-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MLfhDOL6C0kqBdWnthgnvZb9MlUQFdGhCb48dMMzEU/IRO4LxGQwfXNjig1+PYYP EDsHA7ufxLlj62sL5Phpag== 0000950115-96-001315.txt : 19960916 0000950115-96-001315.hdr.sgml : 19960916 ACCESSION NUMBER: 0000950115-96-001315 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960628 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960913 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BETZDEARBORN INC CENTRAL INDEX KEY: 0000011884 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 231503731 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11558 FILM NUMBER: 96630090 BUSINESS ADDRESS: STREET 1: 4636 SOMERTON RD CITY: TREVOSE STATE: PA ZIP: 19053 BUSINESS PHONE: 2153553300 MAIL ADDRESS: STREET 1: 4636 SOMERTON ROAD CITY: TREVOSE STATE: PA ZIP: 19053 FORMER COMPANY: FORMER CONFORMED NAME: BETZ LABORATORIES INC DATE OF NAME CHANGE: 19920703 8-K/A 1 CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------------------------- AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K ON FORM 8-K/A PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------------------- Date of Report (Date of earliest event reported): June 28, 1996 BETZDEARBORN INC. (Exact name of registrant as specified in its charter) Pennsylvania 0-2085 23-1503731 (State or Other Jurisdiction of (Commission (IRS Employer Incorporation) File Number) Identification No.) 4636 Somerton Road, Trevose, PA 19053 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 355-3300 Betz Laboratories, Inc. (Former Name or Former Address, if Changed Since Last Report) Item 2. Acquisition or Disposition of Assets. As discussed in its Current Report on Form 8-K, dated June 28, 1996, BetzDearborn Inc. (the "Company") acquired certain assets and liabilities comprising the Dearborn water treatment business (the "Dearborn Business") from W. R. Grace & Co. - Conn. ("Grace"). The total purchase price previously reported in this Form 8-K is hereby amended to $630 million plus a $6.4 million working capital adjustment, subject to certain further adjustments. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. The following documents are included as part of this report: (a) Financial Statements of Business Acquired. (Annex A) W.R. Grace & Co.-Conn. Dearborn Business: Report of Independent Certified Public Accountants.. A-1 Combined Balance Sheet - December 31, 1995 & 1994.......................... A-2 Combined Statement of Operations - Years ended December 31, 1995, 1994 & 1993........ A-3 Combined Statement of Cash Flows - Years ended December 31, 1995, 1994 & 1993........ A-4 Notes to Combined Financial Statements - Years ended December 31, 1995, 1994 & 1993........ A-5 to A-20 Combined Balance Sheet - Unaudited March 31, 1996.................................... A-21 Combined Statement of Operations - Unaudited Three Months ended March 31, 1996 and 1995........ A-22 Combined Statement of Cash Flows - Unaudited Three Months ended March 31, 1996 and 1995........ A-23 Notes to Combined Financial Statements - Unaudited Three Months ended March 31, 1996 ................ A-24 to A-25 (b) Pro Forma Financial Information. (Annex B) BetzDearborn Inc. and Consolidated Subsidiaries: Unaudited Pro Forma Financial Information........... B-1 Unaudited Pro Forma Statements of Operations........ B-2 to B-3 Notes to Unaudited Pro Forma Financial Statements... B-4 (c) Exhibits. 2.2 Amendment No. 1 to the Grace Dearborn Worldwide Purchase and Sale Agreement, dated as of June 28, 1996, by and between Grace and the Company 2.3 Amendment No. 2 to the Grace Dearborn Worldwide Purchase and Sale Agreement, dated as of June 28, 1996, by and between Grace and the Company 23 Consent of Independent Certified Public Accountants SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BetzDearborn Inc. (Registrant) Date: September 13, 1996 By: /s/ William R. Cook -------------------------------- William R. Cook Chairman, President and Chief Executive Officer REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of W.R. Grace & Co. - Conn. In our opinion, the accompanying combined balance sheet and the related combined statements of operations and of cash flows present fairly, in all material respects, the financial position of the Grace Dearborn Business ("the Dearborn Business") of W.R. Grace & Co. - Conn. ("Grace") at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the management of Grace and the Dearborn Business; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The Business was a separate product line of Grace and, as disclosed in Note 10 to the accompanying financial statements, has engaged in various transactions and relationships with other Grace entities. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties. PRICE WATERHOUSE LLP Fort Lauderdale, Florida September 9, 1996 A-1 W.R. Grace & Co. - Conn. Dearborn Business Combined Balance Sheet (Amounts in Thousands) - ------------------------------------------------------------------------------
December 31, 1995 1994 -------- --------- Assets Cash $ 462 $ 236 Accounts and other receivables, net of allowances for doubtful accounts of $3,857 and $3,081 at December 31, 1995 and 1994, respectively 66,857 53,620 Inventories 44,408 42,530 Other current assets 2,654 2,016 -------- -------- Total current assets 114,381 98,402 -------- -------- Properties and equipment, net 93,399 83,653 Goodwill and other intangibles, less accumulated amortization of $19,543 and $14,977 at December 31, 1995 and 1994, respectively 85,260 86,356 Other non-current assets and deferred charges 3,842 2,794 -------- -------- Total assets $296,882 $271,205 ======== ======== Liabilities and Parent Company Investment Accounts payable $ 18,055 $ 19,394 Accrued liabilities 20,065 18,001 Foreign income taxes -- 880 -------- -------- Total current liabilities 38,120 38,275 -------- -------- Deferred taxes 1,613 1,371 Pension/service indemnity liabilities 9,950 8,603 Other non-current liabilities 657 314 -------- -------- Total liabilities 50,340 48,563 -------- -------- Commitments and contingencies (Note 12) -- -- Parent company investment 246,542 222,642 -------- -------- Total Liabilities and Parent Company Investment $296,882 $271,205 ======== ========
A-2 W.R. Grace & Co. - Conn. Dearborn Business Combined Statement of Operations (Amounts in Thousands) - -------------------------------------------------------------------------------
Year ended December 31, 1995 1994 1993 --------- --------- --------- Net sales $ 399,105 $ 360,708 $ 328,127 Cost of goods sold 170,458 148,822 138,771 --------- --------- --------- Gross profit 228,647 211,886 189,356 Selling, general and administrative expenses 205,545 185,248 164,908 Research and development expenses 17,306 15,493 16,287 Restructuring costs 7,729 4,851 5,608 --------- --------- --------- Total operating expenses 230,580 205,592 186,803 --------- --------- --------- Income/(loss) from operations (1,933) 6,294 2,553 Other expense, net 542 1,345 4,489 --------- --------- --------- Income/(loss) before income taxes (2,475) 4,949 (1,936) Provision for income taxes 6,008 7,177 7,129 --------- --------- --------- Net loss $ (8,483) $ (2,228) $ (9,065) ========= ========= =========
A-3 W.R. Grace & Co. - Conn. Dearborn Business Combined Statement of Cash Flows (Amounts in Thousands) - -------------------------------------------------------------------------------
Year ended December 31, 1995 1994 1993 -------- -------- --------- Operating Activities Net loss $ (8,483) $ (2,228) $ (9,065) Reconciliation to cash provided by operating activities: Depreciation and amortization 17,601 15,485 13,238 Deferred income taxes 206 75 200 Translation exchange loss 1,199 413 4,440 Loss on disposal of property, plant and equipment 227 536 2,300 Changes in operating assets and liabilities, including effects of business acquisitions and foreign exchange rate changes: Accounts receivable (11,727) (6,074) (2,505) Inventories (626) (6,452) (5,831) Other current assets (484) 333 (145) Accounts payable and other current liabilities (1,552) 4,255 (5,778) Other 1,355 1,017 2,046 -------- -------- -------- Net cash provided by (used by) operating activities (2,284) 7,360 (1,100) -------- -------- -------- Investing Activities Capital expenditures (25,272) (25,219) (21,007) Cash paid for business acquisition -- -- (60,864) -------- -------- -------- Net cash used in investing activities (25,272) (25,219) (81,871) -------- -------- -------- Financing Activities Net change in amount due to parent 32,383 23,829 78,782 -------- -------- -------- Net effect of exchange rate changes on cash (4,601) (5,893) 3,349 -------- -------- -------- Net increase/(decrease) in cash 226 77 (840) Cash, beginning of year 236 159 999 -------- -------- -------- Cash, end of year $ 462 $ 236 $ 159 ======== ======== ========
A-4 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies The Business On June 28, 1996, Betz Laboratories, Inc. ("Betz") purchased the Grace Dearborn Business (the "Dearborn Business") of W.R. Grace & Co. - Conn. and subsidiaries ("Grace") by acquiring certain assets and assuming certain liabilities of the Dearborn Business worldwide from Grace as provided in the Grace Dearborn Worldwide Purchase and Sale Agreement dated March 11, 1996, as amended on June 28, 1996 ("the Agreement"). The Dearborn Business provides water management products and related customer support to a worldwide range of industries to prevent scaling, corrosion, fouling, and microbiological problems in utility and process systems, and to facilitate liquid/solid separation. Basis of Presentation Under the terms of the Agreement, Betz acquired from Grace (1) its partnership interests in Dearborn USA, Limited Partnership*, (2) the stock of Grace Dearborn N.V., Alexim N.V. and Finac N.V., all Belgian corporations; the stock of Grace Dearborn, Inc.*, a Canadian corporation; the stock of Grace Service Chemicals S.A., a French corporation; the stock of Grace Dearborn B.V., a Netherlands corporation; the stock of Grace Dearborn AB* and Dearborn Holdings AB, both Swedish corporations, and (3) the other worldwide operating assets and liabilities of the Dearborn Business. The Dearborn Business maintains over 120 sales offices worldwide, with many of the 70 offices located outside of North America being shared with other Grace operations. In addition, the Dearborn Business operates six administrative centers (two in North America and four in Europe) and shares administrative offices in the European, Asia Pacific and Latin American regions with other Grace operations. The Dearborn Business also has six research and development laboratories (four located at manufacturing facilities and one each in Belgium and Brazil) and 19 worldwide customer service laboratories. The Dearborn Business' assets and liabilities are located in the following regions/countries:
Europe Latin America Asia Pacific ----------------------------------- ------------- ----------- Germany* Switzerland Brazil* Australia** United Kingdom* Italy Chile* South Africa (*)(**) Spain** Greece Venezuela* Hong Kong** Poland Netherlands Argentina** Singapore** Hungary Portugal Mexico** Philippines France Turkey Colombia** New Zealand Finland Norway Guatemala Thailand Denmark Belgium Peru Malaysia Ireland Sweden* Uruguay
