-----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, AGE2OrXIH9j5Nhg65rLGExIBwZzPIQBBrdvVdn5ID5BEsOoir+jzpMfkTn80I37O UapZ+qfgmj3eLw/mCGY00Q== 0000832815-97-000003.txt : 19970328 0000832815-97-000003.hdr.sgml : 19970328 ACCESSION NUMBER: 0000832815-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYBRON CHEMICALS INC CENTRAL INDEX KEY: 0000832815 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 510301280 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12263 FILM NUMBER: 97564696 BUSINESS ADDRESS: STREET 1: BIRMINGHAM RD STREET 2: PO BOX 66 CITY: BIRMINGHAM STATE: NJ ZIP: 08011 BUSINESS PHONE: 6098931100 MAIL ADDRESS: STREET 1: P O BOX 66 BIRMINGHAM ROAD CITY: BIRMINGHAM STATE: NJ ZIP: 08011 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the fiscal year ended December 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _______ to _______ Commission File No. 0-19983 SYBRON CHEMICALS INC. (Exact name of registrant as specified in its charter) Delaware 51-0301280 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Birmingham Rd., P.O. Box 66, Birmingham, NJ 08011 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (609) 893-1100 ------------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock held by non-affiliates of the Registrant based upon the closing sale price of the Common Stock on March 14, 1997 as reported on the American Stock Exchange, was approximately $27,861,958. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. At March 14, 1997, there were 5,665,746 shares of the Registrant's Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held May 30, 1997 are incorporated by reference into Part III of this Annual Report. SYBRON CHEMICALS INC. --------------------- SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS ------------------------------------------ The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Annual Report contains information that is forward looking, such as information relating to future capital expenditures and environmental cleanup costs as well as the effects of future regulation and competition. Such forward looking information involves important risks and uncertainties that could significantly affect expected results in the future from those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks and uncertainties include, but are not limited to, uncertainties relating to economic conditions, fluctuations in exchange rates of various foreign currencies, and other risks associated with foreign operations, changes in governmental and regulatory policies including environmental regulations, the pricing of raw materials, the ability of the Company to make and successfully integrate corporate acquisitions, technological developments and changes in the competitive environment in which the Company operates. TABLE OF CONTENTS ----------------- Item Page ---- ---- PART I 1 Business........................................ 1 2 Properties...................................... 14 3 Legal Proceedings............................... 15 4 Submission of Matters to a Vote of Security Holders........................................ 16 PART II 5 Market for the Registrant's Common Stock and Related Stockholder Matters.................... 16 6 Selected Financial Data......................... 17 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.. 19 8 Financial Statements and Supplementary Data..... 26 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 27 PART III 10 Directors and Executive Officers of the Registrant..................................... 27 11 Executive Compensation.......................... 29 12 Security Ownership of Certain Beneficial Owners and Management.......................... 29 13 Certain Relationships and Related Transactions................................... 29 PART IV 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 29 Signatures...................................... 31 (i) PART 1 ITEM 1. BUSINESS General Sybron Chemicals Inc. (the "Company") is an international specialty chemical company that develops, produces and markets products and related services for two main markets: environmental (primarily related to water and waste treatment) and textile dyeing and finishing. The Company's two operating segments, Environmental Products and Services and Textile Chemical Specialties, accounted for 31.0% and 69.0%, respectively, of total sales for 1996. The Company's Environmental Products and Services segment includes water treatment products such as ion exchange resins for use in home water softening/conditioning and industrial water treatment; high quality reverse osmosis membrane elements used primarily in point-of-use drinking water purification systems; biochemicals for treating industrial and sanitary waste, contaminated soil and groundwater; and specialty polymers. The Company's Textile Chemical Specialties segment includes various products used in wet processing of natural and synthetic fibers to enhance the aesthetic and physical characteristics of textile fabrics, as well as related organic chemicals. The Company offers over 1,500 products which are sold to over 5,800 active customers worldwide. Many of the Company's products are custom designed to meet the particular needs of its customers. The top 10 customers accounted for approximately 13.3%, 14.7% and 15.3% of sales in 1996, 1995 and 1994, respectively. The largest customer in each year accounted for less than 5% of consolidated sales. The Company, a Delaware corporation formerly known as Sybron Chemical Industries Inc., is the successor to a business established in the 1920's. That business became a specialty chemical company (the "Sybron Chemical Group") in the 1960's under the ownership of Sybron Corporation. The Company acquired the Sybron Chemical Group from Sybron Corporation in 1987. The Company's business is based predominantly on providing products and services which solve customers' problems, thereby allowing them to achieve desired performance in their own products and processes. The cost of the Company's products and services typically is small compared to the benefits derived by the customer from the use of such products and services. The Company's extensive field sales force and marketing representatives, most of whom have had direct working experience in the industries which they service, function as applications engineers. They work in conjunction with the Company's research groups and customers to develop and sell products and applications know-how to meet customers' individual needs. -1- The following table sets forth the Company's sales, operating income and operating income as a percentage of sales by segment for the periods indicated: Year ended December 31, 1996 1995 1994 (in thousands, except percentages) Sales Environmental Products and Services $ 54,045 $ 54,969 $ 50,898 Textile Chemical Specialties 120,301 112,838 94,828 ------- ------- ------ Total $174,346 $167,807 $145,726 ======== ======== ======== Operating Income Environmental Products and Services $ 4,142 $ 4,030 $ 4,701 Textile Chemical Specialties 13,480 10,947 $ 11,055 ------ ------ -------- Total $ 17,622 $ 14,977 $ 15,756 ======== ======== ======== Operating Income as a Percentage of Sales Environmental Products and Services 7.7% 7.3% 9.2% Textile Chemical Specialties 11.2% 9.7% 11.6% Total 10.1% 8.9% 10.8% All other financial information about business segments and foreign operations is included in Items 7 and 8 to this Annual Report on Form 10-K and is incorporated herein by reference. Unless noted otherwise, market share estimates contained in this Annual Report have been developed by the Company from internal sources and no assurance can be given regarding the accuracy of such estimates. Environmental Products and Services Segment The Company's environmental products and services segment consists of ion exchange resins for use in home water softening and conditioning and industrial water treatment; membranes used primarily in point-of-use drinking water purification systems; biochemicals for treating industrial and sanitary waste, contaminated soil and groundwater; and specialty polymers. The following table sets forth net sales by product line for the years indicated: Year ended December 31, ----------------------- Product Line 1996 1995 1994 - ------- ---- ------ ------ ----- (in thousands) Water Treatment (1) $32,572 $34,750 $32,273 Biochemicals 14,915 14,119 13,588 Specialty Polymers 6,558 6,100 5,037 ------- ------- ------- $54,045 $54,969 $50,898 ======= ======= ======= (1) Includes the Ion Exchange and Membranes business units. -2- Ion Exchange Resins The Company's ion exchange resins, which are used to improve water quality, serve two distinct markets, industrial and household. Ion exchange resins are solid chemical compounds (polymers), generally in bead form, which are used primarily for the softening and demineralization of water and the removal of contaminants from other fluids. The softening and demineraliza- tion processes involve the exchange of acceptable ions which are originally chemically bound to the resins for undesirable ions present in water. The process is reversible in that the resins can be regenerated to their original ionic forms permitting continuous reuse. Depending upon the type of resin and application, resins will typically last for between three to ten years before replacement is necessary. Ion exchange resins are either anion exchange resins, which remove negatively charged ions, or cation exchange resins, which remove positively charged ions. Both cation and anion exchange resins are used in equipment for industrial applications, while only cation resins are used in home water softening equipment. The Company's ion exchange products are sold under the IONAC(R) tradename. The industrial ion exchange water treatment market involves the demineralization of incoming water for high pressure boilers and the purification of process water and other fluids. The use of untreated boiler water causes scaling of the heat exchangers which, in turn, leads to loss of efficiency or damage to costly turbine blades. Treatment of water with cation and anion exchange resins is required to reduce such risks. Electrical utilities are the largest industrial resin endusers. Other major industrial endusers include large water users such as paper mills, refineries, and petrochemical plants and those industries requiring a high level of water purity, such as semi-conductor manufacturers and laboratories. A market exists in trailers containing ion exchange equipment that provide temporary on-site water treatment to various industries and utilities. The service deionization business, which provides on-site water treatment to a number of businesses, such as the electronics industry, also continues to grow. During 1996, the Company continued to control and reduce its fixed costs supporting the ion exchange business in response to weakened market conditions and reduced profitability. A three-tiered channel of distribution exists in the U.S. industrial water treatment market. Resins for water treatment are sold directly to endusers by the resin manufacturer and are sold to original equipment manufacturers ("OEM") for use in new equipment and to both OEM's and distributors for resale to replace resins in existing equipment. The number of major OEM's continued to decline during 1996 due to the acquisition of certain OEM's by companies such as U.S. Filter. The Company -3- has developed close working relationships with the remaining major OEM's and selected distributors based on strong technical support and customer service. The ion exchange sales force, comprised of chemists and engineers, also maintains an active enduser contact program through which members of the sales force act as advisors on matters related to the various needs for quality water. This key customer service aspect of the Company's marketing strategy has enabled the Company to have its resins specified by numerous endusers. International business, representing approximately 30% of the Company's industrial ion exchange business, is conducted primarily through agents supported by the Company's in-house personnel. This area of the business grew substantially in 1996. The Company's industrial ion exchange resins are sold to approximately 150 customers. Other industrial ion exchange products manufactured and sold by the Company include electrodialysis membranes impregnated with ion exchange resins used primarily in the cleanup of automotive paint baths, and desalting kits used for low volume desaliniza- tion of water, which are primarily sold to governments and the air and marine transportation industries for emergency use, and selective ion exchange resins which are higher value added products which selectively remove contaminants from water and wastewater. In addition to the industrial market, the Company provides cation exchange resins to the U.S. household water softening market with a market share in excess of 50%. The Company believes that the market for household water treatment products is positioned for growth in the coming years, as the concern for water quality continues to grow. The Company's main softening resins, including Ionac(R) C-249, are sold directly to water softening equipment manufacturers such as Culligan International Company to whom the Company has been a major supplier for over 30 years. The Company has maintained its leading market position in the United States for years through its strong technical support and customer service to the softener manufacturers and through the introduction of new products with physical characteristics specifically suited for this market segment. Based on industry publications, the Company estimates the total U.S. market for ion exchange resins in 1996 to be approximately $175 million. The Dow Chemical Co., Purolite Corporation and Rohm and Haas Co. are the major competitors in this segment. The ion exchange business requires significant investment in production facilities as well as specialized know-how in product synthesis, applications and customer support. As a result, it is difficult for companies not presently manufacturing ion exchange resins to enter this market. Membranes Purification Products Company ("PPC"), a wholly-owned subsidiary of the Company headquartered in San Marcos, -4- California, manufactures and supplies high quality reverse osmosis ("RO") membrane elements used primarily in point-of-use drinking water purification systems. Reverse osmosis is a filtration process in which the RO membrane filters out undesirable impurities such as metal salts, nitrates, other dissolved solids and certain organic compounds from the water. Point-of-use RO treatment produces purified, better tasting water which passes through to the enduser such as a homeowner or commercial establishment. In addition to home water treating membranes, PPC is producing larger RO elements for the commercial and industrial markets and is developing membrane products for waste treatment applications. Larger companies such as Dow Chemical Co. and Osmonics, Inc. are major competitors of PPC as well as some smaller companies who focus primarily on producing membrane elements. Biochemicals The biochemicals business supplies selectively adapted bacterial strains under the BI-CHEM(R) trademark and appropriate application technology under the trade name Biosystems Engineering. The Company has established a leadership position in the waste degradation field through its development of highly active bacterial strains, as well as through its understanding of the optimal conditions for application of those strains to solve field problems. In the biodegradation process, bacterial strains which are developed under laboratory conditions through a process of natural selection and adaptation, reduce or eliminate specific contaminants by breaking them down into harmless components such as carbon dioxide and water. The Company's biochemical products are used in the treatment of industrial and municipal wastewater; the elimination of hazardous contaminants in soil and ground water caused by spills and leaking underground storage tanks; the operation of household and commercial septic systems; and the reduction of fat and grease in places such as household drains, retention ponds and restaurant grease traps. The Company expects these markets to experience high growth due to the increasing emphasis on treating waste problems utilizing environmentally safe methods and minimizing the quantity of waste for disposal. The Company's biochemical products are based on naturally occurring microorganisms already present in the environment. The Company's primary expertise is in isolating, selecting, adapting and growing organisms so they will degrade specific hazardous or toxic organic compounds at a much faster rate than would otherwise occur with indigenous organisms under normal conditions. Highly trained technical service and field sales engineers, supported by skilled laboratory technicians, biologists and environmental engineers, provide the necessary knowledge and experience to identify and solve customers' problems and to develop a growing base of business. -5- For over twenty years, the Company has served the on-site waste treatment market (domestic and institutional septic systems). Over the past few years, the Company has expanded its presence in this market segment through the introduction of biological formulations for institutional and household utilization, such as bathroom and carpet deodorizers as well as fat and grease digesters for unclogging drains and pipes in toilets, kitchens and fast food restaurants. In June 1993, the Company began supplying a biologically active formulation to a major consumer products company for use in their new biological drain maintenance product. This product, which eliminates deposit buildup in drain lines and prevents its recurrence, has been well received by the market since its introduction. In January 1995, the Company began supplying a new biologically active formulation designed to enhance septic tank performance. This product is being marketed by the same company who markets the drain maintenance product with the Company's formulation. The Company believes that its septic tank product is superior to other similar products currently sold in the market place and that the growth potential for the septic treatment product is significant. Studies indicate that only 10% of households with a septic waste treatment system utilize septic treatment products. The Company's biochemical products are developed and manufactured in a facility located in Salem, Virginia, where up-to-date research, quality control, and product development laboratories are located together with fermentation, blending and packaging operations. There are a few other companies that grow and sell bacterial strains such as International Biochemicals Group, Polybac Corporation and Semco Corporation, but the Company believes its products have achieved a higher degree of technological and regulatory acceptance than its direct competitors' products. The Company also believes it has developed unique application know-how in this area. Specialty Polymers The specialty polymers business supplies polymer beads for use as binders in dry toners for office copy machines and laser printers and other polymeric materials for use in adhesives and coatings and plastic (PVC) compounds. The Company's products in this segment represent a small portion of the total specialty polymers market. The Company's customers include major laser printer equipment manufacturers, independent toner manufacturers and major adhesive and tape suppliers. During 1996, the Company substantially increased its sales in the rapidly growing toners market through the acquisition of the Chemical Images Company ("CIC"), for whom the Company toll manufactured product in prior -6- years, and through introduction of a variety of new products to the marketplace. The CIC transaction, which was accounted for as a purchase, did not have a material effect on the Company's 1996 operating results. Textile Chemical Specialties Segment The Company's textile chemical specialty products business consists of textile chemicals and related organic products. The following table sets forth net sales by product line for the years indicated: Years ended December 31, ------------------------ Product Line 1996 1995 1994 - ------- ---- ------ ------ ----- (in thousands) Textile Chemicals - America & Asia(1) $ 59,438 $ 57,924 $45,995 - Europe(2) 55,503 48,859 43,071 Organics 5,360 6,055 5,762 -------- -------- ------- $120,301 $112,838 $94,828 ======== ======== ======= (1) Includes the Company's America and Asia business units as well as sales to Canada, Mexico, Latin America and the Far East. (2) Includes the Company's European business units as well as sales to the Middle East and Africa. Textile Chemicals Chemical usage in the worldwide textile industry is divided among the fiber and yarn forming, fabric forming and wet processing industry segments. The Company participates in the largest segment, wet processing, which is divided into four major types: fabric preparation (scouring and bleaching), printing, dyeing and finishing. Constant developments in textile fibers, fashions, manufacturing processes and regulatory requirements create a continuing need for new chemicals. The Company capitalizes on these business opportunities through an ongoing process of product development. In this process, the Company's research and applications chemists respond to field requirements identified by sales and marketing personnel who maintain close contact with the Company's customers. The Company markets its dyehouse products in the United States and Europe under the brand name TANATEX(R). The Company markets its fabric finishing products primarily in the United States under various names. In Europe, the Company has also developed proprietary technology and substantial market share in the high-quality fabric printing industry. -7- U.S. textile mills purchase their preparation and dyeing chemical requirements from large dyestuff suppliers and many small companies. The Company estimates the market segments for the preparation and dyeing chemicals in which it competes in the United States to be in excess of $500 million. The Company's major competitors in these segments include American Emulsions Company, Apollo Chemical Company, Ciba-Geigy Corp., Henkel Corp., High Point Chemical Company, Piedmont Chemical Industries Inc. and Virkler Chemical Company. Products sold by the Company to these market areas include surfactants for wetting and removal of impurities, stabilizers and detergents for use in bleaching, enzymes, agents to increase dye yield and provide smooth level shades, pH control agents and materials which prevent dye from washing out or degrading. The Company also services the Canadian and Mexican markets through its own local organizations in these countries, and uses various agents and licensees to access other Latin American markets. In November 1996, the Company opened a new manufacturing facility in Ocoyoacac, Mexico which was built on Company owned land. The Ocoyoacac facility replaces a leased facility the Company occupied in Mexico City. This facility enhances the Company's ability to supply the fast-growing Mexican and Latin American textile industry. The Company serves the growing Asia textile chemical market from its Taiwanese manufacturing facility. During the latter part of 1995, the Company set up a subsidiary in Seoul, Korea in order to service the Korean textile market. The results of the Korean subsidiary during 1996 far exceeded the Company's first year expectations. Improved performance in areas such as the Philippines and Thailand set the stage for growth in 1997 and beyond. The Company accesses the Asia market through a number of agents and distributors in the region. The U.S. fabric finishing market segment is dominated by a few large suppliers of commodity products such as glyoxal resins, acrylic polymers and melamine resins. The Company has chosen to