.
Maker shall give prompt written notice to Payee of any default or of
any event which, with the passage of time or the giving of notice or
both, would constitute an event of default, under any Senior Debt or
under any agreement pursuant to which Senior Debt may have been issued,
but failure to give such notice shall not affect the subordination of
this Note to the Senior Debt as provided herein. Should any payment or
distribution be received by Payee prior to the payment in full of all
Senior Debt and termination of all financing arrangements between Maker
and the holders of the Senior Debt, and such payment violates any
provision of this Note, Payee shall receive and hold the same in trust
for the benefit of the holders of the Senior Debt.
(d) The provisions of this Note are for the purpose of defining the
relative rights of the holders of Senior Debt, on the one hand, and
Payee on the other hand, and, as between Maker and Payee, nothing
herein shall impair the obligation of Maker, which is unconditional and
absolute, to pay Payee the principal of and interest on this Note in
accordance with the terms of this Note, nor shall anything herein
prevent Payee from exercising all remedies otherwise permitted by
applicable law upon a default under this Note, subject to the rights
under this Note of holders of Senior Debt in respect of cash, property,
stock or other securities received upon the exercise of such remedies,
(e) Subject to the payment in full of all Senior Debt, Payee shall be
subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of assets of Maker payable or distributable
to the holders of Senior Debt until this Note shall be paid in full
and, as between Maker, its creditors, other than the holders of Senior
Debt, and Payee, no payments or distributions otherwise payable or
deliverable in respect of Payee, but, by virtue of the provisions
hereof, paid or delivered to the holders of Senior Debt, shall be
deemed to be a payment by Maker on account of Senior Debt, and no
payments or distributions paid to Payee, by virtue of the subrogation
herein provided for, shall be deemed to be a payment by Maker on
account of this Note. The holders of the Senior Debt shall be
subrogated to Payee with respect to their claims against Maker and
their rights, liens and security interests, if any, in any of the
Maker's assets and the proceeds thereof until all Senior Debt shall
have been paid and all financing arrangements between Maker and the
Holders of the Senior Debt have been terminated.
2
<PAGE> 3
(f) 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
Maker or by any act or failure to act in good faith by any such holder,
or by any noncompliance by Maker 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. Payee 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 Maker, 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.
(g) Payee may not exercise any rights or remedies against Maker to
enforce or collect upon this Note or any amounts due in connection with
this Note, take possession of assets of 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 Maker 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 Maker defaults under this
Note, then Payee 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 a default.
(h) "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 (defined below) of
Maker (other this Note), whether outstanding on the date hereof or
thereafter created, incurred, assumed or guaranteed by Maker 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 this Note. 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 Maker to a subsidiary, direct or indirect, of Maker
for money borrowed or advanced from such subsidiary.
(i) "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 or
entity (i) for or in respect of borrowed money, (ii) evidenced by a
note, debenture or similar instrument (including a purchase money
3
<PAGE> 4
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 or entity to finance its operations or
capital requirements; or (iv) for the maximum fixed repurchase price of
any equity securities of such person or entity which by their terms or
otherwise are required to be redeemed prior to the maturity of this
Note or at the option of the holder thereof; (B) any liability of
others described in the preceding clause (A) which the person or entity
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
any person or entity. 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 of Maker.
(j) Notwithstanding anything to the contrary contained herein, this
Note may be paid and satisfied in full in connection with the
refinancing hereof, whether before, at or after the maturity hereof; on
terms reasonably satisfactory to a majority in principal amount of the
holders of Senior Debt.
This Note is non-transferable prior to its December 15, 1998 maturity date;
provided, however, that the holder hereof may transfer this Note prior to such
date to an affiliate (as defined in the Securities Exchange Act of 1934) of such
holder.
This Note is part of a series of Subordinated Promissory Notes issued by Maker
on the date hereof aggregating One Million Five Hundred Thousand Dollars
($1,500,000) in principal amount (the "Series"). No payment of principal on this
Note shall be made or accepted unless and until a pro rata payment of principal
is made as to all Notes in the Series.
This Note may not be amended or modified unless and until all Notes in the
Series are subject to the same amendment or modification. Any such amendment or
modification requires the written approval of the holder of this Note and all
other Notes in the Series.
This Note shall be governed by and construed in accordance with the laws of
State of Ohio.
SPECIALTY CHEMICAL RESOURCES, INC.
By: /s/ DAVID F. SPINK
-----------------------------
Title: /s/ CFO
--------------------------
4
<PAGE> 1
Exhibit 4.5
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,
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/ Geoffrey J. Colvin
----------------------------
JUNE 15, 1998 General Partner
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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