A-5 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- * Includes manufacturing operations. ** Excludes manufacturing operations of the Dearborn Business retained by Grace, for which Grace will manufacture Dearborn Business products for Betz under tolling arrangements. These financial statements present the historical financial position, results of operations, and cash flows of the Dearborn Business previously included in the Grace consolidated financial statements. The Securities and Exchange Commission, in Staff Accounting Bulletin Number 55, requires that historical financial statements of a subsidiary, division, or lesser business component of another entity include certain expenses incurred by the parent on its behalf. Accordingly, included in the accompanying financial statements are costs allocated to the Dearborn Business by Grace (see Note 10). All transactions between the Dearborn Business' locations included in the financial statements are herein referred to as "intracompany" transactions whereas transactions with Grace are referred to herein as "intercompany" or "related party" transactions. Basis of Combination The combined financial statements have been prepared by combining the assets and liabilities of the Dearborn Business. All intracompany balances, intracompany sales and intracompany profit have been eliminated in preparing the financial statements. Account balances of the Dearborn Business with Grace have been reported as part of parent company investment, except for those related to the sale of product and reimbursement of selling and personnel costs which have been included in accounts receivable. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A-6 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- Financial Instruments At December 31, 1995 and 1994, the carrying value of the Dearborn Business' financial instruments such as cash, trade accounts receivable and accounts payable approximate fair value, based on the short-term maturities of these instruments. Revenue Recognition Revenue recognition generally takes place when goods are shipped and/or when related support is provided to customers. Concentration of Credit Risk Financial instruments which potentially expose the Dearborn Business to concentrations of credit risk consist primarily of trade accounts receivable. To minimize this risk, ongoing credit evaluations of customers' financial condition are performed, although collateral is not required. In addition, the Business maintains allowances for potential credit losses and such losses, in the aggregate, have not exceeded management expectations. None of the Dearborn Business' customer receivables are individually significant. Inventories Finished goods and work-in-process inventories are valued at the lower of cost or market. Cost flow is based on the last-in, first-out (LIFO) method in the U.S., and first-in, first-out (FIFO) method in other regions. Raw materials are valued at the lower of FIFO cost or realizable value. Properties and Equipment Properties and equipment are stated at cost. Major renewals and improvements which extend the lives of the respective assets are capitalized. Maintenance, repairs and renewals which do not extend the lives of the respective assets are charged to income as incurred. Fully depreciated assets are retained in properties and equipment and related accumulated depreciation accounts until they are removed from service. For financial reporting purposes, depreciation is computed using the straight-line method over the estimated useful lives of the assets specified below: Useful lives Category (years) -------- ------- Buildings 10-40 Machinery and equipment 3-20 Other property and equipment 3-10 A-7 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- The financial statements include $12,796, $9,924 and $9,405 of depreciation expense in 1995, 1994 and 1993, respectively. The cost of reusable bulk containers, which are used to ship product to customers and then returned when empty, is amortized on a straight-line basis over a 3 to 15 year period depending on the type of container and end user. The cost of leased custom-designed feed and monitoring equipment is amortized on a straight-line basis over the lease period. The cost of feed and related equipment loaned to customers, where ownership is retained by the Dearborn Business, is usually built into the selling price of the product and is amortized on a straight-line basis usually over a 3 year period. Goodwill and Other Intangibles Goodwill is amortized using the straight-line method over a 40 year period. Other intangibles are amortized on a straight-line basis in accordance with the nature of the asset (approximately 3-15 years). Impairment The Dearborn Business has adopted Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance with this Statement, the Dearborn Business reviews long-lived assets and related goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Income Taxes Historically, except in Canada, Belgium, France and the Netherlands, the results of the Dearborn Business' operations have been included in the income tax returns of Grace. As such, Grace paid income taxes attributable to the Dearborn Business; this has been reflected in parent company investment. The income tax expense and other tax related information in these financial statements have been determined as if the operations of the Dearborn Business were not eligible to be included in the tax returns of Grace but rather were stand-alone taxpayers. The provisions of Statement of Financial Accounting Standards No. 109 (FAS 109) "Accounting for Income Taxes" have been retroactively applied to these financial statements. FAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future consequences of events that have been recognized in the financial statements or tax returns. In estimating future tax consequences, FAS 109 A-8 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- generally considers all expected future events other than anticipated changes in the tax laws or rates. Foreign Currency Translation The Dearborn Business' predominant foreign operations are conducted in Belgium, Brazil, Canada, Germany, Sweden and the United Kingdom. The local currency in all locations except Brazil is considered to be the functional currency. Local currency amounts of revenues and expenses for all locations, except Brazil, for 1995, 1994 and 1993 were translated into U.S. dollars using the average exchange rates for the appropriate year. Brazil was considered a highly inflationary economy in accordance with Financial Accounting Standards No. 52 (FAS 52) - "Foreign Currency Translation". As such, the functional currency for Brazil is the U.S. dollar and translation gains and losses are included in current operations. A foreign exchange loss of $1,199, $413 and $4,440 for 1995, 1994 and 1993, respectively, related to Brazil is reflected in other expense, net in the accompanying financial statements. Transaction gains/(losses) are recorded on transactions denominated in currencies other than the respective functional currencies based upon the difference in exchange rates from the date a transaction is initially recorded to the date it is settled, or the exchange rate in effect at December 31, 1995 and 1994, as appropriate, if it is not settled. Transaction gains/losses in 1995, 1994 and 1993 were not significant. 2. Inventories December 31, 1995 1994 ----------- ------------- Inventories include: Raw materials $ 17,797 $ 17,687 Work-in-process 4,635 3,100 Finished goods 27,708 26,741 Inventory reserves (3,638) (3,021) ----------- ------------ 46,502 44,507 Less: Adjustment of inventories to the LIFO basis (2,094) (1,977) ----------- ------------ $ 44,408 $ 42,530 ============ ============ A-9 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- 3. Properties and Equipment December 31, 1995 1994 ----------- ------------ Properties and equipment include: Land $ 4,537 $ 3,916 Buildings 55,217 49,748 Machinery and equipment 70,174 63,464 Other property and equipment 35,424 31,603 ---------- ---------- 165,352 148,731 Less - Accumulated depreciation (81,848) (74,097) Containers, feed and monitoring equipment, net 9,895 9,019 ---------- ---------- $ 93,399 $ 83,653 ========== ========== The administrative building in Belgium sustained limited damage believed to be largely due to adjacent ground movement. The amount of required repair has not been determined, the extent of which will be dependent upon the Dearborn Business' planned future use of the facility. Although the building is insured, the factors contributing to the cause of the damage may limit coverage to some degree. Accordingly, the extent of uninsured cost, if any, is not estimable as of the date of these financial statements. At December 31, 1995, minimum future payments for noncancellable operating leases were: 1996 $ 4,973 1997 3,032 1998 1,394 1999 470 2000 347 Thereafter 1,200 ----------- Total $ 11,416 =========== Rental expense for operating leases amounted to $8,416, $6,817 and $6,707 in 1995, 1994 and 1993, respectively. A-10 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- 4. Other Non-Current Assets and Deferred Charges Other non-current assets and deferred charges include the following: December 31, 1995 1994 -------- -------- Security deposits $ 1,028 $ 179 Investment in affiliate 289 368 Other 2,525 2,247 -------- ------- $ 3,842 $ 2,794 ======== ======== 5. Accrued Liabilities December 31, 1995 1994 -------- -------- Accrued liabilities include the following: Employee related expenses $ 10,008 $ 7,340 Restructuring costs 4,495 3,502 Administration and selling expenses 1,563 2,340 Deferred income 685 261 Rebates, customer claims and warranties 518 117 Licenses and royalties 297 287 Other 2,499 4,154 -------- -------- $ 20,065 $ 18,001 ======== ======== 6. Restructuring Costs Restructuring charges were recorded in 1995, 1994 and 1993, of $7,729, $4,851 and $5,608, respectively. In 1995, the restructuring charge was part of a worldwide Grace program aimed at streamlining processes and reducing selling, general and administrative expenses, factory administration costs and noncore corporate research and development expenses. The 1994 charge was part of a restructuring related principally to the operation in Germany and included an overall streamlining of processes and a reduction in the sales force. The 1993 charge consisted of three separate restructuring programs and included streamlining processes in Germany, France and other operations in Europe. It is anticipated that the accruals remaining at December 31, 1995 will be spent in 1996. A-11 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - --------------------------------------------------------------------------------
12/31/92 1993 1993 12/31/93 1994 1994 12/31/94 1995 1995 12/31/95 Balance Change Expenditures Balance Change Expenditures Balance Change Expenditures Balance ------- ------ ------------ ------- ------ ------------ ------- ------ ------------ ------- Prior Year Accruals $391 $ -- $ (391) $ -- $ -- $ -- $ -- $ -- $ -- $ -- 1993 Restructuring Programs: Germany -- 2,000 -- 2,000 -- (2,000) -- -- -- -- France -- 908 -- 908 -- (908) -- -- -- -- Other European operations -- 2,700 (1,447) 1,253 -- (604) 649 -- (377) 272 1994 Restructuring Programs: Germany -- -- -- -- 4,000 (1,393) 2,607 -- (2,412) 195 Sales force -- -- -- -- 851 (605) 246 -- (246) -- 1995 Restructuring Program: Worldwide streamlining -- -- -- -- -- -- -- 7,729 (3,701) 4,028 ---- ------ ------- ------ ------ ------- ------ ------ ------- ------ Total $391 $5,608 $(1,838) $4,161 $4,851 $(5,510) $3,502 $7,729 $(6,736) $4,495 ==== ====== ======= ====== ====== ======= ====== ====== ======= ======