participate in this segment as a supplier to selected specialty niches. The Company's product line includes specialty permanent press resins, hand modifiers (for products such as acetate linings, nylon jacket fabric and lace), fabric softeners for industrial use and flame retardants (used on industrial fabrics, drapes, wall coverings and curtains). Recognizing the inherent growth limitations in the North America textile industry, the Company focused its efforts in 1996 on increasing market share and improving profitability. In an effort to increase market share, the company expanded its sales coverage in areas such as Southern Georgia, Alabama, Tennessee, the garment processing industry along the Texas/Mexico border as well as Western Canada. These marketing efforts enabled the Company to generate new -8- business at improved margins. The Company also streamlined its product line and production to reduce costs and better serve its customers. The Company has an important position in the high-quality and technically oriented wet-end processing segment of the European textile industry. The textile manufacturing industry in Europe tends to be characterized by producers that are smaller and more oriented to fashion and quality than the producers in the United States. European customers rely to a large extent on the expertise and product development capabilities of their suppliers of dyehouse products. The Company believes that its technological capabilities and customer support services have enabled it to grow and gain a significant share of the dyehouse products market in Europe. The introduction of several new products played a very important role in the Company's growth, especially for several European countries with a flat textile market. The increasing usage of the Company's Tanaprint(R) systems in the new application of carpet printing by high speed Chromojet machinery continued with a substantial growth over 1995. The Tannex(R) RENA system was successfully introduced at several high volume customers for the continuous preparation/bleaching of cotton and cotton blends. Sales of environmentally friendly products meeting the severe European ecological requirements also grew substantially. These new product developments should continue as in the past as they provide the cornerstone for the Company's ongoing growth. Some of the major chemical and dye manufacturing companies in Europe, such as BASF, Bayer A.G., Ciba Specialty Chemicals, Hoechst A.G. and Clariant Ltd., are major competitors of the Company, as are some larger local specialty chemical manufacturers such as Allied Colloids Ltd. and C.H. Tubingen. The Company serves approximately 2,000 customers in the major textile centers in Europe through its direct sales forces in Austria, France, Holland, Italy, Germany, Portugal, Spain and the United Kingdom; and through exclusive agency and distributor agreements in places such as the Baltic States, Belgium, Bulgaria, Greece, Hungary, the Middle East, Morocco, Poland, Russia, Scandinavia, Slovakia, Slovenia and Turkey. The Company also services the South African textile market through its own local sales organization and manufacturing facility in Durban. Organics The Company markets its production capabilities and process expertise to major chemical companies that require custom synthesis and fine chemicals. The demand for the Company's technology in these areas has allowed its Wellford, South Carolina plant to utilize excess capacity and has enabled the Company to expand its capabilities and increase its overall -9- margins. Clients for these services include some of the largest chemical companies in the United States. The Company plans to continue the marketing and development of its proprietary product line and utilizing excess capacity for custom manufacturing. The organics product line was developed to capitalize on the Company's proprietary manufacturing technology in the areas of quaternization, alkylation and esterification (typical organic synthesis reactions used to make a variety of industrial chemical products). Products produced from these and other types of reactions are now sold for use as phase transfer agents, surfactants and intermediates for textile, cosmetic and various industrial applications. The Company's distillation capabilities enable the products to be purified to the exact specifications demanded by these industries. Many of the chemicals produced and sold by this unit serve as raw materials for the formulations sold by the textile groups. Therefore, the organics product line represents both a vertical integration and a branching out into new markets. Employees and Labor Relations At December 31, 1996, the Company had 722 employees world-wide, of whom 66% were salaried employees and 34% were hourly employees, with 85 employees in management and administration, 203 in sales and marketing, 70 in engineering and research, and 364 in production. The hourly employees at the Company's Birmingham, New Jersey facility are covered by collective bargaining agreements with two unions. These labor agreements will expire on April 11, 1999. Employees at the Ede, Holland facility are all members of national unions, which is customary in Holland. The Company considers its relations with its union and non-union employees to be satisfactory. Risks Attendant to Foreign Operations The Company conducts its business in numerous foreign countries and as a result is subject to risks of fluctuations in exchange rates of various foreign currencies and other political and economic risks associated with international business. The Company's foreign entities report their assets, liabilities and results of operations in the currency in which the foreign entity primarily conducts its business. The foreign currencies are ultimately translated in U.S. dollars for financial reporting purposes. For the fiscal years 1996, 1995, and 1994, approximately 45.4%, 41.9% and 41.8% of the Company's net sales were to customers outside the United States, predominantly in Western Europe, with most of the balance in Canada, Mexico and the Far East. For the fiscal years 1996, 1995 and 1994, approximately 60%, 62% and 64% of the Company's identifiable assets were in North -10- America. The remainder of the Company's identifiable assets were predominantly in Western Europe although the Company does lease small production facilities in Taiwan and South Africa. For the fiscal years 1996, 1995 and 1994, the Company derived 44%, 56% and 56%, of its operating income from the America Division. The America Division consists of the Company's subsidiaries in the United States, Canada, Mexico and the Far East. The balance of the Company's operating income was principally derived from the Company's European subsidiaries. Raw Materials The Company purchases various raw materials including caustic soda, sulfuric acid and surface active agents from a number of suppliers and does not rely on a sole source to any material extent. The Company does not foresee any significant difficulty in obtaining necessary raw materials or supplies. Research and Development Each of the Company's individual business groups has its own dedicated research and development activities. The research effort in ion exchange products is dedicated toward improving existing products and processes as well as new product development. During 1996, several new products used to make toners for desk-top laser printers were developed and introduced into the toner/ polymer product line. In addition, substantial process improvements were accomplished on major products, including anion resins, relative to costs and pollution reduction. The Company's research and development in textile chemicals has created several new products and new uses for products in the past year. Products developed in this period include the environmentally friendly Alkaflo(R) Excel, a non-phosphated liquid alkali for all reactive dyes, and Spanscour LFtm, used to protect Spandex and Nylon from yellowing during heat treatment, as well as Tanapel 54tm for water-proofing and preventing yellowing in carpet backings. Research efforts in the biochemical business focus on new products and applications in the bioremediation, consumer, institutional, industrial wastewater and agricultural markets. In the institutional and consumer area, the Company has successfully developed new products that significantly reduce solids and organic build-up in septic systems thereby extending the life of the system. In the area of wastewater treatment, new products were developed for the degradation of fats, oils and certain industrial compounds. A new product capable of degrading petroleum hydrocarbons and their components in a saltwater environment was also developed for use in spill control applications. -11- Research and development expenditures for 1996, 1995 and 1994 were $4.2 million, $3.9 million and $3.2 million, respectively. The sharp increase in R&D spending from 1994 to 1995 is primarily due to the addition of research personnel associated with the acquisition of the Auralux Corporation, as well as increased spending in biochemicals and Europe textiles. The increase in R&D spending from 1995 to 1996 is primarily due to headcount additions in North America textile chemical R&D. Competition The Company has numerous competitors in its environmental products and services and textile businesses, a number of which have substantially greater financial and other resources than the Company. There can be no assurance that the Company will not encounter increased competition in the future. Environmental Matters The manufacture of the Company's products, and in some cases their storage, transportation and disposal, involve a number of environmental considerations. These activities are subject to federal, state, local and foreign laws and regulations concerning, among other things, solid and hazardous waste disposal, air emissions, waste water discharge, toxic substances and occupational safety. Violations of any of these laws and regulations, uncontrolled releases of toxic or hazardous materials into the environment or third party or government actions relating to environmental matters could expose the Company to significant liability. The Company believes that it has all the necessary permits to operate its plants and that it is in substantial compliance with current regulatory requirements material to the conduct of its business. Periodically, the Company is advised that it may be named as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state statutes with respect to the transport and disposal of hazardous wastes. At present, the Company is a party in a legal action in the United States regarding the cleanup of hazardous waste or chemicals at a site never occupied by the Company or its predecessors. In addition, the Company has received inquiry letters or notices on seven other hazardous waste sites where it could be named as a potentially responsible party. All of these claims relate to disposition of waste occurring prior to the Company's acquisition of the Sybron Chemical Group. In connection with the acquisition of the Sybron Chemical Group from Sybron Corporation, (a) the Company agreed to assume all liabilities relating to environmental matters arising as a result of the conduct of the business of the Sybron Chemical Group, and (b) Sybron Corporation agreed to make available to the Company insurance coverage of Sybron Corporation that was in -12- force during the time that the Sybron Chemical Group was part of Sybron Corporation. Such insurance covered certain liabilities that were settled in the past relating to the disposition of waste prior to 1984 at third-party sites not occupied by the Company or its predecessor. Although there can be no assurance that the insurance carriers will accept coverage for additional such events that are not already settled, the Company believes that such insurance adequately covers its exposure. The Company does not have any additional insurance covering environmental liabilities as it believes that such insurance is not presently available on commercially reasonable terms. The Company has not reduced its environmental liabilities or recorded any assets related to potential insurance recoveries from any policies previously in force. The Company has identified certain soil and groundwater contamination at its Birmingham, New Jersey facility. The Company has conducted an extensive sampling plan for both soil and groundwater and has proposed a remedial action work plan (the "Work Plan") to the New Jersey Department of Environmental Protection (DEP) related to the cleanup of the Birmingham facility. DEP has conditionally approved the Work Plan and the Company has completed some of the cleanup and has performed some additional sampling based on DEP's conditional approval. The remedial activities pursuant to the Work Plan are continuing and are expected to be completed by the end of 1997. The Company has identified certain soil and groundwater contamination at its facility in Wellford, South Carolina. The Company submitted a proposed sampling and testing program to the South Carolina Department of Health and Environmental Control (DHEC) for its review. DHEC has approved the Company's proposed action for the next phase of the investigation and remediation of potential groundwater contamination. The remedial activities related to this program are in progress at this time. The Company has completed a number of studies to identify the extent of certain soil and groundwater contamination at its manufacturing facility in Ede, Holland and other facilities adjacent thereto (collectively, the "Dutch Facilities"). As a result of these studies, the Company is presently remediating certain contamination at its Ede facility. An environmental consulting firm is performing additional studies and developing a plan of remediation for the Dutch Facilities. The Company anticipates that the remediation plan will be presented to local government officials for their approval by the end of 1997. The Company has not identified any sites which may require remediation but which have not been cited specifically by regulatory authorities for noncompliance with environmental rules and regulations. -13- Although there can be no assurance regarding the outcome of environmental proceedings, the Company believes that it has made adequate accruals to cover all cleanup and other related costs with respect to environmental problems of which it is aware. The Company believes that the environmental matters described above, individually or in the aggregate, will not have a material adverse effect on the financial position, cash flow or operating results of the Company. Patents and Trademarks The Company's products are sold under a variety of trademarks and trade names. The Company owns all of the trademarks and trade names that the Company believes to be material to the operation of its business, including the BICHEM(R), IONAC(R), AURALUXtm, TANATEX(R), and JERSEY STATEtm trademarks. The Company believes such trademarks have widespread commercial recognition in their respective fields. The Company also owns various patents and considers selected patents related to its textile chemicals and biochemicals to be of commercial significance. The Company does not believe any single patent is material to the operations of its business as a whole. ITEM 2. Properties Facilities The Company's largest production facility in Birmingham, New Jersey, is located on 75 acres of a 500 acre site owned by the Company. This facility is located in a rural area approximately 23 miles from Philadelphia, Pennsylvania where it produces three major product lines: ion exchange resins, textile finishing chemicals and specialty polymers. This plant accounted for approximately 24%, 25% and 26% of 1996, 1995 and 1994 total sales, respectively. The Company presently has no plans to sell or to develop its undeveloped real estate in New Jersey. At December 31, 1996, the Company occupied six other U.S. facilities: (i) a 22 acre site owned in Wellford, South Carolina producing textile chemicals and organics, (ii) a 2 acre owned facility in Salem, Virginia producing biochemicals, (iii) a 5 acre owned facility in Salem, Virginia used for packaging and warehousing biochemicals, (iv) a one acre leased site in San Marcos, California producing reverse osmosis membranes, (v) a 2 acre leased facility in Dalton, Georgia used for warehousing textile chemicals, and (vi) a 9 acre site owned in Yantic, Connecticut producing textile chemicals. The Company owns a production center consisting of a 5 acre facility in Ede, Holland producing textile chemicals. This plant accounted for approximately 32%, 29 and 30% of 1996, 1995 and -14- 1994 total sales, respectively. The Company also leases small production facilities in South Africa and Taiwan. The Company recently completed a new production facility in Ocoyoacac, Mexico on land owned by the Company. This facility replaces a production facility in Mexico City that was previously leased. The Company has ample manufacturing capacity for most of its product lines for its current level of business including anticipated growth for at least the next two years. With respect to certain ion exchange resins, the Company has supplemented its production capacity when necessary by making purchases from other suppliers to meet peak customer demands. The Company has been able to increase manufacturing capacity as needed in the past without significant capital expenditures through the development of process improvements and modifications. In addition to offices maintained at its production facilities, the Company leases sales office space in (i) Vienna, Austria, (ii) Toronto, Canada, (iii) Oldham, England, (iv) Lyon, France, (v) Krefeld, Germany, (vi) Milan, Italy, (vii) Yokohama, Japan, (viii) Seoul, Korea, (ix) Guimaraes, Portugal, (x) Moscow, Russia, (xi) Barcelona, Spain, (xii) Elmwood Park, New Jersey and (xiii) Stafford, Texas. The Company's office and warehouse space is currently adequate for its needs. The leases are for total periods of one to five years at commercial rates. Management believes that suitable equivalent facilities could be obtained in each of the cities in which the Company maintains offices. ITEM 3. Legal Proceedings Periodically, the Company is advised that it may be named as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state statutes with respect to the transport and disposal of hazardous wastes. At present, the Company is a party in a legal action in the United States regarding the cleanup of hazardous waste or chemicals at a site never occupied by the Company or its predecessors. In addition, the Company has received inquiry letters or notices on seven other hazardous waste sites where it could be named as a potentially responsible party. All of these claims relate to disposition of waste occurring prior to the Company's acquisition of the Sybron Chemical Group. In connection with that acquisition, the Company agreed to assume all liabilities relating to environmental matters arising as a result of the prior conduct of the business of the Sybron Chemical Group. The Company has not identified any sites which may require remediation but which have not been cited specifically by regulatory authorities for noncompliance with environmental rules and regulations. There are also pending against the Company several claims and lawsuits arising in the normal course of business. Such -15- claims and lawsuits include allegations of patent infringement, injuries from the inhalation of hazardous chemicals and breach of contract. The Company believes it has adequate insurance to cover any such claims subject to a self-insurance retention of $1,000,000. Similarly, the Company has outstanding several claims and lawsuits arising in the normal course of business against various other parties. The Company believes that the legal proceedings described above, individually or in the aggregate, will not have a material adverse effect on the financial position, cash flow or operating results of the Company. ITEM 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters. Since its inception the Company has not paid any dividends on its Common Stock (the "Common Stock"). Under the terms of its existing bank debt agreement, the Company is required to comply with certain debt covenants which require certain levels of cash flow and equity to be maintained. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Annual Report and Note 6 to the Consolidated Financial Statements also contained herein. The payment of any future dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other factors, the Company's earnings, financial condition, cash flow and the covenants contained in the bank agreement. The Company has no present intention to pay cash dividends on its Common Stock. Based upon record ownership as of February 28, 1997, the approximate number of record holders of the Common Stock is 800. A significant number of shares of the Common Stock is held in street name by various institutions for the benefit of their clients. The Common Stock began trading on The American Stock Exchange ("AMEX") under the symbol "SYC" on October 10, 1996. Prior to October 10, 1996, the Common Stock traded on The Nasdaq National Market under the symbol "SYCM". The following table sets forth the high and low sale prices of the Common Stock as reported by the Nasdaq National Market and the AMEX for each of the quarters indicated. -16- 1995 High Low ---- ---- --- First Quarter................... $15 1/2 $11 Second Quarter.................. 15 1/4 11 1/2 Third Quarter................... 16 1/2 13 1/8 Fourth Quarter.................. 15 7/8 10 1996 High Low ---- ---- --- First Quarter................... $13 1/2 $10 1/4 Second Quarter.................. 14 1/2 12 1/2 Third Quarter................... 15 3/4 13 1/2 Fourth Quarter.................. 16 5/8 14 3/4 ITEM 6. Selected Financial Data The following selected financial data has been derived from the Company's annual financial statements and should be read in conjunction with the consolidated balance sheet at December 31, 1996 and 1995 and the related consolidated statements of operations and of cash flows for the three years ended December 31, 1996 and notes thereto. See Item 8, Financial Statements and Supplementary Data, contained in this Annual Report.
Year Ended December 31, ----------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands, except share and per share amounts) Statement of Operations: Net sales $174,346 $167,807 $145,726 $135,972 $141,593 Operating income 17,622 14,977 15,756 15,281 17,694 Income before extraordinary items and cumulative effect of accounting changes 8,514 6,329 7,638 7,453 7,664 Extraordinary items (1) -- -- -- (2,197) (1,099) Cumulative effect of accounting changes (2) -- -- -- (9,316) -- Net income (loss) 8,514 6,329 7,638 (4,060) 6,565 Income per share before extraordinary items and cumulative effect of accounting changes 1.51 1.12 1.35 1.32 1.41 Extraordinary items (1) -- -- -- (.39) (.20) Cumulative effect of accounting changes (2) -- -- -- (1.65) -- Net income (loss) per common share 1.51 1.12 1.35 (.72) 1.21 Weighted average common shares outstanding 5,650,560 5,650,560 5,653,035 5,650,560 5,440,219
-17-
Year Ended December 31, ----------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands) Balance Sheet Data: Cash and cash equivalents $ 14,909 $ 11,284 $ 6,975 $ 9,719 $ 7,300 Working capital 38,667 38,495 35,507 29,535 32,290 Total assets 117,064 111,329 93,934 91,805 85,049 Long-term debt 17,787 22,532 20,366 20,777 21,075 - -------------------------------- (1) The extraordinary items represent the loss, net of taxes and other expenses, on the extinguishment of certain long-term debt prior to scheduled maturity. (2) The Company adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, and Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, on January 1, 1993.
-18- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth certain information about the Company's two business segments.