7. Income Taxes The components of the provision for income taxes consist of: Year ended December 31, 1995 1994 1993 ---- ---- ---- Current: Federal $1,446 $3,096 $1,661 State 229 591 759 Foreign 3,990 4,180 4,836 ------- ------- ------- 5,665 7,867 7,256 ------- ------- ------- Deferred: Federal 517 76 (34) State - - - Foreign (174) (766) (93) ------- ------- ------- 343 (690) (127) ------- ------- ------- $6,008 $7,177 $7,129 ======= ======= ======= A-12 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- Deferred tax assets (liabilities) of Grace Dearborn N.V., Grace Dearborn Inc. and Grace Dearborn B. V. are comprised of the following: December 31, 1995 1994 ---- ---- Property and equipment $(1,596) $(1,548) Other (466) (1,081) ------- ------- Gross deferred tax liabilities (2,062) (2,629) ------- ------- Net operating losses 6,450 5,359 Other 27 542 ------- ------- Gross deferred assets 6,477 5,901 Valuation allowance (6,028) (4,643) ------- ------- Net deferred tax liabilities $(1,613) $(1,371) ======= ======= The valuation allowance has been provided primarily for net operating loss carryforwards and accruals which are not currently deductible. Based upon the historical results of operations on a stand-alone basis, management believes these items would be more than likely not to yield a tax benefit in the forseeable future. The change in the valuation allowance in 1995 and 1994 was an increase of $1,385 and $2,717, respectively. Deferred tax assets (liabilities) which are included in parent company investment are comprised of the following: December 31, 1995 1994 ---- ---- Assets Accruals not currently deductible $ 2,323 $ 2,099 Property and equipment basis differentials 2,210 1,750 Net operating losses 7,017 4,285 Other 222 137 --------- --------- Gross deferred tax assets 11,772 8,271 Valuation allowance (9,402) (6,576) --------- --------- Deferred tax assets 2,370 1,695 Liabilities Inventories (1,935) (1,575) --------- --------- Net deferred tax assets $ 435 $ 120 ========= ========= A-13 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- The valuation allowance has been provided primarily for net operating loss carryforwards and deferred charges, which, based upon the historical results of operations on a stand-alone basis, management believes would be more than likely not to yield a tax benefit in the forseeable future. The change in the valuation allowance in 1995 and 1994 was an increase of $2,826 and $3,475, respectively. The U.S. federal corporate tax rate reconciles to the total tax expense as follows: Year ended December 31, 1995 1994 1993 ---- ---- ---- Taxes computed at federal statutory rate $ (981) $ 1,693 $ (742) State income tax, net of federal benefit 149 384 460 Valuation allowance provided 4,499 6,165 6,275 Foreign rates higher/lower than federal statutory rate 634 (2,615) 336 Other-net 1,707 1,550 800 ------- -------- ------- Total tax expense $6,008 $ 7,177 $7,129 ======= ======== ====== Effective August 10, 1993, in connection with the passage of the Omnibus Budget Reconciliation Act (OBRA), certain retroactive changes in the U.S. federal income tax laws were enacted, including an increase in the statutory income tax rate from 34% to 35% retroactively applied to January 1, 1993. The rate change had no material effect on deferred federal income taxes for 1993. No other provisions of OBRA had a material effect on the results of operations. U.S. and foreign taxes have not been provided on foreign undistributed earnings as such earnings are being retained indefinitely for reinvestment. The distribution of these earnings may result in additional foreign withholding taxes and additional U.S. federal income taxes to the extent they are not offset by foreign tax credits, but it is not practicable to estimate the total tax liability that would be incurred upon such a distribution. 8. Pension Plans Grace maintains defined benefit pension plans covering employees of certain units, including the Dearborn Business, who meet age and service requirements. Benefits are generally based on final average salary and years of service. Grace funds its U.S. pension plan in accordance with federal laws and regulations. Non-U.S. pension plans are funded under a variety of methods dictated by differing local laws and customs and therefore cannot be summarized. Plan assets are invested primarily in common stock and fixed income securities. For purposes of these financial statements, other employees are considered to have A-14 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- participated in a multiemployer pension plan as defined in Statement of Financial Accounting Standards No. 87 (FAS 87) - "Employer's Accounting for Pensions." For multiemployer plans, employers are required to recognize as net pension expense total contributions for the period. With respect to these plans, the Dearborn Business charged to expense $639 and $304 in 1995 and 1994, respectively, and credited to income $279 in 1993. There were no contributions due and unpaid at December 31, 1995 and 1994. The Business maintains a single employer defined benefit plan covering German employees. The funded status of this plan was as follows: December 31, 1995 1994 ---- ---- Actuarial present value of benefit obligation: Vested $3,305 $2,751 ====== ====== Accumulated benefit obligation $4,094 $3,997 ====== ====== Total projected benefit obligation $5,344 $4,791 Plan assets at fair value -- -- ------ ------ Plan assets less than projected benefit obligation 5,344 4,791 Unrecognized net gain 781 445 ------ ------ Accrued pension cost $6,125 $5,236 ====== ====== Pension cost for this plan is comprised of the following components: Year Ended December 31, 1995 1994 1993 ---- ---- ---- Service cost of benefits earned during the year $278 $393 $280 Interest cost on benefits earned in prior years 298 310 251 --- ---- ---- Pension expense $576 $703 $531 ==== ==== ==== The actuarial assumptions for this plan are as follows: 1995 1994 1993 ---- ---- ---- Discount rate at December 31, 7.70% 8.00% 6.50% Rate of compensation increase for year 5.75% 5.75% 5.75% The Dearborn Business also maintains a single employer defined benefit plan covering A-15 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- eligible employees in Sweden. The accrued liability related to this plan is $1,168 and $1,078 at December 31, 1995 and 1994, respectively. The Dearborn Business charged $150, $137 and $138 to expense in 1995, 1994 and 1993, respectively, with respect to this plan. 9. Other Postretirement Benefit Plans Grace provides certain other postretirement health care and life insurance benefits for retired U.S. employees, including the Dearborn Business' eligible retired employees. These retiree medical and life insurance plans provide various levels of benefits to employees (depending on their date of hire) who retire after age 55 with at least 10 years of service. The plans are currently unfunded. Effective January 1, 1992, Grace adopted Statement of Financial Accounting Standards No. 106 (FAS 106) - "Employers' Accounting for Postretirement Benefits Other Than Pensions" on the immediate recognition basis, which requires the accrual method of accounting for the future costs of postretirement health care and life insurance benefits over the employees' years of service. The "pay as you go" method of accounting, used prior to 1992, recognized these costs on a cash basis. The Dearborn Business is considered to have participated in a multiemployer postretirement benefit plan as defined in FAS 106. For multiemployer plans, employers are required to recognize as net postretirement benefit costs the total contributions for the period. With respect to these plans, the Dearborn Business charged to expense $235, $254 and $194 in 1995, 1994 and 1993, respectively. There were no contributions due and unpaid at December 31, 1995 and 1994. 10. Related Party Transactions and Allocations Cash The Dearborn Business utilized Grace's centralized cash management services. Under such service arrangements, accounts receivable were collected and cash was invested centrally. Additionally, cash disbursements were funded centrally on demand. As a result, the Dearborn Business maintained minimal cash balances but received or was allocated charges and credits to parent company investment for cash used and collected through these central clearinghouse arrangements. Intercompany sales and receivables The Dearborn Business sells products to Grace. Such sales totaled $292, $158 and $153 in 1995, 1994 and 1993, respectively, with related cost of goods sold of $92, $63 and $60. Intercompany receivables for these sales between the Dearborn Business and Grace are included in accounts and other receivables at December 31, 1995 and 1994. Corporate and Divisional Services Grace allocates or charges a portion of its domestic and European corporate expenses to its A-16 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- various business units. These include Grace executive management and corporate overhead; postretirement benefit and pension costs; benefit administration; risk management/insurance administration; tax and treasury/cash management services; environmental services including costs of remediation; litigation administration services; and other support and executive functions. All of the allocations and charges described above are included in selling, general and administrative expenses in these financial statements. Such allocations and charges are based on either a direct cost pass through or a percentage of total costs for the services provided based on factors such as net sales, management time or headcount. Such allocations and charges totaled $4,264, $3,764 and $3,491 for 1995, 1994 and 1993, respectively. Domestically, Grace also charges the Dearborn Business, based on the Dearborn Business' experience, for its share of workers' compensation, employee life, medical and dental, and other general business liability insurance premiums and claims handled on a corporate-wide basis. These charges are based upon a combination of experience and payroll dollars and totaled $3,625, $4,183 and $2,912 in 1995, 1994 and 1993, respectively, and are included in either cost of goods sold, selling, general and administrative expenses, or research and development expenses, depending upon the nature of the function. For the Dearborn Business' foreign operations, these costs are included in the allocated costs disclosed above. Domestic corporate research and development expenses and overheads directly related to the Dearborn Business of $3,468, $3,180 and $3,959 in 1995, 1994 and 1993, respectively, have been allocated to the Dearborn Business and are included in research and development expenses. Common Manufacturing and Sales Facilities The Dearborn Business' Asia Pacific and Latin America operations received allocated overhead costs from Grace for use of shared facilities and resources. Such allocated general and administrative costs are based upon net sales and other activity