Year Ended December 31, ----------------------- 1996 1995* 1994* ---------------- ---------------- ---------------- % of % of % of Amount Sales Amount Sales Amount Sales (dollar amounts in thousands) Sales: Environmental Products and Services $ 54,045 31.0% $54,969 32.8% $50,898 34.9% Textile Chemical Specialties 120,301 69.0 112,838 67.2 94,828 65.1 ------- ---- ------ ---- Total $174,346 100.0% $167,807 100.0% $145,726 100.0% ======== ====== ======== ====== ======== ====== Cost of Sales: Environmental Products and Services $38,405 71.1% $40,152 73.0% $35,858 70.5% Textile Chemical Specialties 71,785 59.7 70,393 62.4 56,733 59.8 ------ ---- ------ ---- ------ ---- Total $110,190 63.2% $110,545 65.9% $92,591 63.5% ======== ===== ======== ===== ======= ===== Gross Margin: Environmental Products and Services $15,640 28.9% $14,817 27.0% $15,040 29.5% Textile Chemical Specialties 48,516 40.3 42,445 37.6 38,095 40.2 ------ ---- ------ ---- ------ ---- Total $64,156 36.8% $57,262 34.1% $53,135 36.5% ======= ===== ======= ===== ======= ===== Operating Expense: Environmental Products and Services $11,498 21.3% $10,787 19.6% $10,339 20.3% Textile Chemical Specialties 35,036 29.1 31,498 27.9 27,040 28.5 ------ ---- ------ ---- ------ ---- Total $46,534 26.7% $42,285 25.2% $37,379 25.6% ======= ===== ======= ===== ======= ===== Operating Income: Environmental Products and Services $4,142 7.7% $4,030 7.3% $4,701 9.2% Textile Chemical Specialties 13,480 11.2 10,947 9.7 11,055 11.7 ------ ---- ------ ---- ------- ---- Total $17,622 10.1% $14,977 8.9% $15,756 10.8% ======= ===== ======= ===== ======= ===== *Restated to conform to 1996 presentation
-19- 1996 Compared to 1995 Operations Total sales increased 3.9% in 1996 as compared to the prior year on the strength of a 6.6% improvement in the Textile Chemical Specialties segment. Sales in the Environmental Products and Services segment declined by 1.7% compared to last year. In the Textile Chemical Specialties segment, sales in the North America, Asia and Europe divisions improved over the prior year. North America and Asia division sales improved by 2.6% over 1995. A substantial increase in textile chemical volume in Mexico, smaller increases in Canada and Taiwan, new product sales in the U.S., and the impact of the first full year of sales in Korea, more than offset the continued general weakness in the U.S. textile market, the decline in the related organic chemicals business due to reduced customer toll manufacturing requirements, and a slight drop in average U.S. selling prices. Europe division sales improved 13.6% in terms of U.S. dollars and 16.5% in terms of local currencies. Physical volume increased 11.5% primarily due to the Company's continued success in penetrating newer geographical markets as well as new product introductions. Overall selling prices in terms of Dutch guilders improved versus the prior year. Sales in the Environmental Product and Services segment were favorably impacted by improvement in two product lines. Biochemical sales improved due to increased volume in products for the institutional, consumer and bioremediation markets, combined with a slight selling price increase. Specialty polymers sales improved due to an 8.1% increase in average selling prices and the impact of the mid-year purchase of the specialty polymers business of the Chemical Images Co. More than offsetting these improvements was a substantial decline in membrane sales which resulted from significantly lower export volume and an 8.5% average selling price decrease. Continued weak market conditions in the U.S. and a 2.6% drop in average selling prices resulted in lower sales volume in the ion exchange product line. The overall gross margin for 1996 increased to 36.8% from last year's 34.1% as both of the Company's segments showed year-to-year improvements. In the Textile Chemicals Specialties segment, the gross margin increased to 40.3% from the prior year's 37.6%. The gross margin in North America and Asia increased almost 1 percent to 29.4% due to reduced freight expenses, production improvements and lower raw material costs. These were partially offset by a slight reduction in selling prices and higher manufacturing expenses. Selling price increases, new products selling at higher margins, lower raw -20- material costs and the continued favorable currency impact of a weaker guilder as compared with the other European currencies, all combined to increase the gross margin in Europe to 53.1% from last year's 49.6%. The gross margin in the Environmental Products and Services segment was 28.9% for the year, an improvement of almost two percent compared to the prior year. Gross margin in the ion exchange product line improved as a result of lower raw material costs, primarily styrene, and production cost controls, partially offset by lower selling prices, increased freight costs, unfavorable manufacturing variances and reduced inventory levels. Gross margin also increased significantly in the specialty polymer product line due to higher overall average selling prices, reduced raw material costs, principally styrene, and the favorable impact of higher margins gained from the June 1996 purchase of the Chemical Images specialty polymer business. Biochemical product line margins showed a small increase due to a slight decrease in raw material costs combined with a slight increase in selling prices. The membrane product line gross margin declined in 1996 as compared with 1995 due to overall average selling price decreases and unfavorable manufacturing inventory variances which were partially offset by lower raw material costs and continued cost controls. Operating expenses as a percent of sales for the year increased to 26.7% as compared to last year's 25.2%. In the Textile Chemical Specialties segment, expenses as a percentage of sales increased as a result of headcount additions in R&D and marketing in North America and increased environmental, compensation and legal costs. Similarly, marketing staff additions, higher legal and compensation costs and the slightly lower overall sales also resulted in an increase in the Environmental Products and Services segment expenses as a percent of sales. Income Taxes and Other Items The Company's provision for income taxes was computed using applicable prevailing income tax rates. The Company's effective tax rate of 40.9% for the year was essentially equal to last year's applicable rate. Other income (expense) was ($3.2) million for 1996 versus ($4.3) million in last year's comparable period. Lower interest expense related to a reduction in the amount of outstanding debt, lower amortization expense and the absence of a large non-recurring 1995 translation loss on Europe intercompany accounts resulted in over a $1 million favorable year-to-year comparison. -21- 1995 Compared to 1994 Operations Sales for 1995 improved by 15.2% compared to 1994, the result of increases in the Environmental Products and Services segment and the Textile Chemical Specialties segment of 8.0% and 19.0%, respectively. The Environmental Products and Services segment experienced sales growth in the ion exchange, specialty polymer and biochemicals product lines. Ion exchange resins sales increased 9.3% due to improved business activity in the industrial resin product line. However, as in 1994, average selling prices declined by 3.4% because of continued market competition and resin overcapacity. Market share remained flat. Sales of specialty polymers jumped 21.1% due to higher selling prices and a substantial increase in business in the toners product line. Biochemical product line sales increased 3.9% due to increases in the average selling price, initial revenues gained from a land- farming bioremediation project for a major U.S. oil company, and improved industrial, municipal and foreign sales volumes. Reverse osmosis membrane product line sales remained relatively flat year-to-year. Sales in the Textile Chemical Specialties segment increased substantially in both the America and Europe divisions. The America textile chemical business increased 25.9% due to the acquisition of the Auralux Corporation in January 1995, the full year effect of the July 1994 acquisition of the CNC International textile chemical business, and improved sales of liquid-for- solid, preparation, garment finishing and carpet products. Overall quantities sold increased 26.7%. However, average selling prices declined by 2.9% due to product mix and competitive pricing to maintain existing business. The Europe division's textile chemical sales increased 13.4% in U.S. dollars and 6.4% in terms of local currencies. Physical volume increased 5.9% due to greater market penetration, primarily in Belgium, France, Germany and Turkey. Average selling prices in terms of Dutch guilders and excluding year-to-year currency fluctuations increased slightly. U.S. organic chemical product line sales improved 5.1% due to increased average selling prices combined with additional custom distillation and flaking business. Gross margin for 1995 equaled 34.1% versus 36.5% in 1994 as both segments showed year-to-year declines. The Environmental Products and Services segment gross margin was 28.2% as compared with 29.5% in 1994. Margins in the ion exchange and specialty polymers product lines dropped due to substantial increases in the cost of several major raw materials, particularly styrene, and overall selling price decreases, partially offset by favorable manufacturing variances and cost control measures. An -22- unfavorable product mix resulted in a drop in the Biochemical product line gross margin. Production yield improvements and lower costs for a major raw material combined to improve the reverse osmosis membrane product line margins which more than offset an average selling price decrease. The Textile Chemical Specialties segment gross margin dropped to 37.0% from 1994's level of 40.2%. The America textile chemical division gross margin fell due to an unfavorable product mix, particularly in the finishing product line, increased raw material costs and lower average selling prices. These negatives were somewhat offset by lower freight costs, better manpower utilization and productivity improvements. The Europe textile chemical division margins declined due to the weakness of the lire in Italy, the Company's largest market in Europe, and increased U.S. dollar translated costs relating to the strong guilder in the Netherlands, where manufacturing costs are incurred. Also impacting the European margin were higher raw material costs which were only partially offset by slight increases in average selling prices. The organics product line margin improved in 1995 over 1994 due to product mix and increased average selling prices which more than offset higher raw material and manufacturing costs. Operating expenses as a percentage of sales for the year improved slightly to 25.2% as compared to last year's 25.6% as both of the Company's segments continued with cost control measures while sales remained on the upswing. Operating expenses as a percent of sales in the Environmental Products and Services segment were 19.6% as compared with 20.3% in 1994. Similarly, in the Textile Chemical Specialties segment, operating expenses were 27.9% of sales versus 28.5% last year. Income Taxes and Other Items The Company's provision for income taxes was computed using applicable prevailing income tax rates. The Company's effective tax rate of 41.0% for 1995 increased over last year's rate of 39.5%. This increase was the result of the Company earning more of its income in jurisdictions with higher tax rates, such as Mexico, Canada and Japan, and certain purchase accounting adjustments related to the acquisition of the common stock of the Auralux Corporation. Other expense was $4.3 million in 1995 versus $3.1 million in 1994. The increase was primarily due to higher interest and amortization costs related to the acquisition of the Auralux Corporation in January 1995 and the full year effect of the July 1994 acquisition of the CNC International textile chemical business. -23- Environmental Matters The manufacture of the Company's products, and in some cases their storage, transportation and disposal, involve a number of environmental considerations. See Note 10 - Commitments and Contingencies, to the Company's Consolidated Financial Statements contained in this Annual Report. During 1996, 1995 and 1994 the Company incurred approximately $172,000, $389,000 and $295,000 of costs in connection with the ongoing review of possible soil and groundwater contamination at its Birmingham, New Jersey facility. Since July 1987, the Company has incurred approximately $4.6 million in costs in order to identify and remediate certain soil and groundwater contamination at various facilities which it currently or formerly occupied in the State of New Jersey. Approximately $4.2 million of these expenditures were charged against the liability established at the time the Company acquired the Sybron Chemical Group from Sybron Corporation. The remaining expenditures have been treated as land improvements. During 1996, 1995, and 1994 the Company spent approximately $26,000, $10,000 and $2,000, respectively, in measuring the extent of contamination at its Wellford, South Carolina facility. The 1996 expenditures have been treated as land improvements. The 1995 and 1994 expenditures were charged against earnings in the periods incurred. During 1996, 1995, and 1994 the Company spent approximately $66,000, $70,000 and $59,000, respectively, to identify and remediate certain soil contamination at its facility in Ede, Holland which existed at the time the Company acquired this facility from Sybron Corporation. Approximately $57,000 of the costs incurred in 1996 were treated as land improvements while the remainder were charged against amounts previously reserved. The cost of remediating contamination at the Company's existing facilities is not expected to have a material adverse effect on the Company's annual operating results, cash flow or financial condition. At December 31, 1996, the Company has accrued approximately $1,717,000 to offset future environmental assessment and remediation costs. Liquidity and Capital Resources Cash and cash equivalents were $14.9 million as of December 31, 1996 as compared to $11.3 million as of the end of the prior year, an increase of $3.6 million. Net cash flow generated by operating activities totalled $17.5 million for the period ending December 31, 1996 versus -24- $13.1 million for the same period in 1995. This improvement was due to lower inventory levels, improved net income, and higher accounts payable and accrued expenses, which were only partially offset by increases in accounts receivable, other current assets and deferred taxes. Net cash used by investing activities totalled $7.5 million for 1996 as compared with $14.1 million in 1995. The reduction was primarily due to the January 1995 purchase of the stock of the Auralux Corporation. Capital expenditures increased in 1996 due to the relocation and construction of a new textile chemical manufacturing facility in Mexico. Net cash used by financing activities for 1996 was $5.1 million. The Company made a scheduled principal repayment of $2.4 million on its long-term debt and repaid a portion of outstanding borrowings under its revolving credit facility. As of the end of 1996, the Company had a $25 million multi-currency unsecured revolving credit facility with Bank of Boston. The amount owed under this credit facility at December 31, 1996 was approximately $5.6 million. On February 18, 1997, the Company entered into a new $40 million multi-currency unsecured revolving credit facility with CoreStates Bank which expires in February 2002. This new credit facility replaced the Bank of Boston credit facility which was in place at year end. The new CoreStates bank facility provides the Company with an increased line of credit and improved credit terms and conditions versus the prior credit facility. The Company had entered into a series of interest rate swap agreements which effectively converted a significant portion of its long term debt from a fixed rate of 8.17% to a variable rate based upon the 90 day Libor rate. The last swap agreement expired in February 1996. The Company's effective interest rate on all borrowings for 1996 was 7.74%. During 1997, the Company believes its capital expenditures for existing operations, which are projected to be comparable to 1996, can be funded from operating cash flow. The Company further believes that between its anticipated operating cash flow and present credit facilities, it will be able to meet both short-term and long-term financial obligations in the foreseeable future. Foreign Exchange The Company has subsidiaries in Europe, Asia, Africa and the Americas and, for all subsidiaries, the Company has determined the functional currencies are the subsidiaries' local currency. The Company has a large manufacturing facility in Ede, Holland -25- where chemicals are manufactured and sold either directly to customers or to various subsidiaries which are principally in Europe. Intercompany balances arise between the Dutch operation and various subsidiaries. The Company recognized an exchange gain of $165,000 in the Europe division in 1996 due to the strength of certain European currencies such as the Italian lira and British pound against the Dutch guilder as compared with an exchange loss of $344,000 during the similar 1995 period. Inflation and Trends United States - Average selling prices in the U.S. decreased by approximately 1% during 1996 due to competitive market factors. Overall raw material costs were down 4.4% as the result of price decreases in several major raw materials. The cost of styrene, one of the major raw materials in the Environmental Product and Services segment, decreased 35.7% in 1996 versus the prior year. Europe - Average selling prices in the Europe division's textile chemical product line improved 4.8% in terms of Dutch guilders due to a major favorable change in product mix, while overall raw material costs decreased approximately 3%. Sales growth is anticipated in the Environmental Products and Services segment during 1997 aided by continued penetration in the ion exchange export market and increases in biochemical sales for industrial and consumer applications as well as increased sales of specialty resins for use in reprographic and laser printer toners. During 1997, continued increases in sales are expected in the Textile Chemical Specialties segment due to additional market penetration in Europe, the Middle East, the Far East, Latin America and Mexico. The Company recognizes that future growth in the U.S. textile chemical market is dependent on introducing new products into the marketplace that cannot be easily duplicated and streamlining their development. The Company expects to continue the introduction of several new textile chemical products into the U.S. market during 1997 which are expected to improve operating margins. Furthermore, in an effort to increase profitability, several low margin textile chemical products have been discontinued in the U.S. ITEM 8. Financial Statements and Supplementary Data The consolidated financial statements and supplementary data are set forth in this Annual Report starting on page F-1. -26- ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NONE PART III ITEM 10. Directors and Executive Officers of the Registrant The executive officers and directors of the Company, their ages and their positions are set forth below: Name Age Position - ---- --- -------- Richard M. Klein......... 59 President, Chief Executive Officer and Director Stephen R. Adler......... 47 Vice President, Human Resources Joe J. Belcher........... 55 Vice President-Textile Chemicals, North America Peter de Bruijn.......... 48 Managing Director,Europe Division Albert L. Eilender....... 54 Vice President, Corporate Development Lawrence R. Hoffman...... 42 Corporate Secretary, Acting Chief Financial Officer John McPeak.............. 42 Vice President, Biochemicals John H. Schroeder........ 46 Executive Vice President Environmental Products and Services and Director David I. Barton.......... 58 Director Paul C. Schorr IV........ 29 Director Heinn F. Tomfohrde, III.. 63 Director Dr. Klein has been a director of the Company and its President and Chief Executive Officer since its inception in 1987. Since 1969 and until July 1987, Dr. Klein served in various managerial positions with the Sybron Chemical Group, becoming its senior executive officer in 1978. He holds a Ph.D. in Chemistry from the University of Illinois. Dr. Klein currently serves as a director of the Nash Engineering Company. His term as a director will expire in 1998. Mr. Adler has been the Vice President, Human Resources for the Company and the Sybron Chemical Group since 1984. Mr. Belcher has served in various managerial positions within the Company since 1984. In April 1995, he was promoted to Vice President-Textile Chemicals, North America with responsibility for the Company's textile chemical business in North America. From July 1987 through March 1995, he was General Sales Manager-Textile Chemicals. -27- Mr. de Bruijn has served in various managerial positions within the Company and the Sybron Chemical Group since January 1972. In January 1995, he was promoted to Managing Director Europe Division with managerial responsibility for the Company's textile chemical business in Europe. Mr. Eilender joined the Company in May 1995 as Vice President, Corporate Development. Prior to joining the Company, he spent twenty-eight years at Cambrex Corporation and its predecessor company in various managerial positions. Mr. Hoffman joined the Company in 1988 and has served as the Acting Chief Financial Officer since March 1996. Positions and duties currently held include Director of Taxation and Financial Reporting, Treasurer and Corporate Secretary. Mr. McPeak has served in various managerial positions within the Company since 1988. Since September 1995 he has had managerial responsibility for the Company's biochemical business. From August 1993 to August 1995, he was the Operations Manager for the Biochemical Division. Mr. Schroeder has served in various managerial positions within the Company since 1983 and became a director of the Company in 1992. He was promoted to Executive Vice President Environmental Products and Services in March 1996 with responsibility for all business activities for the Company's Environmental Products and Services segment. His term as a director will expire in 1999. Mr. Barton has been a director of the Company since July 1996 and served as Chairman, President and Chief Executive Officer of OSi Specialties, Inc. from March 1993 until October 1995. During the previous five years, Mr. Barton was Senior Vice President and General Manager of the Specialty Derivatives business at International Specialty Products, Inc. Mr. Barton currently serves as a director of the University of Connecticut Charitable Foundation. He is a nominee for director at the 1997 Annual Meeting of Stockholders. Mr. Schorr has been a director of the Company since February 1997 and has been a Vice President of Citicorp Venture Capital Ltd. since 1996. Prior to joining Citicorp in 1996, Mr. Schorr was a consultant with McKinsey & Company, Inc. Mr. Schorr currently serves as a director of Inland Resources and Fairchild Semiconductor. His term as a director will expire in 1998. Mr. Tomfohrde has been a director of the Company since June 1992 and served as President, Chief Operating Officer and Director of International Specialty Products Inc. and its predecessor company, GAF Chemicals Corporation, from 1987 to 1991. Since 1991, Mr. Tomfohrde has been an independent business -28- consultant and currently serves as a director of Harris Chemical Group, Inc. and McWhorter Technologies Inc. He is a nominee for director at the 1997 Annual Meeting of Stockholders. ITEM 11. Executive Compensation The information called for by Item 11 of Form 10-K is incorporated herein by reference to such information included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 30, 1997. ITEM 12. Security Ownership of Certain Beneficial Owners and Management The information called for by Item 12 of Form 10-K is incorporated herein by reference to such information included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 30, 1997. ITEM 13. Certain Relationships and Related Transactions The information called for by Item 13 of Form 10-K is incorporated herein by reference to such information included in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 30, 1997. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Documents filed as part of this Report. 1. The consolidated financial statements of Sybron Chemicals Inc. and its subsidiaries are filed under Item 8. 2. Financial Statement Schedules. The following financial statement schedules should be read in conjunction with the consolidated financial statements set forth in Item 8. Page Schedule VIII - Valuation and Qualifying Accounts... S-1 Schedules other than that listed above are omitted because they are not applicable or because the required information is given in the consolidated financial statements and notes thereto. -29- 3. Exhibits and Exhibit Index Exhibit No. Description ----------- ----------- 3.1 Form of Restated Certificate of Incorporation of Sybron Chemicals Inc. (1) 3.2 Bylaws of Sybron Chemicals Inc. (1) 3.3 Certificate of Ownership and Merger Merging Sybron Chemicals, Inc. into Sybron Chemical Industries Inc. (2) 3.4 Agreement and Plan of Merger dated January 28, 1993 between Sybron Chemicals Inc. and Sybron Chemical Industries Inc. (2) 10.4* Savings & Thrift Plan, as amended (1) 10.5* 1992 Stock Option Plan (1) 10.6* Share Participation Plan (1) 10.7 Loan Agreement between Sybron Chemicals Inc. and CoreStates Bank, N.A. dated February 18, 1997. (4) 10.8 Note Agreement dated as of August 1, 1992, $17,000,000 8.17% Senior Notes due August 14, 2002 by and among Sybron Chemicals Inc. and The Prudential Insurance Company. (2) 10.8-A First Amendment to Note Agreement dated as of August 1, 1992, by and among Sybron Chemicals Inc. and The Prudential Insurance Company. (2) 10.8-B Amendment and Assumption Agreement No. 2 to Note Agreement dated as of August 1, 1992 by and among Sybron Chemicals Inc. and The Prudential Insurance Company. (2) 10.10* Executive Bonus Plan (2) 10.11* Employment Agreement, dated April 19, 1996, with Albert L. Eilender. (4) 21 Subsidiaries of the Registrant (4) 24 Powers of attorney of directors of the Registrant. (4) - -------------------- (1) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-1 (File No. 33-46091) and incorporated herein by reference. (2) Previously filed as an Exhibit to the Registrant's 1992 Form 10-K and incorporated herein by reference. (3) Previously filed as an Exhibit to the Registrant's 1994 Form 10-K and incorporated herein by reference. (4) Filed herewith. * Denotes management contract required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (b) Reports on Form 8-K - No reports on Form 8-K have been filed by the Company during its year ended December 31, 1996. -30- SIGNATURES AND POWER OF ATTORNEY Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto authorized, on March 27, 1997. SYBRON CHEMICALS INC. By /s/ RICHARD M. KLEIN ------------------------ RICHARD M. KLEIN Chairman of the Board, President, and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 27, 1997 by the following persons on behalf of the Registrant and in the capacities indicated. Signature Title --------- ----- /s/ RICHARD M. KLEIN Chairman of the Board, --------------------- RICHARD M. KLEIN President, and Chief Executive Officer /s/ LAWRENCE R. HOFFMAN Corporate Secretary, ------------------------ LAWRENCE R. HOFFMAN Acting Chief Financial Officer /s/ * Director ------------------------ DAVID I. BARTON /s/ * Director ------------------------ PAUL C. SCHORR, IV /s/ * Director ------------------------ JOHN H. SCHROEDER /s/ * Director ---------------------------- HEINN F. TOMFOHRDE, III * By: /s/ RICHARD M. KLEIN - -------------------------- RICHARD M. KLEIN, Attorney-in-fact -31- Index to Consolidated Financial Statements Sybron Chemicals Inc. Page Report of Independent Accountants......................... F-2 Consolidated Balance Sheet as of December 31, 1996 and 1995................................................ F-3 Consolidated Statement of Operations for the years ended December 31, 1996, 1995 and 1994.................. F-4 Consolidated Statement of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994............ F-5 Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994.................. F-6 Notes to Consolidated Financial Statements................ F-7 F-1 Report of Independent Accountants To the Board of Directors and Stockholders of Sybron Chemicals Inc. In our opinion, the accompanying consolidated balance sheet and related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Sybron Chemicals Inc. and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; 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. /s/ Price Waterhouse LLP - ------------------------ PRICE WATERHOUSE LLP Philadelphia, Pennsylvania 19103 February 25, 1997 F-2 SYBRON CHEMICALS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in thousands except share and per share data) ASSETS December 31, ------------ 1996 1995 ---- ---- Current assets: Cash and cash equivalents $ 14,909 $ 11,284 Accounts receivable, net 32,863 30,685 Inventories, net 22,125 24,504 Prepaid and other current assets 2,522 1,293 Deferred income taxes 43 68 -------- -------- Total current assets 72,462 67,834 Property, plant and equipment, net 31,533 31,149 Intangible assets, net 12,383 11,804 Other assets 686 542 -------- -------- $117,064 $111,329 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 778 $ 1,169 Accounts payable 16,603 15,364 Accrued liabilities 13,184 9,067 Current portion of long-term debt 2,433 2,444 Income taxes payable 609 974 Deferred income taxes 188 321 -------- -------- Total current liabilities 33,795 29,339 Long-term debt 17,787 22,532 Deferred income taxes 2,926 3,450 Postretirement benefits 3,999 3,938 Other 2,469 2,117 -------- -------- Total liabilities 60,976 61,376 -------- -------- Commitments and contingencies (See Note 10) Stockholders' equity: Preferred stock, $.01 par value, 500,000 shares authorized; none issued Common stock - $.01 par value, 20,000,000 shares authorized; issued 5,905,000 shares 59 59 Additional paid-in capital 23,530 23,530 Retained earnings 41,349 32,835 Cumulative translation adjustment (3,509) (1,382) -------- -------- 61,429 55,042 Less treasury stock, at cost - 254,440 shares of common stock (5,089) (5,089) Less minimum pension liability, net of tax (252) -------- -------- Total stockholders' equity 56,088 49,953 -------- -------- $117,064 $111,329 ======== ======== The accompanying notes are an integral part of the financial statements. F-3 SYBRON CHEMICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (in thousands except per share data) Year ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- Net sales $174,346 $167,807 $145,726 -------- -------- -------- Cost of sales 110,190 110,545 92,591 Selling 31,257 28,597 25,793 General and administrative 11,123 9,765 8,366 Research and development 4,154 3,923 3,220 -------- -------- -------- 156,724 152,830 129,970 -------- -------- -------- Operating income 17,622 14,977 15,756 -------- -------- -------- Other income (expense): Interest income 400 438 269 Interest expense (1,969) (2,471) (1,643) Amortization of intangible assets (1,316) (1,496) (1,091) Other, net (343) (725) (662) --------- --------- --------- (3,228) (4,254) (3,127) --------- --------- --------- Income before income taxes 14,394 10,723 12,629 Provision for income taxes 5,880 4,394 4,991 -------- --------- -------- Net income $ 8,514 $ 6,329 $ 7,638 ========= ========= ======== Net income per common share $ 1.51 $ 1.12 $ 1.35 ========= ========= ======== The accompanying notes are an integral part of the financial statements. F-4 SYBRON CHEMICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 1994, 1995 and 1996 (amounts in thousands)
Additional Cumulative Minimum Total Common stock paid-in translation Retained Treasury stock Pension Stockholders' ------------- -------------- Shares Amount capital adjustment earnings Shares Amount Liability Equity ------ -------- ---------- ----------- -------- ------ ------ --------- ------- Balances at December 31, 1993 5,905 $ 59 $ 23,530 $(3,547) $18,868 254 $(5,089) $ 33,821 Net income 7,638 7,638 Translation adjustment 1,241 1,241 ----- ----- -------- -------- ------- --- -------- -------- Balances at December 31, 1994 5,905 59 23,530 (2,306) 26,506 254 (5,089) 42,700 Net income 6,329 6,329 Translation adjustment 924 924 ----- ----- -------- -------- ------- --- -------- -------- Balances at December 31, 1995 5,905 59 23,530 (1,382) 32,835 254 (5,089) 49,953 Net income 8,514 8,514 Translation adjustment (2,127) (2,127) Minimum pension liability adjustment $(252) (252) ----- ----- -------- -------- -------- --- -------- ------ -------- Balances at December 31, 1996 5,905 $ 59 $ 23,530 $ (3,509) $ 41,349 254 $(5,089) $(252) $ 56,088 ===== ===== ======== ======== ======== === ======== ====== ========
The accompanying notes are an integral part of the financial statements. F-5 SYBRON CHEMICALS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Year ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income $ 8,514 $ 6,329 $ 7,638 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,465 6,712 5,513 Provision for losses on accounts receivable 392 831 485 Provision (benefit) for deferred taxes (597) 485 1,633 Change in assets and liabilities: Accounts receivable (3,009) (1,847) (2,094) Inventory 1,829 (2,248) (517) Other current assets (1,217) 279 (23) Accounts payable and accrued expenses 5,969 2,546 (2,731) Income taxes payable (332) 458 (69) Other assets and liabilities, net (519) (401) (153) -------- -------- -------- Net cash provided by operating activities 17,495 13,144 9,682 -------- -------- ------- Cash flows from investing activities: Capital expenditures (6,326) (5,731) (5,536) Purchase of business assets (1,275) (8,299) (3,061) Other, net 52 (27) 181 -------- -------- ------- Net cash used by investing activities (7,549) (14,057) (8,416) -------- -------- -------- Cash flows from financing activities: Repayment of debt (2,429) (5,388) Net (repayments) borrowings under revolving credit facilities (2,668) 4,790 1,177 -------- -------- ------- Net cash (used) provided by financing activities (5,097) 4,790 (4,211) -------- -------- -------- Effect of exchange rate changes on cash (1,224) 432 201 -------- -------- ------- Net increase (decrease) in cash and cash equivalents 3,625 4,309 (2,744) Cash and cash equivalents at beginning of year 11,284 6,975 9,719 -------- -------- ------- Cash and cash equivalents at end of year $14,909 $11,284 $ 6,975 ======== ======== ======= The accompanying notes are an integral part of the financial statements. F-6 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands except share and per share data) NOTE 1 - THE COMPANY: - --------------------- The Company is an international "specialty" chemical company which serves two main markets: environmental products and services (primarily related to water and waste treatment) and textile chemical specialties products. As used herein, unless otherwise indicated, the "Company" refers to Sybron Chemicals Inc. and its subsidiaries. NOTE 2 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES: - ------------------------------------------------------- Basis of Presentation: - ---------------------- The financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and activity have been eliminated. Accounting Policies: - -------------------- 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 and disclosure of contingent 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. Cash and Cash Equivalents - --------------------------- Cash and cash equivalents include funds invested in liquid short-term investments with a maturity of three months or less. For such investments the carrying amount approximates fair value. At December 31, 1996 and 1995 these investments amounted to $11,915 and $9,027, respectively. Inventories - ------------- Inventories are stated at the lower of cost or market. For U.S. operations, cost is determined using the last-in, first-out (LIFO) method. For foreign operations, cost is determined using the first-in, first-out (FIFO) method. F-7 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 2 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES - ------------------------------------------------------ (Continued): Property, Plant and Equipment - ------------------------------- Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of depreciable assets (generally 10-40 years for buildings and 3-20 years for machinery and equipment) using the straight-line method. Intangible and Other Assets - ------------------------------ Intangible assets (net of accumulated amortization - 1996, $6,705; 1995, $5,389) include the unamortized fair values of trademarks, license agreements, patents, non-compete agreements and goodwill. Intangible assets are amortized on a straight-line basis over estimated useful lives of 5 to 20 years. The Company continually evaluates the reasonableness of its amortization for intangibles. In addition, if it becomes probable that expected future undiscounted cash flows associated with intangible assets are less than their carrying value, the assets will be written down to their fair value. Costs associated with the issuance of long- term debt are amortized on a straight-line basis over the term of the debt. Impairment of Long-Lived Assets - --------------------------------- The FASB recently issued SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which the Company adopted effective January 1, 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles held and used by a company be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The effect of adopting SFAS No. 121 was not material. Environmental Liabilities and Expenditures - -------------------------------------------- Accrued liabilities and other liabilities include accruals for environmental matters which are established and reflected as operating expenses when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accrued liabilities are exclusive of claims against third parties and are not discounted. F-8 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 2 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES - ------------------------------------------------------ (Continued): Environmental Liabilities and Expenditures (Continued) ------------------------------------------ In general, costs related to environmental remediation are charged to expense. Environmental remediation costs are capitalized if the costs increase the value of the property as compared to the state of the property when acquired, or mitigate or prevent contamination from future operations. Revenue Recognition and Related Disclosures - --------------------------------------------- The Company recognizes revenue upon shipment of products. Receivables resulting from these sales approximate fair value. The Company monitors the credit worthiness of its customers. Concentrations of credit risk associated with these trade receivables are considered minimal due to the Company's diverse customer base. The allowance for doubtful accounts at December 31, 1996 and 1995 was $1,820 and $2,048, respectively. Interest Expense - ------------------ Interest expense incurred during the construction of facilities and equipment is capitalized as part of the cost of those assets. Total interest paid by the Company was $2,054 in 1996, $2,416 in 1995 and $2,088 in 1994. Interest capitalized was $32 in 1996, $133 in 1995 and $103 in 1994. Retirement Benefits - --------------------- Pension expense for the Company's domestic and significant international defined benefit pension plans is determined in accordance with Statement of Financial Accounting Standards No. 87 (FAS 87), "Employers' Accounting for Pensions". See Note 8 for further description. In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for a portion of its retired employees which are funded as costs are incurred. Stock-Based Compensation - -------------------------- Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to F-9 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 2 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES - ------------------------------------------------------ (Continued): Stock-Based Compensation (Continued) ------------------------------------ continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. Income Taxes - -------------- The Company accounts for certain income and expense items differently for financial reporting and income tax purposes. Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Foreign Currency Translation - ------------------------------ The financial statements and transactions of the Company's foreign subsidiaries are maintained in their local currencies which are considered to be their functional currencies and are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52. Assets and liabilities of foreign subsidiaries are translated into U.S. dollars using current exchange rates and the resulting translation adjustments are recorded to the cumulative translation adjustment component of stockholders' equity. Revenues and expenses of foreign subsidiaries are translated at weighted average rates of exchange for the respective periods. Foreign exchange gains (losses) for 1996, 1995 and 1994 were approximately $131, ($390) and ($212), respectively. Earnings Per Common Share - --------------------------- Earnings per common share data is based on the weighted average number of common and common equivalent shares outstanding during the year applied to net income. The weighted average number of shares outstanding for 1996, 1995 and 1994 was approximately 5,650,560, 5,650,560 and 5,653,035, respectively. F-10 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 3 - INVENTORIES: - --------------------- The components of inventories are: December 31, ------------ 1996 1995 ---- ---- Finished goods $16,247 $17,341 Work-in-process 109 194 Raw materials 6,642 7,445 ------- ------- 22,998 24,980 Less reserves 873 476 ------- ------- $22,125 $24,504 ======= ======= LIFO inventories comprise 61% and 58% of total inventories at December 31, 1996 and 1995, respectively. If the FIFO method of accounting for inventories had been used by the Company, inventories would have been greater than reported by $761 and $1,402 at December 31, 1996 and 1995, respectively. NOTE 4 - PROPERTY, PLANT AND EQUIPMENT: - --------------------------------------- The components of property, plant and equipment are: December 31, ------------ 1996 1995 ---- ---- Land $ 2,961 $ 2,803 Buildings 16,718 15,116 Machinery and equipment 44,816 38,842 Construction in progress 3,521 2,642 ------- ------- 68,016 59,403 Accumulated depreciation (36,483) (28,254) ------- ------- $31,533 $31,149 ======= ======= Depreciation expense for the years ended December 31, 1996, 1995 and 1994 was $5,149, $5,072 and $4,280, respectively. Maintenance and repairs expense for the same periods amounted to $2,156, $1,963 and $1,875, respectively. F-11 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 5 - ACCRUED LIABILITIES: - ----------------------------- The components of accrued liabilities are: December 31, ------------ 1996 1995 ---- ---- Accrued compensation $ 2,639 $ 1,768 Accrued selling and marketing expenses 2,545 1,892 Accrued fringe benefits 827 431 Accrued vacation and holiday pay 1,315 1,270 Accrued property and payroll taxes 793 472 Accrued professional fees 715 597 Accrued environmental liabilities 1,717 1,016 Other accrued liabilities 2,633 1,621 ------- ------- $13,184 $ 9,067 ======= ======= NOTE 6 - LONG-TERM DEBT: - ------------------------ The components of long-term debt are: December 31, ------------ 1996 1995 ---- ---- Notes payable bearing interest at 8.17% $12,143 $14,571 Revolving credit facility bearing interest at the bank's prime rate or 1% over the LIBOR rate 5,644 7,961 ------- ------- $17,787 $22,532 ======= ======= Notes Payable: - -------------- The unsecured notes payable bear interest at 8.17% and mature in August 2002. Interest is payable quarterly. The notes require payments of $2,429 in August of the years 1997 to 2002, inclusive, together with accrued interest to the payment dates. Optional prepayments may be made by the Company. Revolving Credit Agreements: - ---------------------------- The Company entered into a new Revolving Credit Agreement (the "New Facility") on February 18, 1997 which permits the Company and its wholly owned foreign subsidiaries to borrow in Eurodollars or in several foreign currencies, including the Italian lira, Dutch guilder or British pound. The borrowings under the New Facility F-12 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 6 - LONG-TERM DEBT (Continued): - ------------------------------------ Revolving Credit Agreements (Continued): - --------------------------- shall not exceed the U.S. dollar equivalent of $40,000 and the facility expires on February 18, 2002. The Company has the option on U.S. dollar borrowings under the New Facility to incur interest at the bank's prime rate, less up to 150 basis points, or the London Interbank Offered Rate ("LIBOR"), plus up to 125 basis points. The basis point adjustments depend upon the Company's cash flow ratio. All borrowings under this facility will be unsecured. The existing Revolving Credit Agreement (the "Existing Facility"), which expires on July 31, 1997, will be replaced by the New Facility as borrowings under this facility come due for repayment. At December 31, 1996 there were $5,644 of outstanding borrowings under the Existing Facility at an interest rate of 6.58%. These borrowings will be refinanced under the New Facility after which the Existing Facility will be cancelled. The Company has the ability and intent to borrow under the New Facility on a long-term basis and accordingly has classified outstanding borrowings at December 31, 1996 as long-term debt. Annual Repayments: - ------------------ The aggregate annual repayments of long-term debt outstanding at December 31, 1996 are as follows: 1998 $ 2,429 1999 2,429 2000 2,429 2001 2,429 2002 8,071 ------- $17,787 ======= Debt Covenants: - --------------- At December 31, 1996, certain of the debt agreements contain conditions and restrictions, such as financial tests relating to interest coverage and cash flow ratios, required amount of net worth, limitations on additional borrowings, limitations on capital expenditures and restrictions relating to asset sales and repayments of existing debt. The Company believes it is in compliance with these covenants and restrictions. F-13 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 6 - LONG-TERM DEBT (Continued): - ------------------------------------ Interest Rate Swap Agreements: - ------------------------------ In February 1994, the Company entered into a 2 year interest rate swap agreement ("Swap") having a total notional principal of $17,000 with a major financial institution. This Swap effectively converted a significant portion of the Company's long-term debt from a fixed to a variable rate based on the 90 day LIBOR rate. On specific 90 day intervals, the 90 day LIBOR rate was compared against the Swap rate (5.03%), and to the extent that the LIBOR rate was higher or lower than the Swap rate, payments were made or received by the Company. At times, the Company entered into interest rate forward agreements (the "Forward") with major financial institutions which effectively converted the Swap's variable interest rate to a fixed rate for respective 90 day intervals. As a result of the Swap and Forward, the Company's effective interest rates during 1995 and 1994 on the related long-term debt were approximately 9.2% and 7.8%, respectively. The Swap was closed out in February 1996. NOTE 7 - INCOME TAXES: - ---------------------- Provisions for income taxes are: Year ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- Currently payable: Federal $1,490 $ 305 $ 160 State 188 120 77 Foreign 4,799 3,484 3,121 ------- ------- ------ 6,477 3,909 3,358 Deferred taxes: Federal (884) 562 1,429 State (131) 2 244 Foreign 418 (79) (40) ------- ------- ------- $5,880 $4,394 $4,991 ======= ======= ====== F-14 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 7 - INCOME TAXES (Continued): - ---------------------------------- Provisions for income taxes differ from the amount computed by applying the statutory federal rate due to the following: Year ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- Income tax computed at U.S. Federal statutory tax rates $4,894 $3,646 $4,294 State income taxes, net of federal income tax benefit 95 138 202 Foreign subsidiaries taxed at higher rates 653 599 435 Other items, net 238 11 60 ------- ------- ------ $5,880 $4,394 $4,991 ======= ======= ====== Income taxes paid were $6,846 in 1996, $2,981 in 1995 and $3,437 in 1994. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are presented below. December 31, ------------ 1996 1995 ---- ---- Deferred tax assets: Postretirement benefits $ 1,619 $ 1,659 Accrued expenses 1,324 1,143 Other 475 125 ------- ------- Total deferred tax assets 3,418 2,927 ------- ------- Deferred tax liabilities: Depreciation (3,036) (3,090) Inventory (947) (1,029) Intangibles (1,038) (1,110) Property (830) (704) Other (626) (697) -------- -------- Total deferred tax liabilities (6,477) (6,630) -------- -------- Net deferred tax liability $(3,059) $(3,703) ======== ======== F-15 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 7 - INCOME TAXES (Continued): - ---------------------------------- The components of income before income taxes are: Year ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- United States $ 1,520 $ 2,514 $ 4,950 Foreign 12,874 8,209 7,679 ------- ------- ------- $14,394 $10,723 $12,629 ======= ======= ======= Retained earnings of foreign subsidiaries totaling approximately $44,000 at December 31, 1996 are considered to be reinvested indefinitely in these businesses. Accordingly, no provision for income taxes has been made for the repatriation of these earnings. NOTE 8 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS: - ------------------------------------------------------------- Pension Benefits: - ----------------- The Company has a defined contribution pension plan (the "Plan") for U.S. salaried employees. In accordance with the Plan, the Company contributes a fixed percentage of a salaried employee's annual earnings ranging from 4.0% to 17.9%, based on the employee's age and length of service with the Company. Expenses related to this plan were $653, $615 and $530 for the years ended December 31, 1996, 1995 and 1994, respectively. The Company has defined benefit pension plans covering substantially all U.S. hourly and foreign employees. Plans covering U.S. hourly employees provide benefits based on years of service and applicable contractual agreements. Plans covering foreign employees are generally based on various formulas, the principal factors of which are years of service and compensation. The Company's funding policy is to make the minimum annual contribution required by applicable regulations. F-16 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 8 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS - ------------------------------------------------------------ (Continued): Significant assumptions used in determining net periodic pension cost of the hourly plans and related pension obligations were: Year ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- Domestic: Discount rate 7.25% 7.25% 8.5% Expected long-term rate of return 9.0% 9.0% 9.0% Rate of increase in compensation levels 4.0% 4.0% 4.0% Foreign: Discount rate 6.25% 7.25% 6.25% Expected long-term rate of return 6.25% 7.25% 6.25% Rate of increase in compensation levels 3.5% 3.5% 2.0% The components of consolidated net periodic pension cost are: Year ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- Defined benefit pension plans: Service cost $ 561 $ 425 $ 424 Interest on projected benefit obligations 725 681 545 Return on plan assets (706) (980) (573) Amortization and deferral of unrecognized items 143 460 107 ------- ------ ----- Net periodic pension cost 723 586 503 Other foreign plans, including certain social payments 331 293 293 ------- ------ ----- $1,054 $ 879 $ 796 ======= ====== ===== F-17 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 8 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS - ------------------------------------------------------------ (Continued): The following table summarizes the funded status of the Company's domestic defined benefit pension plans: December 31, ------------ 1996 1995 ---- ---- Actuarial present value of benefit obligations: Vested benefit obligation ($4,125) ($4,033) ======== ======== Accumulated benefit obligation ($4,367) ($4,262) ======== ======== Projected benefit obligation ($4,367) ($4,262) Fair value of plan assets 4,083 3,823 -------- ------- Plan assets less than projected benefit obligation (284) (439) Unrecognized net obligation arising at transition (57) (36) Unrecognized net loss 335 505 Unrecognized prior service cost 291 317 Additional minimum liability (445) -------- ------- Amount reflected as pension (liability)/asset $ (160) $ 347 ======== ======= The following table summarizes the funded status of the Company's significant foreign defined benefit pension plans: December 31, ------------ 1996 1995 ---- ---- Actuarial present value of benefit obligations: Vested benefit obligation ($4,738) ($4,272) ======== ======== Accumulated benefit obligation ($6,169) ($4,993) ======== ======== Projected benefit obligation ($7,467) ($6,019) Fair value of plan assets 6,455 5,457 -------- ------- Plan assets less than projected benefit obligation (1,012) (562) Unrecognized net obligation arising at transition 490 606 Unrecognized net loss 790 52 Additional minimum liability (36) -------- ------- Accrued pension asset $ 232 $ 96 ======== ======= Plan assets are held in trust and are composed of investments in cash equivalents, bonds and marketable securities. F-18 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 8 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS - ------------------------------------------------------------ (Continued): In accordance with the provisions of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions", the Company has recorded an additional minimum liability of $1,030 at December 31, 1996 representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued pension liability for its pension plans. The additional liability has been offset by an intangible asset of $619 which is included in Intangible Assets to the extent of previously unrecognized prior service cost. Amounts in excess of previously recognized prior service cost, net of the related deferred tax benefit, of $252 at December 31, 1996 are reflected as a reduction of stockholders' equity. Postretirement Benefits: - ------------------------ In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for a portion of its retired employees which are funded as costs are incurred. These benefits are provided through various insurance companies whose premiums are based on the claims paid during the period. In addition, current retirees contribute varying percentages of equivalent premiums toward the cost of their health care coverage. Retiree contributions are automatically indexed to keep up with health care inflation. The components of net periodic postretirement benefit cost are: Year ended December 31, ----------------------- 1996 1995 1994 ------ ------ ----- Service cost benefits attributed to service during the year $ 1 $ 2 $ 4 Interest cost on accumulated post retirement benefit obligation 177 306 324 Net amortization and deferral (102) (25) ------ ------ ----- Net periodic postretirement benefit cost $ 76 $ 283 $ 328 ===== ===== ===== The following table sets forth the postretirement plans' status as recorded in the Company's consolidated balance sheet: F-19 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 8 - PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFITS - ------------------------------------------------------------ (Continued): Postretirement Benefits (Continued): - ------------------------------------ Accumulated postretirement benefit obligation: December 31, ------------ 1996 1995 ---- ---- Retirees $(2,223) $(2,218) Fully eligible participants (262) (219) Participants not fully eligible (10) (10) -------- -------- Accumulated postretirement benefit obligation (2,495) (2,447) Unrecognized prior service cost (1,504) (1,606) Unrecognized net gain (150) (197) -------- -------- Accrued postretirement benefits $(4,149) $(4,250) ======== ======== The discount rate used in determining the net periodic benefit cost was 7.25% at December 31, 1996 and 1995. The assumed average inflation rate of medical costs over the life of the benefits ranged from 9.0% currently to 5.0% in 2004 and thereafter. An increase of one percentage point in the per capita cost of health care costs would increase the accumulated postretirement benefit obligation as of December 31, 1996 by approximately $171 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost by approximately $11. Other Employee Benefits: - ------------------------ Stock Options- -------------- Effective May 1, 1992, the Company adopted the 1992 Stock Option Plan (the "Option Plan"). The aggregate maximum number of shares of Common Stock available for awards under the Plan is 560,000. Options granted under the Option Plan may be either incentive stock options or non-qualified stock options. The exercise price of each option equals the market price of the Company's stock on the date of the grant and an options maximum term is 10 years. Options generally vest in 20% increments beginning with the first anniversary of the grant. F-20 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 8 - PENSION, POST-RETIREMENT AND OTHER EMPLOYEE BENEFITS (Continued): - -------------------------------------------------------------------------- Stock Options- (Continued) -------------------------- The Company applies APB Opinion 25 and related Interpretations in accounting for its Option Plan. Accordingly, no compensation cost has been recognized for options granted under its Option Plan. Had compensation cost for the Company's Option Plan been determined based on the fair value at the grant dates for awards under the Option Plan consistent with the method of FASB Statement 123, the Company's net income and earnings per share would have been reduced by the proforma amounts of: 1996 net income, $277, and earnings per share, $.05; 1995 net income, $32, and earnings per share, $.01. This determination of fair value was based on using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in both 1996 and 1995: dividend yield of 0%, expected volatility of 42%, risk free interest rates of 6.4%, and expected lives of 5 years. A summary of the status of the Option Plan at December 31, 1996, 1995 and 1994 and changes during the years ending on those dates is as follows:
Number Price Weighted Average of shares Per Share Exercise Price --------- --------- -------------- Options outstanding at December 31, 1993... 117,825 $25.50 $25.50 Granted.................................. 76,735 $18.75-$20.75 $18.97 Exercised................................ -- Cancelled and available for reissue...... (11,525) $25.50 $25.50 -------- Options outstanding at December 31, 1994... 183,035 $18.75-$25.50 $22.76 Granted.................................. 17,875 $15.50 $15.50 Exercised................................ -- Cancelled and available for reissue...... (42,650) $18.75-$25.50 $22.48 -------- Options outstanding at December 31, 1995... 158,260 $15.50-$25.50 $22.02 Granted.................................. 281,195 $10.75-$13.875 $12.61 Exercised................................ -- Cancelled and available for reissue...... (107,550) $10.75-$25.50 $23.54 --------- Options outstanding at December 31, 1996... 331,905 $10.75-$25.50 $13.54 ======= Options exercisable at December 31, 1996... 20,441 $15.50-$25.50 $18.66 ====== Options available for grant at December 31, 1996........................ 228,095 ======= Weighted average remaining life (years) at December 31, 1996 9
F-21 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 8 - PENSION, POST-RETIREMENT AND OTHER EMPLOYEE BENEFITS (Continued): - -------------------------------------------------------------------------- Stock Options- (Continued) -------------- The following table summarizes information about the stock options outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISEABLE - --------------------------------------------------------------------------------------- Range of Weighted Weighted Weighted Exercise Number Average Average Number Average Prices Outstanding Remaining Exercise Exercisable Exercise Prices 12/31/96 Contractual Life Price 12/31/96 Price $10.75 44,275 9 $10.75 0 -- $12.50 69,475 9 $12.50 0 -- $12.75 83,695 9 $12.75 0 -- $13.50 81,375 9 $13.50 0 -- $15.50 to $25.50 53,085 8 $18.50 20,441 $18.66 - --------------------------------------------------------------------------------------- $10.75 to $25.50 331,905 9 $13.54 20,441 $18.66
Share Participation Plan- ------------------------- The Company has a Share Participation Plan (the "Share Plan") as a means of rewarding certain employees of the Company for their effort in contributing to an increase in the value of the Company as well as to provide an incentive to continue employment in the Company. The Share Plan covers all full-time employees of the Company, with the exception of executive officers and certain other senior employees of the Company, who have completed at least one full year of service. The Share Plan entitles employees holding shares to receive a pro rata portion of a cash award pool to be established in the event the Company sells a substantial portion of its assets, undergoes a substantial change in beneficial ownership of its equity securities, merges or is consolidated into an unaffiliated third party. In the event that an employee receives payment for their shares under the Share Plan, a proportionate percentage of their stock options, if any, in the Option Plan will be subject to cancellation. At December 31, 1996 and 1995, there were approximately 2.0 million and 1.9 million shares outstanding under the Share Plan, respectively. NOTE 9 - OPERATING LEASES: - -------------------------- The Company leases certain manufacturing, warehouse and office facilities, and equipment. Future minimum lease payments required as of December 31, 1996 under operating leases that have initial non-cancelable lease terms exceeding one year are as follows: F-22 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 9 - OPERATING LEASES (Continued): - -------------------------------------- Facility Equipment Year Rentals Rentals Total ---- ------- ------- ----- 1997 $ 679 $1,621 $2,300 1998 631 1,110 1,741 1999 206 788 994 2000 59 379 438 2001 30 107 137 Thereafter -- 287 287 ------- ------- ------ $1,605 $4,292 $5,897 ======= ======= ====== Rent expense was approximately $2,810 for 1996, $2,932 for 1995 and $2,795 for 1994. NOTE 10 - COMMITMENTS AND CONTINGENCIES: - ---------------------------------------- The Company is subject to a variety of environmental and pollution control regulations in the jurisdictions in which it operates. These laws and regulations require the Company to make significant expenditures for remediation, capital improvements and operating environmental protection equipment. Future developments and changes in environmental regulations may require the Company to make additional unforeseen environmental expenditures. The Company's major competitors are confronted by substantially similar environmental risks and regulations. The Company has identified certain soil and groundwater contamination at its Birmingham, New Jersey facility. The Company has proposed a remedial action work plan (the "Work Plan") to the New Jersey Department of Environmental Protection (the "DEP") related to the clean-up of the Birmingham facility. DEP has conditionally approved the Work Plan and the Company has initiated the clean-up based on DEP's conditional approval. The remedial activities pursuant to the Work Plan are expected to be completed by the end of 1997. The Company has identified certain soil and groundwater contamination at its Wellford, South Carolina facility. The Company submitted a proposed sampling and testing program to the South Carolina Department of Health and Environmental Control (DHEC) for its review. DHEC has approved the Company's proposed action for the next phase of the investigation and remediation of potential groundwater contamination. The remedial activities related to this program are in progress at this time. The Company has completed a number of studies to identify the extent of certain soil and groundwater contamination around its F-23 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued): - ---------------------------------------------------- manufacturing facility in Ede, Holland and other facilities owned by third parties which are adjacent thereto (collectively, the "Dutch Facilities"). As a result of these studies, the Company is presently remediating certain contamination at its Ede facility. An environmental consulting firm is performing additional studies and developing a detailed plan of remediation for the Dutch Facilities. The Company anticipates that a remediation plan will be presented to local government officials for their approval by the end of 1997. In addition to sites occupied by the Company, the Company has on occasion been advised that it may be named as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state statutes with respect to the transport and disposal of hazardous wastes. At present, the Company is a party in a legal action in the United States regarding the clean-up of hazardous waste or chemicals at a site never occupied by the Company or its predecessors. In addition, the Company has received inquiry letters or notices on seven other hazardous waste sites where the Company could be a potentially responsible party. The Company has not identified any sites which may require remediation but which have not been cited specifically by regulatory authorities for non-compliance with environmental rules and regulations. Although it is difficult to quantify the potential impact of compliance with or liability under environmental protection laws, the Company believes that it has made adequate accruals for all clean-up and other related costs with respect to environmental problems of which it is aware. At December 31, 1996 and 1995, the Company has accrued approximately $1,717 and $1,016, respectively, to offset future environmental assessment and remediation costs. The charge in 1996 included $650 for potential liabilities related to the remediation of the Dutch facilities. The Company has not reduced its environmental liabilities or recorded any assets related to potential insurance recoveries. There are also pending against the Company several claims and lawsuits arising in the normal course of its business. Such