factors and totaled $928, $1,015 and $964 in 1995, 1994 and 1993, respectively. The manufacturing location in Sorocaba, Brazil shares land, common building space and support services with other operations of Grace. The Dearborn Business also shares administrative offices of Grace in Sao Paulo, Brazil and certain related administrative and accounting functions with Grace. The Dearborn Business is allocated costs by Grace for its share of occupancy costs and other administrative, maintenance, utilities and accounting services. Such allocated costs are based primarily on activity and occupancy factors. During 1995, 1994 and 1993, the Dearborn Business was allocated approximately $5,346, $1,844 and $839 for factory administration expenses and $4,014, $3,760 and $2,613 for general and administrative expenses, respectively. A-17 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- Management believes that the basis used for allocating corporate and divisional services and common manufacturing and sales facilities costs is reasonable. However, the terms of these transactions may differ from those that would result from transactions among unrelated parties. Corporate Accounts Receivable Sales Program During 1994, Grace had agreements to sell interests in designated pools of trade accounts receivables of the Dearborn Business. As of December 31, 1995, the agreement had expired and no trade accounts receivables were sold. At December 31, 1994, $8,702 had been received pursuant to the sales of such trade accounts receivables, which amount has been excluded from the financial statements. There was no recourse to Grace or the Dearborn Business, nor was Grace or the Dearborn Business required to repurchase any of the trade accounts receivables in the pools; if certain trade accounts receivables in the pools proved to be uncollectible, other trade receivables were substituted. 11. Parent Company Investment For the most part, the Dearborn Business was conducted as a division of Grace and not as a distinct legal entity, and accordingly there are no customary equity and capital accounts. Instead, parent company investment (i.e., of Grace) was maintained by the Dearborn Business and Grace to account for intercompany transactions and the net assets of the Dearborn Business, as more fully described in Note 1. No interest has been charged on the parent company investment. A summary of changes in parent company investment is as follows: Parent company investment at December 31, 1992 $131,324 Net loss (9,065) Net change in amount due to parent 78,782 -------- Parent company investment at December 31, 1993 201,041 Net loss (2,228) Net change in amount due to parent 23,829 -------- Parent company investment at December 31, 1994 222,642 Net loss (8,483) Net change in amount due to parent 32,383 -------- Parent company investment at December 31, 1995 $ 246,542 ========= 12. Commitments and Contingencies The Dearborn Business is subject to loss contingencies resulting from environmental laws and A-18 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- regulations, which include obligations to remove or mitigate the effects on the environment of the disposal or release of certain wastes and other substances at various sites. The Dearborn Business accrues for anticipated costs associated with investigatory and remediation efforts where an assessment has indicated that a loss is probable and can be reasonably estimated. The Dearborn Business' accrued liability for environmental remediation totaled approximately $370 and $334 at December 31, 1995 and 1994, respectively. The measurement of the liability is evaluated based on currently available information, including the progress of remedial investigation at each site, the current status of discussions with regulatory authorities regarding the method and extent of remediation at each site, and the extent of apportionment of costs among other potentially responsible parties. The Business is subject to a number of lawsuits and claims arising out of the normal conduct of its business. Management and its counsel believe the asserted claims and identified unasserted claims are without merit and will vigorously defend against them. 13. Aquatec Acquisition In February of 1993, the Dearborn Business purchased the water treatment product and services business of Aquatec Quimica S.A. and affiliated companies, which was located principally in Brazil. The net assets purchased were as follows: Other current assets $ 8,149 Fixed assets 11,023 Intangibles 51,047 Liabilities assumed (9,355) ------- Net purchase price $60,864 ======= A-19 W.R. Grace & Co. - Conn. Dearborn Business Notes to Combined Financial Statements (Amounts in Thousands) - ------------------------------------------------------------------------------- 14. Geographic Segment and Major Customer Information The Dearborn Business operates solely in the market segment described in Note 1, within the following geographic segments.
North Latin Asia America Europe America Pacific Totals ------- ------ ------- ------- ------ Net sales 1995 $148,455 $165,970 $70,918 $13,762 $399,105 1994 143,929 144,368 61,236 11,175 360,708 1993 140,118 132,414 48,341 7,254 328,127 Income/(loss) before taxes 1995 9,870 (2,889) (6,805) (2,651) (2,475) 1994 12,231 (3,483) (2,123) (1,676) 4,949 1993 11,898 (9,677) (3,742) (415) (1,936) Total assets 1995 68,902 127,539 83,070 17,371 296,882 1994 57,033 123,279 73,041 17,852 271,205
No single customer's sales exceeded 10% of net sales for any of the years presented. 15. Subsequent Events On June 28, 1996, Grace sold the Dearborn Business to Betz for a total purchase price of $636,412 (comprised of $630,000 plus an initial working capital adjustment of $6,412), subject to further adjustment, pursuant to the terms of the Agreement. A-20 W.R. Grace & Co. - Conn. Dearborn Business Combined Balance Sheet (Amounts in Thousands) Unaudited - ------------------------------------------------------------------------------- March 31, 1996 Assets Cash $ 73 Accounts receivable and other receivables, net of allowances for doubtful accounts of $2,874 69,893 Inventories 48,008 Other current assets 2,535 -------- Total current assets 120,509 -------- Properties and equipment, net 92,352 Goodwill and other intangibles, less accumulated amortization of $21,354 83,838 Other non-current assets and deferred charges 2,402 -------- Total assets $299,101 ======== Liabilities and Parent Company Investment Accounts payable $ 13,039 Accrued liabilities 20,171 -------- Total current liabilities 33,210 Deferred taxes 1,613 Pension liabilities 8,486 Other non-current liabilities 3,789 -------- Total liabilities 47,098 -------- Commitments and contingencies (Note 4) -- Parent company investment 252,003 -------- Total liabilities and parent company investment $299,101 ======== The accompanying notes are an integral part of these financial statements. A-21 W.R. Grace & Co. - Conn. Dearborn Business Combined Statement of Operations (Amounts in Thousands) Unaudited - ------------------------------------------------------------------------------ Quarter ended March 31, 1996 1995 ---- ---- Net Sales $ 97,438 $93,198 Cost of goods sold 44,789 35,687 -------- ------- Gross profit 52,649 57,511 Selling, general and administrative expenses 51,145 51,243 Research and development expenses 3,844 4,502 -------- ------- Total operating expenses 54,989 55,745 -------- ------- Income/(loss) from operations (2,340) 1,766 Other income/(expense) (383) 72 -------- ------- Income/(loss) before income taxes (2,723) 1,838 Provision for income taxes 1,502 1,502 -------- ------- Net income/(loss) $(4,225) $ 336 ======= ======= The accompanying notes are an integral part of these financial statements. A-22 W.R. Grace & Co. - Conn. Dearborn Business Combined Statement of Cash Flows (Amounts in Thousands) Unaudited - ------------------------------------------------------------------------------- Quarter ended March 31, 1996 1995 ---- ---- Operating Activities Net income/(loss) $ (4,225) $ 336 Reconciliation to cash provided by operating activies: Depreciation and amortization 4,532 4,392 Deferred income taxes 23 (26) Translation change loss 305 359 Changes in operating assets and liabilities: Accounts receivable (5,513) (16,184) Inventories (5,279) (5,034) Other current assets 103 (303) Accounts payable and other current liabilities (3,982) 18,293 Other 1,986 (1,128) -------- --------- Net cash provided by operating activities (12,050) 705 -------- --------- Investing Activities Capital expenditures (3,266) (6,272) -------- --------- Financing Activities Net change in amount due to parent 9,686 9,219 -------- --------- Net effect of exchange rate changes on cash 5,241 (2,385) -------- --------- Net increase/(decrease) in cash (389) 1,267 Cash, beginning of period 462 236 -------- --------- Cash, end of period $ 73 $ 1,503 ======== ======== The accompanying notes are an integral part of these financial statements. A-23 W.R. Grace & Co. - Conn. Dearborn Business Notes to the Combined Financial Statements (Amounts in Thousands) Unaudited - ------------------------------------------------------------------------------ 1. Interim Financial Data (Unaudited) The interim financial data at March 31, 1996 and for the three months ended March 31, 1996 and 1995 included in the accompanying statements are unaudited; however, in the opinion of the Company, the interim financial data include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The interim financial data are not necessarily indicative of the results of operations for a full fiscal year. 2. Inventories March 31, 1996 Inventories include: Raw materials $20,084 Work-in-process (WIP) 3,810 Finished goods 30,104 ------- 53,998 Inventory reserves (3,866) Less: Adjustment of inventories to the LIFO basis (2,124) ------- $48,008 ======= Finished goods and work in process inventories are valued at the lower of cost or market. Cost flow is based on the last-in, first-out (LIFO) method in the U.S. and first-in, first-out (FIFO) method in other regions. Raw materials are valued at the lower of FIFO or realizable value. 3. Properties and Equipment March 31, 1996 Properties and equipment include: Land $ 4,490 Buildings 54,322 Machinery and equipment 68,413 Other property and equipment 39,900 -------- 167,125 Less - Accumulated depreciation (84,662) Containers, dispensing and monitoring equipment, net 9,889 -------- $ 92,352 ======== A-24 W.R. Grace & Co. - Conn. Dearborn Business Notes to the Combined Financial Statements (Amounts in Thousands) Unaudited - ------------------------------------------------------------------------------ 4. Commitments and Contingencies The Business is subject to loss contingencies resulting from environmental laws and regulations, which include obligations to remove or mitigate the effects on the environment of the disposal, or release of certain wastes and other substances at various sites. The Dearborn Business accrues for anticipated costs associated with investigatory and remediation efforts where an assessment has indicated that a loss is probable and can be reasonably estimated. The Dearborn Business' accrued liability for environmental remediation totaled approximately $370 at March 31, 1996 and is included in parent company investment. 