claims and lawsuits include allegations of patent infringement and injuries related to the inhalation of hazardous chemicals. F-24 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued): - ---------------------------------------------------- The Company believes it has adequate insurance to cover any such claims subject to a self insurance retention of $1,000. Similarly, the Company has several outstanding claims and lawsuits arising in the normal course of business against various other parties. The Company believes that adequate provision has been made for the environmental and legal proceedings described above, and that such proceedings will not have a material adverse effect on the financial position, cash flow or operating results of the Company. NOTE 11 - ACQUISITIONS: - ----------------------- In June 1996, the Company purchased the specialty resin business of the Chemical Images Co. ("CIC"). CIC develops and markets specialty resins for use in reprographic and laser printer toners. This transaction, which was accounted for as a purchase, did not have a material effect on the Company's 1996 operating results. On January 9, 1995, the Company completed the purchase of all the outstanding stock of the Auralux Corporation ("Auralux"). Auralux, with annual revenues of approximately $10 million at the time of the acquisition, is a manufacturer of textile chemicals used in fabric finishing with product lines including fire retardants, softeners, thermosetting resins and other specialty products. In connection with this acquisition, the Company acquired a nine acre site in Yantic, Connecticut from which Auralux manufactures, distributes and warehouses its products. At December 31, 1995, Auralux was merged into the Company. In June 1994, Sybron entered into a license and asset purchase agreement with Celgene Corporation ("Celgene") whereby Sybron acquired equipment, and the right to commercially utilize Celgene's biotreatment technology. In return, Sybron paid Celgene a nominal amount for the equipment and is obligated to pay royalties to Celgene based on a percentage of net sales. As of December 31, 1996, no royalties were due Celgene. In July 1994, the Company purchased the assets of the textile chemical business of CNC International Inc. ("CNC"). The acquisition was accounted for as a purchase. The product line acquired includes water repellents, printing auxiliaries and softeners. The acquired business had annualized sales revenues of approximately $5 million at the time of the acquisition. F-25 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 11 - ACQUISITIONS (Continued): - ----------------------------------- The results of these acquisitions were included as of the date they were acquired. All acquisitions were accounted for as purchases. None of these acquisitions, whether individually or combined, were considered material for disclosure of pro forma effects. NOTE 12 - FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS: - ----------------------------------------------------- Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" ("SFAS 107"), requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Company's financial instruments. The interest rate on the Note Payable (the "Note") is fixed at 8.17% during its entire term. The fair value of the Note as of December 31, 1996 was determined by estimating the interest rate at which the Company could refinance the Note given the same maturity period. The Company assumed a rate of 8% in its calculations. The fair market value approximates the carrying value of $12,143. The interest rate on the Revolving Credit Facility is at market interest rates, therefore, its fair market value approximates its carrying value. NOTE 13 - GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION: - ------------------------------------------------------ The Company operates in the following two business segments environmental products and services and textile chemical specialty products. Sales and transfers between geographic areas are generally priced to recover cost plus an appropriate markup for profit. Operating income is revenue less related costs and direct and allocated operating expenses, excluding interest and amortization of intangible assets and other income (expense), net. No single customer accounts for more than 10% of revenue in the periods presented. F-26 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (in thousands except share and per share data) NOTE 13 - GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION (Continued): - ------------------------------------------------------------------ The following schedule presents information about the Company's operations by geographic location: Year ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- Net sales to unaffiliated customers originated from: America and Asia(1) $115,158 $115,620 $100,124 Europe 59,188 52,187 45,602 -------- -------- -------- Total net sales $174,346 $167,807 $145,726 ======== ======== ======== Intercompany sales between geographic areas originated from: America and Asia $ 2,930 $ 1,867 $ 1,207 Europe -- -- -- -------- -------- -------- Total intercompany sales $ 2,930 $ 1,867 $ 1,207 ======== ======== ======== Operating income: America and Asia $ 7,695 $ 8,458 $ 8,891 Europe 9,927 6,519 6,865 -------- -------- -------- Total operating income $ 17,622 $ 14,977 $ 15,756 ======== ======== ======== Identifiable assets: America and Asia $ 69,996 $ 68,503 $ 59,665 Europe 47,068 42,826 34,269 -------- -------- -------- Total assets $117,064 $111,329 $ 93,934 ======== ======== ======== (1) Net sales to Asian customers are immaterial. F-27 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands) NOTE 13 - GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION (Continued): - ------------------------------------------------------------------ The following schedule presents information about the Company's operations by business segment (in thousands):
Year Ended December 31, ----------------------- 1996 1995 1994 ------------------------------------ -------------------------------- ----------------------------------- Environmental Textile Environmental Textile Environmental Textile Products and Chemical Products and Chemical Products and Chemical Services Specialties Total Services Specialties Total Services Specialties Total ---------- ----------- ------- ---------- ----------- ------- ---------- ---------- ------ Sales to other segments $ 144 $ 5 $ 149 $ 119 $ 1 $ 120 $ 283 $ -- $ 283 ======= ======== ======== ======== ======== ======== ======= ======= ======== Sales to unaffiliated customers $54,045 $120,301 $174,346 $54,969 $112,838 $167,807 $50,898 $94,828 $145,726 Cost of sales 38,405 71,785 110,190 40,152 70,393 110,545 35,164 57,427 92,591 ------- --------- -------- ------- -------- -------- ------- ------- -------- Gross margin 15,640 48,516 64,156 14,817 42,445 57,262 15,734 37,401 53,135 Operating expenses 11,498 35,036 46,534 10,787 31,498 42,285 10,339 27,040 37,379 ------- --------- -------- ------- -------- -------- ------- ------- -------- Operating income $ 4,142 $ 13,480 $ 17,622 $ 4,030 $ 10,947 $ 14,977 $ 5,395 $10,361 $ 15,756 ======= ======== ======== ======= ======== ======== ======= ======= ======== Identifiable assets $31,961 $ 85,103 $117,064 $30,490 $ 80,839 $111,329 $30,354 $63,580 $ 93,934 ======= ======== ======== ======= ======== ======== ======= ======= ======== Depreciation and amortization $ 2,443 $ 4,022 $ 6,465 $ 2,865 $ 3,847 $ 6,712 $ 2,891 $ 2,622 $ 5,513 ======= ======== ======== ======= ======== ======== ======= ======= ======== Capital expenditures $ 1,180 $ 5,146 $ 6,326 $ 1,332 $ 4,399 $ 5,731 $ 1,664 $ 3,872 $ 5,536 ======= ======== ======== ======= ======== ======== ======= ======= ========
F-28 SYBRON CHEMICALS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued) (in thousands except share and per share data) NOTE 14 - QUARTERLY FINANCIAL DATA (Unaudited): - ----------------------------------------------- The following is a summary of quarterly financial results for the years ended December 31, 1996 and 1995 (amounts in thousands except per share data):
1996 1995 ----------------------------------------------- ----------------------------------------------- Three Months Ended Three Months Ended ------------------ ------------------ March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- -------- ------- ------------ ----------- Net sales $43,672 $44,603 $42,036 $44,035 $43,008 $43,931 $39,127 $41,741 Gross profit 15,714 16,913 14,675 16,854 15,109 15,224 12,628 14,301 Operating income 4,811 5,344 3,410 4,057 4,677 4,271 2,210 3,819 Net income 2,254 2,749 1,470 2,041 1,957 1,995 619 1,758 Net income per share .40 .49 .26 .36 .35 .35 .11 .31
F-29 SCHEDULE VIII SYBRON CHEMICALS INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the years ended December 31, 1996, 1995 and 1994 (In thousands) Additions --------- Balance at beginning of Charged to costs Charged to Balance at period and expenses other accounts(1) Deductions end of period ------ ------------ ----------------- ---------- ------------- Allowance for Doubtful Accounts For the year ended: December 31, 1996 $2,048 $ 295 $(46) $ (477) $1,820 December 31, 1995 1,565 831 42 (390) 2,048 December 31, 1994 1,259 485 27 (206) 1,565 Inventory Reserves For the year ended: December 31, 1996 476 2,175 (1,778) 873 December 31, 1995 384 276 (8) (176) 476 December 31, 1994 391 452 (459) 384 (1)Foreign exchange adjustments
S-1 EX-10.7 2 EXHIBIT 10.7 ================================================================= LOAN AGREEMENT Dated as of February 18, 1997 between SYBRON CHEMICALS INC. and CORESTATES BANK, N.A. ================================================================== SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION........ 1 --------------------------------------- SECTION 1.01 Definitions............................... 1 ----------- SECTION 1.02 Interpretation of Financial --------------------------- Measurements; Financial Statements........ 8 ---------------------------------- SECTION 2. THE LOAN....................................... 8 -------- SECTION 2.01 Revolving Loan............................ 8 -------------- SECTION 2.02 The Revolving Loan Note................... 9 ----------------------- SECTION 2.03 Use of Revolving Loan Proceeds............ 9 ------------------------------ SECTION 2.04 Interest Rates and Calculation of --------------------------------- Interest.................................. 9 -------- SECTION 2.05 Payments to Bank.......................... 14 ---------------- SECTION 2.06 Due Date Extenstion....................... 14 ------------------- SECTION 2.07 Mandatory Prepayment; Optional ------------------------------ Prepayment; Application of Payments; ------------------------------------ Repayment Premium......................... 15 ----------------- SECTION 2.08 Facility Fee.............................. 15 ------------ SECTION 2.09 Participations............................ 15 -------------- SECTION 2.10 Letters of Credit......................... 16 ----------------- SECTION 2.11 Currency Considerations................... 19 ----------------------- SECTION 2.12 Reduction of Revolving Loan Limit......... 20 --------------------------------- SECTION 3. CONDITIONS..................................... 20 ---------- SECTION 3.01 Documents Required for the Closing........ 20 ---------------------------------- SECTION 3.02 Certain Events............................ 21 -------------- SECTION 4. REPRESENTATIONS, WARRANTIES AND SURVIVAL....... 21 ---------------------------------------- SECTION 4.01 Representations and Warranties............ 21 ------------------------------ SECTION 4.02 Survival.................................. 25 -------- SECTION 4.03 No Default................................ 25 ---------- SECTION 5. COVENANTS...................................... 25 --------- SECTION 5.01 Affirmative Covenants..................... 25 --------------------- SECTION 5.02 Negative Covenants........................ 27 ------------------ SECTION 6. DEFAULT........................................ 28 ------- SECTION 6.01 Events of Default......................... 28 ----------------- SECTION 6.02 Remedies.................................. 31 -------- SECTION 7. MISCELLANEOUS.................................. 31 ------------- SECTION 7.01 Construction.............................. 31 ------------ SECTION 7.02 [INTENTIONALLY OMITTED]................... 31 SECTION 7.03 Enforcement and Waiver by the Bank........ 31 ---------------------------------- SECTION 7.04 Expenses of the Bank...................... 31 -------------------- SECTION 7.05 Notices................................... 31 ------- SECTION 7.06 Waiver and Release by Borrower............ 32 ------------------------------ SECTION 7.07 Applicable Law............................ 32 -------------- SECTION 7.08 Binding Effect; Assignment and Entire ------------------------------------- Agreement................................. 32 --------- SECTION 7.09 Severability.............................. 33 ------------ SECTION 7.10 Counterparts.............................. 33 ------------ SECTION 7.11 Headings.................................. 33 -------- SECTION 7.12 Modification.............................. 33 ------------ SECTION 7.13 Third Parties............................. 33 ------------- SECTION 7.14 Seal...................................... 33 ---- SECTION 7.15 WAIVER OF JURY TRIAL...................... 33 -------------------- SECTION 7.16 Jurisdiction.............................. 33 ------------ SECTION 7.17 Indemnity................................. 33 --------- LOAN AGREEMENT -------------- THIS LOAN AGREEMENT, dated as of February 18, 1997 (herein called the "Agreement"), is entered into between SYBRON CHEMICALS INC. ("Borrower") and CORESTATES BANK, N.A. ("Bank"). WITNESSETH: ----------- A. Borrower desires to establish certain financing arrangements with and borrow funds from Bank and Bank is willing to establish such arrangements for and make loans and advances to Borrower under the terms and provisions hereinafter set forth. B. The parties desire to define the terms and conditions of their relationship and to reduce their agreements to writing. NOW, THEREFORE, the parties hereto, intending to be legally bound, covenant and agree as follows: SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION. ---------------------------------------- SECTION 1.01 Definitions. ------------ "Alternative Currency" shall mean pounds sterling, Italian lire and ---------------------- Dutch guilder. "Annual Financial Statements" shall mean the annual consolidated and ----------------------------- consolidating financial statements of Borrower, including all notes thereto, which statements shall include a balance sheet as of the end of a fiscal year and an income statement and a statement of cash flows for such year, all setting forth in comparative form the corresponding figures from the previous year, all prepared in conformity with Generally Accepted Accounting Principles and, with respect to said consolidated financial statements, accompanied by an unqualified financial audit of independent certified public accountants who are reasonably satisfactory to Bank which shall state that such accountants have audited such consolidated financial statements and that such financial statements are in conformity with Generally Accepted Accounting Principles, and, with respect to said consolidating financial statements, certified by Borrower's chief financial officer. "Approved Line of Business" shall mean, for purposes of Section 5.02(A) -------------------------- hereof, the primary line of business in which Borrower is presently engaged as described in Exhibit 111.01(A)II hereto. "Average Funded Debt" shall mean, as of any date, the daily --------------------- average Funded Debt for the 12 months then ended (e.g. the sum of Funded Debt for each day during such 12 month period divided by 365 or 364, as applicable). "Bank Indemnitees" shall mean the Bank, any pledgee, assignee or ------------------ subsequent holder or owner of the Note or any interest in the Loan, including each Participant, any affiliate, successor, assign or subsidiary of the Bank or any Participant, and each of their respective shareholders, members, directors, officers, employees, counsel, agents and contractors, as well as their respective heirs, beneficiaries, administrators, executors, personal representatives, trustees, receivers, successors and assigns. "Base Currency" shall mean Dollars. --------------- "Business Day" shall mean a day, other than a Saturday or Sunday, on -------------- which Bank is open for business. "Cash Flow Ratio" shall mean, as of any date, the ratio of (a) Average ----------------- Funded Debt for the 12 months then ended to (b) EBITDA for such period. "Closing Date" shall mean the date of this Agreement. -------------- "Consent Orders" shall mean the Consent Orders copies of which are ---------------- attached hereto as Exhibit "1.01(B)". "Current Ratio" shall mean, as of any date, current assets divided by --------------- current liabilities, determined in accordance with GAAP. "Dollars" or "$" shall mean lawful money of the United --------- --- States of America. "EBIDTA" shall mean Pre Tax Earnings plus the sum of depreciation and -------- amortization and interest expense during the period for which Pre Tax Earnings was calculated. "Eguivalent Dollar Amount" shall mean, with respect to an amount of any -------------------------- currency other than Dollars as of any date, the amount of Dollars into which such amount of such other currency may be converted at the spot rate at which Dollars are offered by the Bank in London for the purchase of such other currency at approximately 12:00 noon, London time, on such date. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, ------- as amended. "Event of Default" shall mean an event specified in Section ------------------ 6 hereof. 2 "Financial Statements" means any Annual Financial Statements ---------------------- or Quarterly Financial Statements. "Fixed Charges" means the sum of (a) principal Payments on Funded Debt, --------------- and (b) interest expense on all Indebtedness for borrowed money (including capital lease obligations). "Fixed Charge Coverage Ratio" shall mean, as of any date, the ratio of ----------------------------- (a) net income plus depreciation and amortization and interest expense minus dividends and other distributions (as determined in accordance with GAAP), all for the 12 months then ended, to (b) Fixed Charges for such period. "Funded Debt" means, as of any date, (i) all Indebtedness for borrowed ------------- money (including capital lease obligations) which matures more than one year from such date and (ii) the Revolving Loan. "Generally Accepted Accounting Principles" or "GAAP" shall mean, with ------------------------------------------ ------ respect to any Person, such accounting practice as, in the opinion of the independent accountants retained by such Person and who are reasonably acceptable to the Bank, conforms at the time to generally accepted accounting principles, consistently applied. Generally accepted accounting principles means those principles and practices which are (a) recognized as such by the Financial Accounting Standards Board, (b) applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the most recent financial statements of the relevant Person furnished to the Bank, and (c) consistently applied for all periods after the date hereof so as to reflect properly the financial condition, and results of operations and cash flows, of such Person. If any change in any accounting principle or practice is required by the Financial Accounting Standards Board in order for such principle or practice to continue as a generally accepted accounting principle or practice, all reports and financial statements required hereunder shall be prepared in accordance with such change. Solely for purposes of this Agreement, if any such material change is made, then either (i) the financial covenants shall be appropriately modified by agreement between the parties to reflect such change or (ii) if the parties are unable in good faith to reach such agreement, the financial covenant compliance computations shall be computed without regard to such change. "Guarantor" shall mean Sybron Chemie (Nederland) B.V. ----------- "Guaranty" shall mean a Guaranty Agreement in form and ---------- substance acceptable to Bank. "Indebtedness" shall mean all items of indebtedness, -------------- obligation or liability, due or to become due, liquidated or 3 unliquidated, direct or contingent, joint or several, of any nature whatsoever and out of whatever transaction arising, including, without limitation: (A) All indebtedness guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse; (B) All indebtedness in effect guaranteed, directly or indirectly, through agreements, contingent or otherwise to (1) purchase such indebtedness, (2) purchase, sell or lease (as lessee or lessor) property, products, materials or supplies, or to purchase or sell services, primarily for the purpose of enabling any debtor to make payment of such indebtedness or to assure the owner of the indebtedness against loss, or (3) supply funds to or in any other manner invest in any debtor; (C) All indebtedness secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance upon property owned or acquired subject to such mortgage, deed of trust, pledge, lien, security interest, charge or encumbrance, whether or not the liabilities secured thereby have been assumed; and (D) All indebtedness incurred as the lessee of goods or services under leases that, in accordance with GAAP, consistently applied, should be reflected on the lessee's balance sheet. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, ----------------------- as amended. "Investment" shall mean for purposes of Section 5.02(A) hereof any loan ------------ or advance to or equity investment in any Person. "Laws" shall mean all ordinances, statutes, rules, regulations, orders ------ (including the Consent Orders), injunctions, writs or decrees of any government or political subdivision or agency thereof or any court or similar entity established by any thereof. "Letter of Credit" shall have the meaning given thereto in Section 2.10 ------------------ hereof. "Letter of Credit Disbursement" shall mean any payment or disbursement ------------------------------- by Bank under any Letter of Credit. "Letter of Credit Disbursement Date" shall mean the date on which any ------------------------------------ Letter of Credit Disbursement is made. 4 "Leverage Ratio" means, as of any date, the ratio of (a) Indebtedness ---------------- (other than Subordinated Indebtedness) as of such date to (b) Tangible Net Worth on such date. "Loan" shall mean the Revolving Loan. ------ "Material Adverse Effect" shall mean any specified event, condition or ------------------------- occurrence as to any one or more of Borrower or any of its Subsidiaries which individually or in the aggregate with any other such event, condition or occurrence and whether through the effect on Borrower's or any of its Subsidiary's business, property, prospects, profits or condition (financial or otherwise) or otherwise could reasonably be expected to (a) result in, to the extent not fully covered by insurance, any liability, loss, forfeiture, penalty, costs, fine, expense,, payment or other monetary obligation or loss of property of Borrower and/or any one or more of its subsidiaries in excess of $10,000,000, and/or (b) in the reasonable judgment of the Bank, materially impair the ability of the Borrower to meet all of its Obligations to the Bank. "Note" shall mean the Revolving Loan Note. ------ "Obligations" shall mean the obligations of Borrower to pay the ------------ principal of and interest on the Note and the obligations of Borrower and Guarantor to satisfy and perform all of its other existing and future obligations, liabilities and indebtedness to Bank under, as applicable, this Agreement, the Note and the Guaranty, whether matured or unmatured, direct or contingent, joint or several, including, without limitation, any extensions, modifications, renewals thereof and substitutions therefor. "Obligor" shall mean each of Borrower and Guarantor. --------- "Participants" shall mean each Person to which Bank may pursuant to -------------- Section 2.09 hereof sell participations in or assign all or any portion of the Loan. "Permitted Investments" shall mean (a) direct obligations of, or ----------------------- obligations fully and unconditionally guaranteed by, the United States of America, (b) deposit accounts in, or certificates of deposit issued by, any commercial bank in the United States of America having total capital and surplus in excess of Seventy Five Million Dollars ($75,000,000) or certificates of deposit which are fully insured by the Federal Deposit Insurance Corporation, (c) investment grade (rated in one of the four highest rating categories) commercial paper, bankers' acceptances or similar financial instruments, (d) investment grade bonds (rated in one of the four highest rating categories), (e) mutual funds having at least eighty percent, (80%) of their assets in cash and/or investments included in (a), (b), (c) or 5 (d) above, and/or (f) the investment described in Exhibit "1.01(C)" hereto. "Permitted Liens" shall mean: ----------------- (A) Liens for taxes, assessments or similar charges incurred in the ordinary course of business which are not yet due and payable; (B) Pledges or deposits made in the ordinary course of business to secure repayment of workers' compensation, or to participate in any fund in connection with compensation, insurance, old-age pensions or other social security programs, as well as any underlying lien, if any, being replaced by such pledge or deposit; (C) Liens of mechanics, materialmen, warehousemen, carriers, or other like lienors, securing obligations incurred in the ordinary course of business that are not yet due and payable; (D) Good faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of ten percent (10%) of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business, as well as any underlying lien, if any, being replaced by such pledge, deposit or bond; (E) Liens in favor of Bank; and (F) Purchase money liens on equipment or other fixed assets granted to the vendor or financier thereof as security for the purchase price of the equipment or fixed asset covered thereby. "Person" shall mean any individual, corporation, participation, -------- association, joint-stock company, trust, unincorporated organization, joint venture, court or government division or agency thereof. "Pre-Tax Earnings" shall mean gross revenues and other proper income ------------------ credits, less all proper income charges other than taxes on income, all determined in accordance with Generally Accepted Accounting Principles; ided that there shall not be included in such revenues or charges (a) any gains resulting from the write-up of assets; (b) any proceeds of any life insurance policy; or (c) any gain or loss which is classified as "extraordinary" in accordance with Generally Accepted Accounting Principles. Pre-Tax Earnings can be less than zero for all purposes of this Agreement. 6 "Ouarterly Financial Statements" shall mean the quarterly consolidated -------------------------------- and consolidating financial statements of the Borrower, including all notes (if any) thereto, which statements shall include a balance sheet and an income statement and a statement of cash flows for the fiscal year to date, subject to normal year-end adjustments, all setting forth in comparative form the corresponding figures for the corresponding quarter of the preceding year prepared in accordance with Generally Accepted Accounting Principles. "Ouarterly Period" shall have the meaning given thereto in Section ------------------ 2.04(A) hereof. "Rates" shall mean the respective rates of interest specified in ------- Section 2.04 of this Agreement. "Reimbursement Obligations" shall have the meaning set forth --------------------------- in Section 2.10 hereof. "Reimbursement Rate" shall mean Bank's Prime Rate (as defined in -------------------- Section 2.04 hereof) plus 200 basis points. ---- "Revolving Loan" shall mean the Revolving Loan facility established ---------------- pursuant to Section 2.01 of this Agreement. "Revolvling Loan Limit" shall mean $40,000,000 or such lesser amount to ----------------------- which the Revolving Loan Limit may be permanently reduced in accordance with Section 2.12 hereof. "Revolving Loan Note" shall mean promissory note evidencing Borrower's --------------------- obligation to repay the Revolving Loan. "Revolving Loan Termination Date" shall mean February 18, 2002, or such --------------------------------- other later date to which Bank and Borrower may (without obligation to do so) hereafter agree in writing in connection with any renewal or extension of the Revolving Loan. "Subordinated Indebtedness" shall mean Indebtedness the repayment of --------------------------- which is subordinated to the Loan and all other obligations pursuant to one or more written subordination agreements with Bank in form and substance reasonably satisfactory to Bank. "Subsidiary" shall mean an entity in excess of 50% of the capital stock ------------ or other equity interests of which is now or hereafter owned directly or indirectly by Borrower. "Tangible Net Worth" shall mean the excess of assets over liabilities -------------------- as would be shown on a consolidated balance sheet of the Borrower, prepared in accordance with GAAP, consistently applied, plus the principal balance of Subordinated Indebtedness, provided that such amounts are to be net of amounts carried with 7 respect to any of the following: (i) unamortized debt discount and expense, (ii) patents, patent applications, copyrights, trademarks, trade names, goodwill (including any excess of cost over net assets of businesses acquired), experimental or organization expenses and other like reserves and intangible assets, (iii) loans and advances to employees, officers, directors, shareholders or any other Person, and (iv) investments (other than Permitted Investments) or other interests (whether debt, equity or otherwise) in any Person. "25% Entities" shall mean each entity 25% or more but 50% or less of -------------- the capital stock or other equity interests of which is now or hereafter owned directly or indirectly by Borrower. SECTION 1.02 Interpretation of Financial Measurements; ----------------------------------------- Financial Statements. --------------------- Except where specifically otherwise provided herein, all financial measurements shall be computed on a consolidated basis for the Borrower and its consolidated subsidiaries, and all references herein to financial statements of the Borrower shall be references to the consolidated and consolidating financial statements of the Borrower and its consolidated subsidiaries. SECTION 2. THE LOAN. --------- SECTION 2.01 Revolving Loan. Under and subject to the terms and -------------- conditions of this Agreement and within the Revolving Loan Limit and as requested by an authorized officer of Borrower from time to time through but not including the Revolving Loan Termination Date, Bank hereby establishes a Revolving Loan facility (the "Revolving Loan") pursuant to which Bank will from time to time make cash advances to and issue Letters of Credit for the account of Borrower. Unless sooner terminated pursuant to any other provision of this Agreement, the Revolving Loan will terminate and the entire principal balance of the Revolving Loan, together with all unpaid accrued interest thereon, shall be repaid on the Revolving Loan Termination Date, without notice or demand. This shall include, as to Letters of Credit outstanding on the Revolving Loan Termination Date, payment by Borrower to Bank on the Revolving Loan Termination Date of cash or cash equivalents acceptable to Bank in an amount equal to the face amount of all outstanding Letters of Credit. Each advance under the Revolving Loan shall be made or issued following the giving of notice by an authorized officer of Borrower to Bank (which notice shall, subject to the provisions of Sections 2.04(A)(v) and 2.11 hereof, be given not later than one (1) Business Day preceding the Business Day on which such cash advance is required and not later than three (3) Business Days preceding the Business Day on which such Letter of Credit is required), specifying the date of borrowing and the amount thereof. Subject to the provisions of Section 2.04(B)(2)(iii) hereof, cash advance shall 8 be in multiples of $1,000.00. Requests for advances may be made via telecopy or telephonically, and Bank shall be fully justified in relying thereon. Upon fulfillment of all applicable conditions to such advance set forth herein, Bank will make such funds available to the Borrower at Bank's main office by depositing same in Borrower's deposit account with Bank or issuing such Letter of Credit. The outstanding principal balance under the Revolving Loan may fluctuate from time to time, to be reduced by repayments made by Borrower, to be increased by future loans, advances and extensions of credit which may be made by Bank, to or for the benefit of Borrower. SECTION 2.02 The Revolving Loan Note. Contemporaneously herewith, ----------------------- Borrower will execute and deliver to Bank the Revolving Loan Note to evidence Borrower's obligation to repay Bank for all amounts due or which may become due in connection with the Revolving Loan, with interest, all as more fully described in the Revolving Loan Note, the terms of which are incorporated herein by reference. SECTION 2.03 Use Of Revolving Loan Proceeds. Advances under the ------------------------------ Revolving Loan shall be used by the Borrower exclusively for working capital and general corporate purposes of the Borrower, its Subsidiaries and its 25% Entities, including short term acquisition financing, but subject in all events to the limitation set forth in Section 5.02(A) hereof. SECTION 2.04 Interest Rates and Calculation of Interest. ------------------------------------------- (A) As used in this Section 2.04, the following terms shall have the following meanings: (i) "Applicable Margin" means, with respect to principal of the Revolving Loan for which a LIBOR Rate election is being made: (1) 37.5 basis points for any Quarterly Period next following a fiscal quarter in which Borrower's Cash Flow Ratio equals or is less than 2.0, as reflected in Borrower's Compliance Certificate for such fiscal quarter; (2) 50 basis points for any Quarterly Period next following a fiscal quarter in which Borrower's Cash Flow Ratio equals or is less than 2.5 but exceeds 2.0, as reflected in Borrower's Compliance Certificate for such fiscal quarter; 9 (3) 75 basis points for any Quarterly Period next following a fiscal quarter in which Borrower's Cash Flow Ratio equals or is less than 3.0 but exceeds 2.5, as reflected in Borrower's Compliance Certificate for such fiscal quarter; (4) 125 basis points for any Quarterly Period next following a fiscal quarter in which Borrower's Cash Flow Ratio exceeds 3.0, as reflected in Borrower's Compliance Certificate for such fiscal quarter. With respect to principal of the Revolving Loan for which a LIBOR Rate election is made, the Applicable Margin will change during the applicable Rate Period as a result of any change in Borrower's Cash Flow Ratio during such Rate Period. With respect to principal of the Revolving Loan accruing interest at the Prime-Based Rate, "Applicable Margin" means: (1) -150 basis points for any Quarterly Period next following a fiscal quarter in which Borrower's Cash Flow Ratio equals or is less than 2.0, as reflected in Borrower's Compliance Certificate for such fiscal quarter; (2) -125 basis points for any Quarterly Period next following a fiscal quarter in which Borrower's Cash Flow Ratio equals or is less than 2.5 but exceeds 2.0, as reflected in Borrower's Compliance Certificate for such fiscal quarter; (3) -100 basis points for any Quarterly Period next following a fiscal quarter in which Borrower's Cash Flow Ratio equals or is less than 3.0 but exceeds 2.5, as reflected in Borrower's Compliance Certificate for such fiscal quarter; 10 (4) -75 basis points for any Quarterly Period next following a fiscal quarter in which Borrower's Cash Flow Ratio exceeds 3.0, as reflected in Borrower's Compliance Certificate for such fiscal quarter. (ii) "Euro-Rate Reserve Percentage" means, ------------------------------ the applicable effective percentage in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency Liabilities"). (iii) "LIBOR Rate" means, with respect to the ----------- principal of the loan for which a LIBOR Rate election has been made for any Rate Period, (a) the interest rate per annum determined by Bank by dividing (the resulting quotient rounded upward to the nearest 1/16th of 1% per annum) (i) the rate of interest determined by Bank in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the eurodollar rate two (2) Business Days prior to the first day of such Rate Period for an amount comparable to such principal amount and having a borrowing date and a maturity comparable to such Rate Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage, plus (b) the Applicable Margin. (iv) "Maximum Tranches" means ten (10). ------------------ (v) "Notification" means, with respect to -------------- all periods in which the LIBOR Rate is in effect, telephonic notice (which shall be irrevocable) by an authorized officer of Borrower to Bank, which notice shall be given no later than 10:00 a.m. Philadelphia time, on the day which is at least 3 Business Days prior to the Business Day on which such rate is to become effective, which notice shall specify (a) that a LIBOR Rate is being selected for a portion of outstanding principal of the Revolving Loan, (b) the principal amount of Revolving Loan to be subject to such rate; (c) the Rate Period(s) selected; and (d) the date on which such request is to become effective (which date shall be a date selected in accordance with Section 2.04(B) hereof). (vi) "Prime Rate" means a per annum rate of ------------ interest, equal to the rate of interest in effect from time to time at Bank as its Prime Rate (which is not necessarily the lowest interest rate charged by Bank for loans), and whether or 11 not announced or otherwise communicated to Borrower, such Prime Rate to change from time to time as of the effective date of each change in Prime Rate. (vii) "Ouarterly Period" means the three (3) ------------------ calendar month period commencing on the first day of the month next following the month in which Borrower provides Bank with a Compliance Certificate pursuant to Section 5.01(A)(3) hereof. (viii) "Rate Period" means, with respect to all ------------- periods in which to the LIBOR Rate is in effect, the period of time for which a particular LIBOR Rate shall apply to a portion of the principal of the Revolving Loan. Rate Periods for principal earning interest at the LIBOR Rate shall be for periods of one, two, three or six months, as selected by Borrower, commencing on the date on which such LIBOR Rate is elected to commence; ided, that if a Rate Period would end on a day which is not a Business Day, it shall end on the next succeeding Business Day, unless such day falls in the succeeding calendar month in which case the Rate Period shall end on the next preceding Business Day. In no event shall any Rate Period end on a day after the Revolving Loan Termination Date. (B) (1) The outstanding principal balance of cash advances under the Revolving Loan shall earn interest at the Prime Rate plus the ---- Applicable Margin (the "Prime-Based Rate") provided, however, that, by giving ----------------------- Notification, Borrower may request to have all or a portion of the outstanding principal of the Revolving Loan earn interest, instead, at the LIBOR Rate as follows: (i) with respect to such principal amount of the Loan, from the date of such advance until the end of the Rate Period specified in the Notification; and/or (ii) with respect to the principal amount of the Loan outstanding and earning interest at the LIBOR Rate at the time of the Notification related to such principal amount, from the expiration of the then current Rate Period related to such principal amount until the end of the Rate Period specified in the Notification; and/or (iii) with respect to all or any portion of the principal amount of the Loan outstanding and earning interest at the Prime-Based Rate at the time of Notification, from the date set forth in the Notification until the end of the Rate Period specified in the Notification. (2) Borrower understands and agrees: (i) that the LIBOR Rate applicable to any portion of outstanding principal of the Revolving Loan may be different from the LIBOR Rate applicable to any other portion of outstanding principal of the Revolving Loan, (ii) that no more than the Maximum Tranches of principal of the Revolving Loan bearing interest at the LIBOR Rate may be outstanding at any one time, and (iii) that the minimum amount of principal to which any LIBOR Rate shall apply shall be $100,000. 12 (3) Borrower shall indemnify Bank against all liabilities, losses or expenses (including loss of margin, any loss or expense incurred in liquidating or employing deposits from third parties and any loss or expense incurred in connection with funds acquired by Bank to fund or maintain advances under the Loan bearing interest at the LIBOR Rate which Bank sustains or incurs as a consequence of any attempt by Borrower to revoke (expressly, by later inconsistent notices or otherwise) in whole or in part any notice given to Bank to request, convert, renew or prepay any such principal. If Bank sustains or incurs any such loss, it shall notify Borrower of the amount determined by Bank to be necessary to indemnify Bank for such loss or expense (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as Bank deems appropriate). Such amount shall be due and payable by Borrower thirty (30) days after such notice is given. (4) If Bank reasonably determines (which determination shall be final and conclusive) that, by reason of circumstances affecting the interbank eurodollar market generally, deposits in dollars (in the applicable amounts) are not being offered to banks in the interbank eurodollar market for the selected term, or adequate means do not exist for ascertaining the LIBOR Rate, then Bank shall give notice thereof to Borrower. Thereafter, until Bank notifies Borrower that the circumstances giving rise to such suspension no longer exist (which notification shall be given promptly), (a) the availability of the LIBOR Rate shall be suspended, and (b) the interest rate for all principal then bearing interest at the LIBOR Rate shall bear interest at the Prime-Based Rate at the expiration of the then current Rate Period(s). In addition, if, after the date Agreement, Bank shall reasonably determine (which determination shall be final and conclusive) that any enactment, promulgation or adoption of or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by a governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Bank with any guideline, request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for Bank to make or maintain or fund loans at the LIBOR Rate, Bank shall notify Borrower. Upon receipt of such notice, until Bank notifies Borrower that the circumstances giving rise to such determination no longer apply (which notification shall be given promptly), (a) the availability of the LIBOR Rate shall be suspended, and (b) the interest rate on all principal then bearing interest at the LIBOR Rate shall bear interest at the Prime-Based Rate either (i) on the last day of the then current Rate Period(s) if Bank may lawfully continue to maintain principal at the LIBOR Rate to such day, or 13 (ii) immediately if Bank may not lawfully continue to maintain principal at the LIBOR Rate. (C) Interest accruing at the LIBOR Rate or the Prime- Based Rate shall be computed on the basis of a 360 day year but charged for the actual number of days elapsed. (D) If, at any time, any of the Rates shall be finally determined by any court of competent jurisdiction, governmental agency or tribunal to exceed the maximum rate of interest permitted by any applicable Laws, then, for such time as such Rate would be deemed excessive, application thereof shall be suspended and there shall be charged in lieu thereof the maximum rate of interest permissible under such Laws. (E) Should there occur an Event of Default under this Agreement, then during the continuance of such Event of Default interest on the Loan shall automatically without notice or demand increase to a rate per annum which is two (2) percentage points above the otherwise applicable Rate(s) ("Default Rate"). Interest at the Default Rate shall continue to accrue notwithstanding the entry of any judgment hereon or on the Note, and all such judgments shall bear interest at the Default Rate provided for herein. (F) Interest on the Revolving Loan shall be payable monthly on the first day of each calendar month or, as to interest accruing at the LIBOR Rate, on the last day of the Rate Period or on the 90th day of the Rate Period if the Rate Period exceeds 90 days. SECTION 2.05 Payments to Bank. All payments of interest on and ---------------- principal of the Loan, all fees and all other sums payable to Bank hereunder shall be paid directly to Bank in immediately available funds, in such currency of the United States of America as is, at the time of payment, legal tender for the payment of public and private debts. Bank is hereby irrevocably authorized to charge Borrower's deposit accounts with Bank, and/or charge the Loan, for any and all principal, interest and any other amounts from time to time currently due from Borrower to Bank hereunder and under the Note. SECTION 2.06 Due Date Extension. If any payment of principal of, or ------------------ interest on the Loan or any payment of any fee provided for herein or any other amount due hereunder shall fall due on a day which is not a Business Day of Bank, then such due date shall be extended to the next succeeding Business Day and additional interest and fees shall accrue and be payable for the period of such extension. 