5. Subsequent Events On June 28, 1996, Grace sold the Dearborn Business to Betz for a total purchase price of $636,412 (comprised of $630,000 plus an initial working capital adjustment of $6,412), subject to further adjustment, pursuant to the terms of the Agreement. A-25 Unaudited Pro Forma Financial Information: On June 28, 1996, the Company acquired (the "Acquisition") the Dearborn Business from Grace for $630.0 million plus a $6.4 million working capital adjustment, subject to certain further adjustments. The Acquisition is primarily financed by a $750 million Credit Agreement (the "Credit Agreement") among the Company and a syndicate of banks. The Acquisition is accounted for using the purchase method of accounting and, accordingly, the purchase price will be allocated to the assets acquired and liabilities assumed based on the estimated fair value of such assets and liabilities at the date of acquisition. The excess of the purchase price over the fair value of the net tangible and identified intangible assets acquired will be recorded as goodwill, which will be amortized on a straight-line basis over 40 years. Due to the timing of the closing date, the Company is unable to complete an initial allocation of purchase price at this time. The unaudited pro forma results of operations are based on available information and certain assumptions regarding the allocation of purchase price, which could change significantly based on the results of appraisals, finalization of the purchase price as a result of a closing date audit and other analyses, which the Company has arranged to obtain and generally are in process. The other analyses include, but are not limited to, actuarial studies of employee benefit plans, the income tax effects of the Acquisition, analyses of operations to identify assets for disposition and the evaluation of staffing requirements necessary to meet future business needs. The unaudited pro forma statements of operations for the year ended December 31, 1995 and the three months ended March 31, 1996 give effect to the Acquisition and the Credit Agreement as if such transactions occurred as of January 1, 1995. The financial statements of the Dearborn Business reflect the "carve out" financial position and results of operations of the Dearborn Business from Grace. Certain manufacturing, selling, research and administrative expenses of Grace have been allocated to the Dearborn Business on various bases, which, in the opinion of Grace's management, are reasonable. However, such expenses are not necessarily indicative of, and it is not practicable to estimate, the nature and level of expenses which might have been incurred had the Dearborn Business been operating as a separate independent company. Potential cost savings from combining the operations are not reflected in the pro forma combined statement of operations because the Dearborn business may not be fully integrated with the Company's operations until January 1998. In addition, the Grace Dearborn Worldwide Purchase and Sale Agreement requires the Company to make payments to Grace for certain post acquisition administrative and toll blending services. Such payments are intended to compensate Grace for direct and indirect costs it will incur in meeting the Company's need for such services. The unaudited pro forma statements of operations should be read in conjunction with the (i) the historical financial statements of the Company which are included in the annual report on Form 10-K for the year ended December 31, 1995 and on Form 10-Q for the three months ended March 31, 1996, previously filed with the Commission and (ii) the historical combined financial statements of the Dearborn Business for the year ended December 31, 1995 and the three months ended March 31, 1996, included herein. All information and financial data concerning the Dearborn Business has been provided to the Company by Grace and are the responsibility of Grace and the Dearborn Business. The unaudited pro forma results are not indicative of the results that would have occurred had the Acquisition actually been consummated on January 1, 1995, and are not intended to be a projection of future results or trends. B-1 BETZDEARBORN INC. Unaudited Pro Forma Statement of Operations For the Year Ended December 31, 1995 (in thousands, except per share amounts)
Consolidated Combined Betz Dearborn Pro Forma Pro Forma Laboratories, Inc. Business Adjustments BetzDearborn Inc. ------------------ -------- ----------- ----------------- Net Sales $752,453 $399,105 $ -- $1,151,558 Operating Costs and Expenses: Cost of products sold 273,712 170,458 -- 444,170 Selling, research and admini- strative expenses 352,519 218,984 -- 571,503 Amortization of intangibles 644 3,867 9,913(a) 14,424 Provision for restructuring 15,606 7,729 -- 23,335 -------- -------- ---------- ---------- 642,481 401,038 9,913 1,053,432 -------- -------- ---------- ---------- OPERATING EARNINGS (LOSS) 109,972 (1,933) (9,913) 98,126 Other Income (Expense): Investment and other income 2,719 (542) -- 2,177 Interest expense (1,124) -- (44,090)(b) (45,214) -------- -------- ---------- ---------- 1,595 (542) (44,090) (43,037) -------- -------- ---------- ---------- EARNINGS (LOSS) BEFORE INCOME TAXES 111,567 (2,475) (54,003) 55,089 Income taxes 43,270 6,008 (20,222)(c) 29,056 -------- -------- ---------- ---------- NET EARNINGS (LOSS) $ 68,297 $ (8,483) $(33,781) $ 26,033 ======== ======== ========== ========== Net earnings per Common Share: Primary $ 2.27 $ 0.76 Fully diluted $ 2.16 $ -- (d) Average number of Common Shares: Primary 27,889 27,889 Fully diluted 30,651 30,651
See Notes to Unaudited Pro Forma Statements of Operations - B-4. B-2 BETZDEARBORN INC. Unaudited Pro Forma Statement of Operations For the Three Months Ended March 31, 1996 (in thousands, except per share amounts)
Consolidated Combined Betz Dearborn Pro Forma Pro Forma Laboratories, Inc. Business Adjustments BetzDearborn Inc. ------------------ -------- ----------- ----------------- Net Sales $199,472 $97,438 $ -- $296,910 Operating Costs and Expenses: Cost of products sold 76,876 44,789 -- 121,665 Selling, research and admini- strative expenses 90,605 54,137 -- 144,742 Amortization of intangibles 273 852 2,598 (a) 3,723 -------- -------- ------------ --------- 167,754 99,778 2,598 270,130 -------- -------- ------------ --------- OPERATING EARNINGS (LOSS) 31,718 (2,340) (2,598) 26,780 Other Income (Expense): Investment and other income 284 (383) -- (99) Interest expense (517) -- (10,120)(b) (10,637) -------- -------- ------------ --------- (233) (383) (10,120) (10,736) -------- -------- ------------ --------- EARNINGS (LOSS) BEFORE INCOME TAXES 31,485 (2,723) (12,718) 16,044 Income taxes 11,807 1,502 (4,550)(c) 8,759 -------- -------- ------------ --------- NET EARNINGS (LOSS) $ 19,678 $(4,225) $ (8,168) $ 7,285 ======== ======== ============ ========= Net earnings per Common Share: Primary $ 0.66 $ 0.21 Fully diluted $ 0.62 $ -- (d) Average number of Common Shares: Primary 27,826 27,826 Fully diluted 30,677 30,677
See Notes to Unaudited Pro Forma Statements of Operations - B-4. B-3 Notes to Unaudited Pro Forma Statements of Operations: (in thousands) (a) Represents the following adjustment to operating expenses: Three months ended Year ended March 31, December 31, 1996 1995 --------- ---------- Eliminate the Dearborn Business goodwill and intangible amortization expense $ (852) $ (3,867) Record amortization expense for the excess purchase price related to the Acquisition over 40 years on a straight-line basis and for patents and trademarks over 15 and 40 years, respectively, on a straight-line basis 3,450 13,780 -------- -------- $ 2,598 $ 9,913 ======== ======== (b) Represents an adjustment to interest expense as follows: Three months ended Year ended March 31, December 31, 1996 1995 --------- ----------- Record interest expense on the Credit Agreement assuming borrowings of $653.2 million in 1996 and 1995 to fund the acquisition at assumed weighted average interest rates of 6.2% in 1996 and 6.75% in 1995 (representative of historical interest rates using the Credit Agreement margins) $ 10,120 $ 44,090 ========= ========= A 1/8% increase or decrease in the variable interest rate under the Credit Agreement would have resulted in a $816 adjustment to annual interest expense. (c) Represents income tax effect of the pro forma adjustments. The income taxes of the Dearborn Business are based on Grace's legal structure and no attempt was made to determine income taxes under the post acquisition structure. (d) The computation of pro forma earnings per common share assuming full dilution would have been anti-dilutive. B-4
EX-2.2 2 AMENDMENT NO. 1 PURCHASE AND SALE AGREEMENT EXHIBIT 2.2 AMENDMENT NO. 1 TO THE GRACE DEARBORN WORLDWIDE PURCHASE AND SALE AGREEMENT Amendment No. 1, dated as of June 28, 1996, by and between W. R. GRACE & C0.-CONN. ("Grace") and BETZ LABORATORIES, INC. ("Buyer"). WITNESSETH: WHEREAS, Grace and Buyer have entered into the Grace Dearborn Worldwide Purchase and Sale Agreement (the "Sale Agreement") dated as of March 11, 1996; and WHEREAS, pursuant to Section 19.6 of the Sale Agreement, Grace and Buyer wish to amend certain provisions of the Sale Agreement in the manner set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, Grace and Buyer agree to amend the Sale Agreement as follows: 1. (a) Except as otherwise specifically provided herein, all capitalized terms used in this Amendment No. 1 shall have the respective meanings given to such terms in the Sale Agreement. (b) All Article and Section numbers and Schedule and Exhibit references used in this Amendment No. 1 refer to Articles and Sections of the Sale Agreement and Schedules and Exhibits attached thereto or delivered simultaneously therewith, unless otherwise specifically described. 2. (a) The following definition shall be added after the definition of "Expatriate Employees": "Extended Grace Purchasing Programs" shall mean contractual arrangements between one or more members of the Grace Group and vendors of products or services in which the Buyer Group or the Continued Dearborn Business Employees continue to participate following the Closing including, without limitation, the Multinational Corporate Card Agreement between Grace and American Express Travel Related Services Company, Inc., dated June 2, 1993, the agreement with The Hertz Corporation, dated October 1, 1994, and other worldwide, regional and local credit card, air travel, hotel and vehicle leasing programs, each as amended and in effect during such period of continued participation." (b) The following definition shall be added after the definition of "Scheduled Closing Date": "Secondment Agreements" means the agreements between certain members of the Grace Group and certain members of the Buyer Group, dated the Closing Date, pursuant to which certain Current Employees in Hungary, Greece, Guatemala, Hungary, Poland and Turkey will remain employees of the Grace Group following the Closing and will be seconded to members of the Buyer Group. 3. (a) The first sentence of Section 2.2 is amended in its entirety to read as follows: "'Total Purchase Price' means US $630,000,000, plus or minus any adjustments under Sections 4.3, 4.A, 4.AA, 4.B and 4.C, and subject to further adjustment as described in Section 2.5." (b) The Total Purchase Price shall be increased by $6,412,000 as a result of the adjustment provided for in subsection (b) of Section 4.A. (c) There shall be no adjustment in the Total Purchase Price under subsection (c) of Section 4.A, or under Section 4.B. 4. (a) Section 2.3 is amended by amending the fourth sentence in its entirety to read as follows: "Each of the Grace Group and the Buyer Group shall, except for allocations relating to expenses incurred in the transactions contemplated herein which are included in the purchase price for Buyer, be bound by the Allocation and the Specific Allocation for all Tax purposes (except as provided in the deeds for real property in Germany, Venezuela, and Finland), including the preparation and filing of Tax Returns; provided, however, that the transfers of stock interests or partnership interests shall not be subject to the Specific Allocation." (b) Section 2.3 is amended by deleting the seventh sentence in its entirety and by amending the sixth sentence in its entirety to read as follows: "Buyer and Grace each agree to file all federal, state, local and foreign Tax Returns, using consistent allocations (except for allocations relating to expenses incurred in the transactions contemplated herein which are - 2 - included in the purchase price for Buyer) in accordance with the Specific Allocation, where applicable." 5. Subsection (a) of Section 2.4 is amended by adding the following provision after the first sentence thereof: "The Financial Exchange Rate for any such currency to be used in determining the Closing Net Amount shall be the rate for such currency set forth in Schedule 2.4(a)." 6. Subsection (b) of Section 2.4 is amended by adding the following provision after the first sentence thereof: "The Payment Exchange Rate for the payments to be made at the Closing in local currency in Brazil and Chile shall be the rate set forth in Schedule 2.4(b). 7. Section 3.1 is amended in its entirety to read as follows: "3.1 Scheduled Closing Date. The "Scheduled Closing Date" shall be Friday, June 28, 1996." 8. The first sentence of Section 3.2 is amended in its entirety to read as follows: "The Closing shall take place on the Scheduled Closing Date at 10:00 a.m. U.S. Central Daylight Time at the offices of Baker & McKenzie, 130 East Randolph Drive, Chicago, Illinois 60601, and at other locations in various countries throughout the world." 9. The form of Employee Benefits Agreement (Exhibit E), the form of Tax Procedures Agreement (Exhibit F) and the form of Insurance Procedures Agreement (Exhibit G) referred to in subsections (a), (b) and (c) of Section 3.4 are superseded in their entirety by the forms of Employee Benefits Agreement, Tax Procedures Agreement and Insurance Procedures Agreement executed by Grace and Buyer at the Closing. - 3 - 10. Subsection (d) of Section 3.4 is amended to delete the reference to tolling agreements in Canlubang Philippines; Porirua, New Zealand; and Samutprakain, Thailand, which the parties have agreed to eliminate. 11. The term sheets referred to in subsection (d) of Section 3.4 for Toll Manufacturing Agreements (Exhibit H) for the production of Dearborn Business products following the Closing by the Selling Companies at Quilmes, Argentina; Fawkner, Australia; Bogota, Colombia; Hong Kong; Toluca, Mexico; Singapore; Capetown, South Africa; and Barcelona, Spain are superseded in their entirety by the Toll Manufacturing Agreements with respect to production at such facilities that are being executed by the parties thereto at the Closing. 12. The term sheet referred to in subsection (g) of Section 3.4 for the Transition Administrative Services Agreement (Exhibit K) between Grace and Buyer is superseded in its entirety by the Administrative Services Agreements executed by members of the Grace Group and members of the Buyer Group at the Closing. 13. The term sheet referred to in subsection (h) of Section 3.4 for the Swedish Toll Manufacturing Agreement (Exhibit H) is superseded in its entirety by the Swedish Toll Manufacturing Agreement between Dearborn Sweden and Grace AB executed by Dearborn Sweden and Grace Sweden at the Closing. 14. The term sheet referred to in subsection (i) of Section 3.4 for the Lease Agreement for continued production at Grace Construction Products' plant at Widnes, England (Exhibit M) is superseded in its entirety by the lease for such plant executed by Grace U.K. and Buyer U.K. at the Closing. 15. The term sheets referred to in subsection (j) of Section 3.4 for the site separation agreements for Sorocaba, Brazil and Valencia, Venezuela (Exhibits N-1 and N-2) are superseded, respectively, by the agreements between Holdings Brazil and Buyer Brazil providing for the transfer of the Dearborn Business in Brazil and the agreements between Grace Venezuela and Buyer Venezuela providing for the transfer of the Dearborn Business in Venezuela. 16. The term sheets referred to in subsection (k) of Section 3.4 for leasing and subleasing of various facilities throughout the world (Exhibit 0-1 and 0-2) are - 4 - superseded by the leases and subleases between members of the Grace Group and members of the Buyer Group executed at the Closing. 17. Clauses (a), (b), (c) and (d) of Section 3.6 and the last sentence of Section 3.6 are deleted in their entirety and Section 3.6 is amended by adding the following provisions: "(a) the payment to be made by Buyer Brazil at the Closing pursuant to Section 3.3 with respect to the Brazilian Purchase Price shall be paid to Holdings Brazil in Brazilian Reais in immediately available funds by means of a direct transfer from the account of Buyer Brazil at Morgan Guaranty Trust Company of New York - Sao Paulo branch No. 0001 to the account of Holdings Brazil (Account number: 00067-10 in the name of International Holdings Ltda.) at Morgan Guaranty Trust Company of New York - Sao Paulo branch No. 0001; (b) the payment to be made by Buyer Colombia to Grace Colombia at the Closing pursuant to Section 3.3 with respect to the Colombian Purchase Price-Grace Colombia shall be paid by means of a promissory note delivered at the Closing at the offices of Baker & McKenzie in Chicago, Illinois, accompanied by a guarantee by Buyer (copies of such promissory note and guarantee are set forth as Schedule 3.6(b)(i) and Schedule 3.6(b)(ii), respectively); (c) the payment to be made by Buyer Chile to Grace Chile at the Closing pursuant to Section 3.3 with respect to the Chilean Purchase Price shall be paid in Chilean Pesos in immediately available funds by means of direct bank transfer to the account of Grace Chile at Banco Boston-Sucursal Cerrillos, Santiago, Chile (Account Number 4400719); (d) $100 million of the payment to be made by Buyer to Grace shall be paid by means of a promissory note delivered at the Closing at the offices of Baker & McKenzie in Chicago, Illinois, in the form set forth as Schedule 3.6(d)(1), secured by a letter of credit in the form set forth as Schedule 3.6(d)(2) (copies of such promissory note and guarantee are set forth as Schedule 3.6(d)(i) and Schedule 3.6(d)(ii), respectively). The amount of the payments to be made at the Closing in Brazil and Chile shall be first determined in U.S. dollars and then converted into local currency using the Payment Exchange Rate as set forth on Schedule 2.4(b)." - 5 - 18. The first sentence of subsection (a) of Section 4.1 is amended in its entirety to read as follows: "The Selling Companies shall take physical inventory counts of the Dearborn Business inventory of the Transferred Companies and the Selling Companies as mutually agreed by Buyer and Grace." 19. Section 4.3 is amended by adding the following sentence after the first sentence of such Section: "For purposes of determining and preparing the Closing Net Amount (a) normal recurring expense (non-direct manufacturing labor related) accruals are to be recorded as if the Closing occurred as of the close of business on June 30, 1996, (b) no amount will be recorded for the raw materials inventory at Helsingborg, Sweden, to be used to manufacture Grace Group products pursuant to the Swedish Toll Manufacturing Agreement referred to in Section 3.4(h), (c) the value added tax (VAT) paid by Grace Brazil in connection with the transfer of the Dearborn Business assets in Brazil to Holdings Brazil pursuant to Section 8.5 will not be recorded as a prepaid current asset and the liability at Closing of Dearborn International Ltda. to Grace Brazil of 1,075,131 Reais will not be recorded as a current liability, and (d) for direct manufacturing employees who only work on production on June 29 and June 30, 1996 and are specifically identified, (1) prepaid salaries will be recorded for this two-day period if such employees are paid on or prior to June 28, 1996 and (2) no payroll accrual will be made for this two-day period for such employees who are paid subsequent to June 28, 1996." 20. The second sentence of subsection (a)(i) of Section 4.7 is amended in its entirety to read as follows: "After receipt of such statement, the Allocation and the Specific Allocation shall be amended to reflect the Total Purchase Price as so adjusted, as Grace and Buyer shall mutually agree, giving effect to the gross change in each country or countries which account for any such adjustment." 21. The last sentence of Section 5.1 is deleted in its entirety. - 6 - 22. Section 8.5 is amended in its entirety to read as follows: "8.5 Reorganization of Dearborn Business in Brazil and Sweden: transfer of Denac B.V. Prior to the Closing (a) Grace shall cause Grace Brazil to transfer to Holdings Brazil the assets and liabilities of the Dearborn Business described in Part I of the Schedule to this Section in exchange for shares of the capital stock of Grace Brazil owned by Holdings Brazil, (b) Grace shall cause Dearborn Sweden to purchase the assets and liabilities described in Part II of the Schedule to this Section from Grace Sweden and thereafter, Grace shall cause the Swedish Holding Company to purchase the Dearborn Sweden Shares from Grace Sweden, and (c) Grace shall cause the shares of Denac B.V., a Netherlands company and a subsidiary of Dearborn Netherlands, to be transferred to Grace Netherlands. All costs and expenses incurred by Grace or its affiliates in connection with the transactions referred to above shall be the obligation of Grace and shall not be paid by Buyer or its affiliates. 23. Subsection (c) of Section 8.8 is renumbered subsection (d) and the following is added to Section 8.8 as subsection (c): "(c) For a period of five years after the Closing Date, the Selling Companies shall not, and shall cause their affiliates not to, directly or indirectly: (i) engage in the sale to Dowell Schlumberger and its subsidiaries of concrete additives for oil well capping in Italy or in any other country or (ii) invest in, manage, operate, join or control as a partner, stockholder, consultant or otherwise, any Person that engages in such business with Dowell Schlumberger and its subsidiaries; provided, however, that nothing in this Section 8.8 shall prohibit the Selling Companies, or their affiliates, from owning up to 5% of the outstanding voting securities of any publicly traded entity; provided, further, that nothing in this Section 8.8 shall prohibit the Selling Companies, or their affiliates, from selling concrete additives for oil well capping to any customer other than Dowell Schlumberger and its subsidiaries or from acquiring a business that engages in the sale of concrete additives to Dowell Schlumberger and its subsidiaries as an incidental part of an acquisition (by joint venture, merger or other) of the assets of, or the majority of voting interests in, another Person. 24. Article 12 is amended by adding the following sections after Section 12.14 of that Article: - 7 - "12.15 Transfer of Employees in Japan to Dearborn Japan JV. Notwithstanding the provisions of Sections 12.2 and 12.3, with the consent of Buyer, Grace has arranged for the following 3 Dearborn Business Employees, who are based in Japan, to become employees of Dearborn Japan JV on or before the Closing Date, and no member of the Buyer Group shall be obligated to offer employment to such employees: Y. Mitsuhashi, N. Ochiai and N. Yamada. In consideration for this arrangement, on or promptly after the Closing, Buyer shall pay $13,000 to Grace in reimbursement of the costs incurred by the Grace Group to effectuate this arrangement. 12.16 Disabled Swedish Employee. Notwithstanding the provisions of Section 12.9, Ulla Randau (the "Disabled Employee"), who is a disabled employee of the Dearborn Business, shall be regarded as a disabled employee of a member of the Buyer Group in Sweden on and after the Closing Date. Grace agrees to reimburse Buyer for all costs incurred by the Buyer Group after the Closing under applicable law with respect to the Disabled Employee, provided that, Grace shall not reimburse Buyer for any such costs incurred by the Buyer Group on or after the date that the Disabled Employee returns to active employment with the Buyer Group (including, but not limited to, her salary as an active employee). Grace shall make any reimbursement due pursuant to this Section 12.16 within 30 days after receipt of a written demand from Buyer specifying the amount of the costs incurred during a specific period, and appropriate supporting documentation." 25. Section 14.2 is amended by adding the following provision as subsection (c): "(c) The Buyer Indemnified Group shall not have the right to make any claim against Grace for Damages for the breach by or nonperformance of any Selling Company of its covenant under Section 9.1 arising out of or relating to any alleged failure to make capital expenditures in accordance with the ordinary course of business for the Dearborn Business during the period commencing on the date of this Agreement and ending on the Closing Date." 26. Section 14.3(a)(vii) is hereby deleted in its entirety and replaced with the following: - 8 - "(vii) The participation of the Buyer Group and the Continued Dearborn Business Employees in the Extended Grace Purchasing Programs following the Closing;" 27. Section 14.7 is renumbered to be subsection (a) of Section 14.7 and is amended by adding the following subsection (b): "(b) At the time Grace delivers the report of Price Waterhouse on the Closing Net Amount as required by Section 4.4, it will also deliver to Buyer a letter from Price Waterhouse (the "PW Letter") which will state the amount of each specific Undisclosed Employee Liability and Undisclosed Product Liability that was recorded as a liability in the Closing Net Amount. To the extent that any member of the Buyer Indemnified Group seeks indemnification for Damages related to an Undisclosed Employee Liability or Undisclosed Product Liability that was recorded as a liability in the Closing Net Amount, the amount of the Damages for which Grace is obligated to indemnify the Buyer Indemnified Group pursuant to Section 14.2(a) shall be reduced by the recorded amount for such liability as stated in the PW Letter; provided, however, that if such Damages are less than the recorded amount for such liability as stated in the PW Letter, Buyer will pay to Grace the difference between the recorded amount and such Damages." 28. (a) Section 15.2 is hereby amended by adding the following sentence to the end thereof: "Wherever local law requires any member of the Buyer Group to retain files and records in a manner that is inconsistent with the provisions of this Section 15.2, the record retention requirements of such local law shall control over the conflicting provisions of this Section 15.2; provided that the member of the Buyer Group retaining the files and records shall grant reasonable access thereto to the members of the Grace Group." (b) Section 15.3 is hereby amended by adding the following sentence to the end thereof: "Wherever local law requires any member of the Grace Group to retain files and records in a manner that is inconsistent with the provisions of this Section 15.3, the record retention requirements of such local law shall control over the conflicting provisions of this Section 15.3; provided that the member of the Grace Group retaining the files and records shall grant reasonable access thereto to the members of the Buyer Group." - 9 - 28. The second sentence of subsection (b) of Section 16.3 is amended in its entirety to read as follows: "All funds in the depository and imprest bank accounts of Dearborn U.S. on the Closing Date shall be the property of Grace." 29. Schedule 5.2(b) is modified by deleting the section entitled "Dearborn France" and replacing it with the following: Grace Service Chemicals S.A. Authorized Shares: 188,690 Issued Shares: 188,687 Grace S.A. 3 Nominees of Grace S.A. 30. The Definitions Schedule is amended as follows: (a) the term "Grace Croup" in clause (c) of the definition of "Total Dearborn Assets" is corrected to read "Grace Group"; (b) the term "Dearborn Assets" in the last line of the definition of "Total Dearborn Assets" is corrected to read "Total Dearborn Assets"; (c) the word "and" is deleted after the end of clause (a) 12 of the definition of "Total Excluded Assets"; (d) the period at the end of clause (a)(12) of the definition of "Total Excluded Assets" is replaced by a comma followed by the word "and", and the following is added as clause (a)(13) of the definition of "Total Excluded Assets": "(13) assets listed in the schedules to the Secondment Agreements that are to be transferred to the Buyer Group pursuant to the Secondment Agreements at the end of the respective terms thereof for no additional consideration." (e) clause (b) (3) of the definition of "Total Excluded Assets" is amended in its entirety to read as follows: - 10 - "(3) cash in Dearborn U.S. depository and imprest bank accounts;" (f) Clauses (a)(3) and (a)(4) of the definition of "Total Excluded Liabilities" are amended in their entirety to read as follows: "(3) all liabilities and obligations arising as a result of the reorganizations referred to in Section 8.5; (4) all liabilities and obligations for which Grace or the Selling Companies are obligated to indemnify any member of the Buyer Indemnified Group pursuant to Section 14.2A(a)(ii) and (iii);" (g) Clause (b)(4) of the definition of "Total Excluded Liabilities" is amended in its entirety to read as follows: "(4) obligations with respect to (a) employee terminations under the "Phoenix" and "Boris" profit restoration programs pursuant to such programs, (b) employee benefits plans and funds maintained by, or in conjunction with any member of the Grace Group, except as otherwise provided in Article 12 of this Agreement or in the Employee Benefits Agreement, and (c) liabilities and obligations arising out of the employment relationship to Persons who were employees of the Grace Group at any time during the period from March 11, 1996 through the Closing Date and are not Current Employees." and, the second clause (c) of the definition of "Total Excluded Liabilities" is renumbered as clause (d). (h) The definition "Toll Manufacturing Plants" is amended in its entirety to read as follows: "Toll Manufacturing Plants" means the following Grace sites where production facilities are located: Quilmes, Argentina; Fawkner, Australia; Bogota, Colombia; Hong Kong; Toluca, Mexico; Singapore; Capetown, South Africa; and, Barcelona, Spain." - 11 - 31. The following schedules, which are attached to this Amendment No. 1, are added to the Sale Agreement: Schedule 2.4(a) - Financial Exchange Rates Schedule 2.4(b) - Payment Exchange Rates Schedule 3.6(b)(i) - Colombia Promissory Note Schedule 3.6(b)(ii) - Buyer Guarantee of Colombia Promissory Note Schedule 3.6(d)(i) - U.S. Promissory Note Schedule 3.6(d)(ii) - Letter of Credit 32. Each of the following Exhibits listed below are hereby deleted in their entirety and replaced with the corresponding Exhibits to this Amendment No. 1: Exhibits (1) Exhibit A-1 (2) Exhibit A-2 (3) Exhibit B IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 on the date first above written. W. R. GRACE & CO.-CONN. By: /s/ Alex Markin ---------------------------------------- Alex Markin Attorney-in-Fact BETZ LABORATORIES, INC. By: /s/ Larry V. Rankin ---------------------------------------- Larry V. Rankin Senior Vice President - 12 - EX-2.3 3 AMENDMENT NO. 2 PURCHASE AND SALE AGREEMENT EXHIBIT 2.3 AMENDMENT NO. 2 TO THE GRACE DEARBORN WORLDWIDE PURCHASE AND SALE AGREEMENT Amendment No. 2, dated as of June 28, 1996, by and between W. R. GRACE & CO.-CONN. ("Grace") and BETZ LABORATORIES, INC. ("Buyer"). WITNESSETH: WHEREAS, Grace and Buyer have entered into the Grace Dearborn Worldwide Purchase and Sale Agreement (the "Sale Agreement") dated as of March 11, 1996 providing for the sale to Buyer by Grace of the Dearborn Business (as defined therein) including, inter alia, the 51% interest owned by Grace in Dearborn IEI Ltd. (the "Dearborn India JV"), a joint venture between Grace and Ion Exchange (India) Ltd. ("IEI") that was established under a Joint Venture Agreement dated September 16, 1994 (the "Joint Venture Agreement"); WHEREAS, the terms of the Joint Venture Agreement are unacceptable to Buyer unless modified by agreement with IEI; WHEREAS, Buyer has advised Grace that it has not yet determined whether it would be willing to acquire Grace's interest in the Dearborn India JV on modified terms and, subject thereto, Grace is willing to retain such interest on the terms and conditions of this agreement; WHEREAS, in connection with the formation of the Dearborn India JV, Grace and the Dearborn India JV entered into a Technical Know-How License Agreement, a Trade Mark License Agreement and a Corporate Name and Logo License Agreement (collectively, the "License Agreements") providing, inter alia, for licenses from Grace to the Dearborn India JV of certain patents, technology and trademarks, including the name "Dearborn", that are being transferred by Grace to Buyer on the date hereof pursuant to the Sale Agreement; and WHEREAS, pursuant to Section 19.6 of the Sale Agreement, Grace and Buyer wish to amend certain provisions of the Sale Agreement in the manner set forth herein to provide for the retention by Grace of its interest in the Dearborn India JV; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, Grace and Buyer hereby agree as follows: 1. Except as otherwise specifically provided herein, all capitalized terms used in this agreement shall have the respective meanings given to such terms in the Sale Agreement. 2. All Article and Section numbers and Schedule and Exhibit references used in this agreement refer to Articles and Sections of the Sale Agreement and Schedules and Exhibits attached thereto or delivered simultaneously therewith, unless otherwise specifically described. 3. (a) Buyer shall have an irrevocable option (the "Option") to acquire Grace's interest in the Dearborn India JV during the period commencing on the date of this agreement and ending at 5:30 p.m., Eastern Daylight Time on July 12, 1996 (the "Option Period"). The Option may be exercised by Buyer by giving written notice of exercise to Grace prior to the expiration of the Option Period in the manner set forth in Section 11 of this agreement. (b) If the Option is exercised, Grace and Buyer, or a member of the Buyer Group designated by Buyer, shall promptly enter into a Share Purchase Agreement (the "Share Purchase Agreement") providing for (1) the transfer to Buyer for no additional consideration of Grace's 51% interest in the Dearborn India JV effective upon the date that receipt of all necessary consents and approvals to the transfer have been obtained (the "Effective Date") including, without limitation, the consent of IEI, the approval of the Board of Directors of the Dearborn India JV, and the consent of the Reserve Bank of India under the provisions of Section 29(1)(b) of the Foreign Exchange Regulation Act, 1973, and (2) the assumption by Buyer of Grace's liabilities and obligations that pertain primarily to the Dearborn India JV including Grace's liabilities and obligations under the Joint Venture Agreement and the License Agreements, except as otherwise provided in subsection (c) of this Section 3. The Share Purchase Agreement shall permit either Grace or Buyer to terminate its obligations thereunder if Buyer is unable to obtain all such consents, after reasonable best efforts to do so, by November 1, 1996. In the event that either Grace or Buyer terminates the Share Purchase Agreement as provided in this subsection (b), Buyer shall indemnify Grace and hold Grace harmless from any out-of pocket costs incurred by Grace in connection with the termination of the Dearborn India JV in accordance with Section 7 and for any increase in the amount of the debt of the Dearborn India JV for which Grace is liable under the Guarantee or otherwise, during the period commencing on July 13, 1996 and ending on the earlier of the Effective Date or the date the Share Purchase Agreement is terminated. (c) Except as provided in the last sentence of sub-section (b) of Section 3, Buyer shall not assume and shall have no obligation to reimburse Grace for any amount paid by Grace to discharge its obligations to guarantee or otherwise discharge any debt of the Dearborn India JV, including without limitation, the guarantee given by Grace in favor of The Hong Kong and Shanghai Banking Corporation Limited for up to INR20,400,000 to facilitate certain short-term borrowing arrangements of the Dearborn India JV (the "Guarantee"). - 2 - 4. Notwithstanding the provisions of the Sale Agreement, and except as otherwise provided in Section 3 of this Agreement, (a) Grace shall not convey to any of the Buying Companies the Transferred Investment or any of Grace's other rights or interests with respect to the Dearborn India JV; (b) The Buying Companies shall not purchase from Grace the Transferred Investment or any of Grace's other rights or interests with respect to the Dearborn India JV, nor shall any of the Buying Companies assume any liabilities or obligations of any member of the Grace Group with respect thereto; (c) After the expiration of the Option Period, Grace shall have the right to retain or dispose of the Transferred Investment and its other rights and interests with respect to the Dearborn India JV in its sole discretion; and (d) Grace's retention or subsequent disposition of the Transferred Investment shall not result in any reduction of the Total Purchase Price pursuant to Section 4.C. 5. The provisions of Section 8.8 shall not apply to the Dearborn India JV nor to Grace's retention of its ownership interest therein, nor to any activities undertaken by any member of the Grace Group in making additional investments in the Dearborn India JV, or in managing or operating the Dearborn India JV after the Closing in competition with Buyer in India or in any other country in which the Dearborn India JV is presently licensed to operate pursuant to the License Agreements using patents, technology or trademarks that are being transferred by Grace to Buyer pursuant to the Sale Agreement. Simultaneously with the execution and delivery of this agreement, Buyer and Grace are entering into an Intellectual Property License Agreement Relating to Dearborn IEI India Water Treatment Joint Venture pursuant to which Buyer is granting to Grace certain rights in such patents, technology and trademarks in order to permit Grace to satisfy its obligations under the JV Agreement and the License Agreements. Such license will terminate upon the closing of the purchase by Buyer of Grace's interest in the Dearborn India JV and Buyer's assumption of Grace's obligations under the License Agreements or the termination of the JV Agreement under circumstances where Grace is no longer obligated to continue to provide such rights. Grace agrees not to make any amendments to the License Agreements or the JV Agreement that would result in any increase in the rights of the Dearborn India JV to any of the intellectual property rights of the Buyer or Buyer's Subsidiaries including the intellectual property rights conveyed by Grace to Buyer pursuant to the Sale Agreement. 7. In the event that Grace arranges for the termination of the Dearborn India JV either in accordance with the terms of the JV Agreement (other than as a result of a breach thereof by Grace) or pursuant to an agreement with IEI, Buyer shall reimburse - 3 - Grace for all documented out-of-pocket costs incurred by Grace in connection with such termination including any payments to IEI or other Persons for which Grace is responsible under the terms of the JV Agreement or the License Agreements, provided, however, that Buyer's total obligation hereunder shall not exceed $500,000 without Buyer's written consent, and provided further that Buyer shall have no obligation to reimburse Grace for any amount paid by Grace to discharge its obligation to guarantee or otherwise discharge any debt of the Dearborn India JV including, without limitation, the Guarantee, except as provided in the last sentence of Sub-section (b) of Section 3. 8. The provisions of Article 12 shall not apply to the employees of the Dearborn India JV. 9. All references in Articles 5, 14, 15 and 16 to "Transferred Joint Venture" shall be deemed to refer only to the Dearborn Japan JV. Other provisions of the Sale Agreement that contemplate the transfer of the Transferred Investment from Grace to the Buying Companies shall be disregarded to the extent such provisions are inconsistent with this agreement. 10. Grace shall not agree to any amendment to the JV Agreement without Buyer's prior written consent, (a) during the Option Period, and (b), if Buyer exercises the Option, during the period commencing on the date the Option is exercised and ending on the earlier of the Effective Date or the date the Share Purchase Agreement is terminated. 11. All notices, requests, demands and other communications required or permitted to be given under this agreement shall be deemed to have been duly given if in writing and delivered personally, by reputable overnight courier service, by telephone facsimile transmission (as evidenced by a confirmed receipt), or by first-class, postage prepaid, registered or certified mail, addressed as follows: If to Grace: W. R. Grace & Co.-Conn. One Town Center Road Boca Raton, Florida 33486-1010 Attention: Larry Ellberger Fax: (561) 362-2153 - 4 - with a copy to: W. R. Grace & Co.-Conn. One Town Center Road Boca Raton, Florida 33486-1010 Attention: Secretary Fax: (561) 362-1635 If to Buyer: Betz Laboratories, Inc. 4636 Somerton Road Trevose, Pennsylvania 19053 Attention: Larry V. Rankin Fax: (215) 953-5536 with a copy to: Betz Laboratories, Inc. 4636 Somerton Road Trevose, Pennsylvania 19053 Attention: General Counsel Fax: (215) 953-5536 Either Grace or Buyer may change the address to which such communications are to be directed to it by giving written notice to the other in the manner provided above. 12. Nothing in this agreement shall be construed to restrict Grace from pursuing recovery against the Dearborn India JV for any amounts paid by Grace to discharge debt of the Dearborn India JV under the Guarantee or otherwise. 13. (a) This agreement sets forth the entire agreement and understanding of the parties and related persons with respect to the subject matter hereof and supersede all prior agreements, arrangements and understandings relating thereto. (b) This agreement shall be governed by and construed in accordance with the laws of New York, excluding (a) any conflict-of-laws provisions thereof that would otherwise require the application of the law of any other jurisdiction, and (b) if applicable, the United Nations Convention on Contracts for the International Sale of Goods. (c) Each of Grace and Buyer hereby irrevocably submits in any suit, action or proceeding arising out of or relating to this agreement, or any of its obligations - 5 - hereunder, to the jurisdiction of the United States District Court for the Southern District of New York and the jurisdiction of any court of general jurisdiction of the State of New York located in New York County, and waives any and all objections to such jurisdiction that it may have under the laws of the State of New York or any other jurisdiction. (d) This agreement shall not be assignable by either party hereto without the prior written consent of the other. This agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that Buyer may assign its right to purchase Grace's interest in the Dearborn India JV to a subsidiary of Buyer without relieving Buyer of its obligations under this agreement. (e) This agreement may be amended, superseded or terminated, and any of the terms hereof may be waived, only by a written instrument specifically referring to this agreement and specifically stating that it amends, supersedes or terminates this agreement or waives any of its terms, executed by all parties, or in the case of a waiver, by the party waiving compliance. Failure of any party to insist upon strict compliance with any of the terms of this agreement in one or more instances shall not be deemed to be a waiver of its rights to insist upon such compliance in the future, or upon compliance with other terms hereof. IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 on the date first above written. W. R. GRACE & CO.-CONN. By: /s/ Alex Markin --------------------------------- Alex Markin Attorney-in-Fact BETZ LABORATORIES, INC. By: /s/ William C. Brafford --------------------------------- William C. Brafford Secretary - 6 - EX-23 4 CONSENT INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 033-60557) of Betz Laboratories, Inc. of our report dated September 9, 1996 relating to the combined financial statements of W.R. Grace & Co.-Conn. Dearborn Business, which appears in Amendment No. 1 to the current report on Form 8-K/A of Betz Dearborn Inc. dated June 28, 1996. /s/ PRICE WATERHOUSE LLP - ------------------------- Price Waterhouse LLP Fort Lauderdale, FL September 13, 1996
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