14 SECTION 2.07 Mandatorv Prepayment; Optional Prepayment; ---------------------------------------- Application of Payments; Repayment Premium. ------------------------------------------- (a) In the event the aggregate principal amount of the Loan (including the face amount of all outstanding Letters of Credit and all related Reimbursement Obligations) shall at the time of any determination of the Revolving Loan Limit be in excess of the Revolving Loan Limit at such time, Borrower will forthwith without notice or demand, repay and reduce the principal balance of the Revolving Loan in an aggregate amount equal to such excess. (b) Borrower may at its option but subject to the terms of Section 2.04(B)(3), prepay the principal of the Loan from time to time and in whole or in part. (c) For purposes of subparts (a) and (b), Borrower will at the time of prepayment designate the portion(s) of principal earning interest at a particular Rate(s) to which such prepayment is to be applied. (d) Notwithstanding anything in subparts (a)-(b) to the contrary, upon acceleration by Bank of the Obligations after the occurrence of an Event of Default, Bank may apply any and all payments to any portion of the Loan in any order as it shall in its discretion determine. SECTION 2.08 Facility Fee. Borrower shall pay Bank a Facility Fee equal ------------ to 1/8 of 1% of the Revolving Loan Limit, payable quarterly in arrears. SECTION 2.09 Participations. Borrower acknowledges that the Bank may -------------- from time to time sell participations in or, with Borrower's prior written consent (which Borrower agrees not to unreasonably withhold), assign all or any portion of the Loan to one or more financial institutions (each a "Participant") as participant or assignee of Bank in the Loan. In this regard, Borrower agrees that Bank may, subject to the following sentence, from time to time provide financial and other information concerning the Borrower to each Participant as well as to any or prospective participant. Bank agrees to exercise all reasonable efforts to keep any information delivered or made available by the Borrower confidential from anyone other than persons employed or retained by Bank who are or are expected to become engaged in evaluating, approving, structuring or administering the Loan, provided that nothing herein shall prevent Bank from disclosing such information (i) to any affiliate of Bank, (ii) upon the order of any court or administrative agency, (iii) upon the request or demand of any regulatory agency or authority having jurisdiction over Bank, (iv) which has been publicly disclosed, (v) in connection with any litigation relating to the Loan, this Agreement or any transaction contemplated hereby to which Bank or 15 Borrower may be a party, (vi) to the extent reasonably required in connection with the exercise of any remedy hereunder, (vii) to Bank's legal counsel and independent auditors, and (viii) to any actual or proposed Participant or assignee of all or any part of the Loan hereunder, if such other Person, prior to such disclosure, agrees for the benefit of the Borrower to comply with the provisions of this Section 2.09. Any out of pocket costs or expenses, including attorneys' fees, incurred by Bank or any Participant in connection with the consummation of any such sale or assignment shall be borne by Bank and/or such Participant and not by Borrower. SECTION 2.10 Letters of Credit. ------------------ (A) Agreement to Issue; Termination; Cash Collateral. ------------------------------------------------- (i) Upon the request of Borrower, Bank shall under and subject to the terms and conditions hereof issue documentary and commercial letters of credit for the account of Borrower from time to time through but not including the Revolving Loan Termination Date (a "Letter of Credit" and, collectively, the "Letters of Credit"). Letters of Credit issued hereunder shall be under such te=s, including provisions for draw, as shall be acceptable to Bank in its discretion, and shall in no event have an expiry date exceeding twelve (12) months from the date of issue. (ii) In the event that any Letter of Credit remains outstanding on the Revolving Loan Termination Date, Borrower shall on said Revolving Loan Termination Date provide Bank with cash or cash equivalents acceptable to Bank in an amount equal to the face amount of all Letters of Credit so outstanding, to be held by Bank as-sdcurity for the Obligations. This right to require cash collateral is in addition to the right of Bank to require cash collateral upon the occurrence of an Event of Default as set forth in Section 6 hereof. (B) Letters of Credit Generallv. ---------------------------- (i) Reimbursement of Letters of Credit ---------------------------------- Disbursements. Borrower agrees to reimburse Bank for the amount of each Letter - ------------- of Credit Disbursement made by Bank on the corresponding Letter of Credit Disbursement Date. Such obligation of Borrower to reimburse Bank for any such Letter of Credit Disbursement is herein referred to as a "Reimbursement -------------- Oblicgation." If any Reimbursement Obligation is not paid in full by Borrower to - ------------- Bank on the corresponding Letter of Credit Disbursement Date (for this purpose payments received by Bank after 1:30 p.m., EST on any Business Day shall be deemed to have been made on the next succeeding Business Day), the unpaid amount of such Reimbursement Obligation shall bear interest for each day from the corresponding Letter of Credit Disbursement Date until 16 payment in full thereof (after, as well as before, judgment), payable on demand, at the Reimbursement Rate. (ii) Letter of Credit Charges and Fees. ---------------------------------- Borrower agrees to pay on demand to Bank, as well as to any confirming bank of any Letter of Credit required by the beneficiary thereof to be confirmed as a condition to such beneficiary's acceptance thereof, with respect to the issuance, amendment or transfer of any Letter of Credit and each drawing made under any Letter of Credit, issuance, documentary and processing fees and charges in accordance with Bank's and such confirming bank's fees and charges in effect at the time of such issuance, amendment, transfer or drawing, as the case may be. (iii) Obligations Absolute. All Reimbursement -------------------- Obligations of Borrower arising from Letter of Credit Disbursements shall be unconditional and absolute and shall be paid strictly in accordance with the terms of this Agreement under all circumstances whatsoever including, without limitation, the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or transferee may be acting), or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Borrower or any of its subsidiaries or affiliates and the beneficiary for which any Letter of Credit was procured); (iii) any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or (iv) payment by Bank under any Letter of Credit against presentation of a demand, draft, certificate or other document which does not comply with the terms of the Letter of Credit, except to the extent that Borrower proves that such payment was gross negligence or willful misconduct on the part of Bank; (v) the failure or delay on the part of Bank in giving any notice hereunder; (vi) any draw thereunder being a consequence of Bank's non-renewal of any Letter of Credit; or (vii) any other circumstance or happening whatsoever similar to any of the foregoing. (iv) Indemnification; Nature of Duties. ---------------------------------- (a) In addition to amounts payable as elsewhere provided in this Agreement, Borrower hereby indemnities and holds harmless Bank from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which Bank may incur (or which may be claimed against Bank by any Person) by reason of or in connection with the issuance or 17 transfer of, or payment or failure to pay under, any Letter of Credit, or the involvement by Bank in any suit, proceeding or action as a consequence, direct or indirect, of Bank's issuance of any Letter of Credit, except for any such claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, which Borrower proves were caused by the gross negligence or willful misconduct of Bank in determining whether a certificate, draft, statement or document presented under any Letter of Credit complied with the terms of the Letter of Credit. (b) As between Borrower and Bank, Borrower assumes all risks of the acts or omissions of the beneficiary or any transferee of any Letter of Credit with respect to such beneficiary's or transferee's use of the Letter of Credit. Bank shall not be liable or responsible for: (A) the use which may be made of any Letter of Credit or the proceeds of any drawing thereunder or for any acts or omissions of the beneficiary or any transferee in connection therewith; (B) the validity, sufficiency or genuineness of certificates, drafts or documents presented under any Letter of Credit that appear on their face to be in order, or of any endorsement thereon, even if any of the same should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (C) payment by Bank under any Letter of Credit against presentation of drafts, certificates or documents which do not comply with the terms of the Letter of Credit, including failure of any such drafts, certificates or documents to bear any reference or adequate reference to the Letter of Credit, or for any failure of the beneficiary of any Letter of Credit otherwise to comply fully with the conditions required in order to draw under the Letter of Credit; (D) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or the proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; or (E) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except only that Bank shall be liable to Borrower to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by Borrower which Borrower proves were caused by Bank's gross negligence or willful misconduct in connection with the matters referred to in clauses (B) through (E) above. In furtherance and not in limitation of the foregoing, Bank may accept drafts, certificates or documents presented to it under any Letter of Credit that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and any action taken or omitted by Bank under or in connection with any Letter of Credit, if taken or omitted in good faith and without willful misconduct or gross negligence, shall not put Bank to any resulting liability to any Borrower. 18 (v) Payments to Bank. All payments to be made by ---------------- Borrower to Bank hereunder in respect of Reimbursement Obligations due from Borrower shall be payable on the day when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, and an action therefor shall immediately accrue. (vi) Application. Borrower shall, as a condition ----------- to the issuance by Bank of any Letter of Credit, execute and deliver to Bank Bank's then standard Letter of Credit Application and Security Agreement. SECTION 2.11 Currency Considerations. ------------------------ (A) Each advance (including Letters of Credit) under the Revolving Loan shall be denominated in Base Currency unless Borrower, by not less than five (5) nor more than ten (10) Business Days' written notice to Bank given prior to the requested date of such advance, requests that such advance be denominated in an Alternative Currency, in which case such advance shall, subject to the other terms hereof, be denominated in such Alternative Currency. (B) If Bank has prior to the requested date of such advance in an Alternative Currency notified Borrower that (in Bank's opinion) it is impractical for such advance to be so denominated or to give effect to such request would cause more than five (5) Alternative currencies to be outstanding under the Revolving Loan, then unless Borrower and Bank shall otherwise agree, such advance shall be denominated in Dollars. (C) All determinations as of any date of the outstanding principal balance (including the face amount of outstanding Letters of Credit) of the Revolving Loan will be made in Dollars using, in the case of outstanding advances made in an Alternative Currency, the Equivalent Dollar Amount thereof as of the date of any determination of the principal balance of the Revolving Loan. In no event will Bank have any obligation to make any advance in Alternative Currency if the Equivalent Dollar amount thereof (including the face amount of Letters of Credit) as of the date of advance, when taken together with the then Equivalent Dollar Amount of outstanding advances denominated in Alternative Currencies and the Dollar amount of outstanding advances denominated in Dollars, would exceed the Revolving Loan Limit. From time to time at Bank's discretion, Bank may determine the Equivalent Dollar Amount of outstanding advances made in Alternative Currency; if the Equivalent Dollar Amount so determined, when taken together with outstanding advances (including the face amount of Letters of Credit) made in Dollars, exceeds the Revolving Loan Limit, Borrower will repay the principal of the Revolving Loan or, as to Letters of Credit, provide Bank with cash collateral in the currency in which such 19 Letter of Credit is denominated, in the amount of such excess within one (1) Business Day after notice thereof from Bank. SECTION 2.12 Reduction of Revolving Loan Limit. Upon not less than ten --------------------------------- (10) days prior written notice by Borrower to Bank, Borrower may elect to permanently reduce the Revolving Loan Limit. Any such election will be permanent and Borrower shall have no right to thereafter increase the same without the Bank's agreement thereto. SECTION 3. CONDITIONS. ----------- The establishment by Bank of the Loan hereunder is subject to the following conditions precedent (all documents to be in form and substance satisfactory to Bank and its counsel): SECTION 3.01 Documents Recruired for the Closing. The Borrower shall ----------------------------------- have duly delivered to the Bank the following on the Closing Date: (A) The Note, duly executed on behalf of Borrower; (B) The Guaranty, duly executed on behalf of the Guarantor; (C) A certified (as of the date of the Closing hereof) copy of resolutions of board of directors of each Obligor authorizing the execution, delivery and performance of, as applicable, this Agreement, the Note and the Guaranty; (D) A certified (as of the date of the Closing) copy of each Obligor's by-laws; (E) A certificate (dated the date of the Closing) of each obligor's corporate secretary or assistant secretary as to the incumbency and specimen signatures of the officers of such Obligor executing, as applicable, this Agreement, the Note and the Guaranty; (F) A copy, certified as of the most recent date practicable by the appropriate Secretary of State, of each obligor's articles of incorporation, together with a certificate (dated the date of the Closing) of each obligor's corporate secretary or assistant secretary to the effect that such certificate of incorporation has not been amended since the date of the aforesaid certification; (G) Certificates, as of the most recent dates practicable, of the aforesaid Secretaries of State and the Secretary of State of each state in which any Obligor is qualified as a foreign corporation, as to the subsistence and good standing of such Obligor; 20 (H) A written opinion of counsel to Obligors, dated the date of the Closing and addressed to the Bank, in form and substance satisfactory to Bank and its counsel; (I) A certificate of Borrower, dated the date of the closing, signed on its behalf by the president or a vice president of Borrower to the effect that: (1) The representations and warranties set forth in Section 4 of this Agreement are true, complete and correct as of the date of the Closing; (2) No Event of Default hereunder, and no event which, with the giving of notice or the passage of time, or both, would become such an Event of Default, has occurred as of the date of the Closing; (3) No material adverse change has occurred in the Borrower's financial condition since that reflected in the most recent financial statements delivered to Bank; and (4) All conditions to Closing set forth in this Agreement have been fulfilled. SECTION 3.02 Certain Events. At the time of the Closing and each -------------- request for an advance or Letter of Credit under the Revolving Loan, no Event of Default shall have occurred and no event shall have occurred which, with the giving of notice or the passage of time, or both, would constitute an Event of Default. SECTION 4. REPRESENTATIONS, WARRANTIES AND SURVIVAL. ----------------------------------------- SECTION 4.01 Representations and Warranties. To induce Bank to enter ------------------------------ into this Agreement, Borrower represents and warrants to Bank that: (A) Borrower and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation as shown on Exhibit 114.01(A)II hereto; has the lawful power to own its property and to engage in the business it conducts, and is duly qualified and in good standing in each of the jurisdictions where the nature of its business makes such qualification necessary and where the failure to so qualify would have a Material Adverse Effect; (B) Neither Borrower nor any of its Subsidiaries is in default with respect to any of its existing Indebtedness where such default would have a Material Adverse Effect, and the making and performance of this Agreement, the Note and the Guaranty will not (immediately, with the passage of time, or with the giving of notice and the passage of time): 21 (1) Violate the charter, minutes or by-law provisions of any Obligor or violate any Laws or result in a default under any contract, agreement or instrument to which any Obligor is a party or by which any Obligor or its property is or may be bound, where the same would have a Material Adverse Effect, or (2) Result in the creation or imposition of any security interest in, or lien or encumbrance upon, any of the assets of any Obligor; (C) Each Obligor has the power and authority to enter into and perform, as applicable, this Agreement, the Note and the Guaranty and to incur the Obligations herein and therein provided for, and has taken all proper and necessary action, corporate or otherwise, to authorize the execution, delivery and performance of, as applicable, this Agreement, the Note and the Guaranty; (D) This Agreement is and the Note and Guaranty when executed and delivered will be, valid, binding and enforceable against each Obligor, as applicable, in accordance with their respective terms, except to the extent that the enforceability thereof is limited by bankruptcy and similar laws and equitable principles affecting the rights of creditors generally; (E) Except as disclosed in Exhibit "4.0l(E)" to this Agreement, there are no judgments or judicial or administrative orders or proceedings or other litigation pending, or threatened, against or affecting Borrower or any of its Subsidiaries in any court or before any governmental authority or arbitration board or tribunal, and neither Borrower nor any of its Subsidiaries is in violation of any order of any court, governmental authority, arbitration board or tribunal or administrative agency, or any applicable statute, regulation or ordinance of the United States of America, or of any state, city, town, municipality, county or of any other jurisdiction, or of any agency thereof (including without limitation, environmental laws and regulations), which would have a Material Adverse Effect; (F) As of the date of the most recent financial statements submitted to Bank ("Historical Financial Statements"), neither Borrower nor any of its Subsidiaries had any material Indebtedness which is required by GAAP to be disclosed therein including, without limitation, liabilities for taxes and any interest or penalties relating thereto, except to the extent reflected (in a footnote or otherwise) and reserved against in the Historical Financial Statements or as disclosed in or permitted by this Agreement. Borrower does not know of any basis for the assertion against it or any of its Subsidiaries of any liability required by GAAP to be disclosed in the Historical Financial Statements not fully reflected and reserved against therein; 22 (G) Borrower and each of its Subsidiaries has filed all federal, state and local tax returns and other reports as required by Law to be filed by it prior to the date hereof, has paid or caused to be paid all taxes, assessments and other governmental charges that are due and payable prior to the date hereof, and has made adequate provision for the payment of such taxes, assessments or other charges accruing but not yet payable, where the failure to do any of the foregoing would have a Material Adverse Effect, except to the extent that Borrower or such Subsidiary is contesting the same in good faith and by appropriate proceeding and an adequate reserve has been made therefor. Borrower has no knowledge of any deficiency or additional assessment against it or any of its Subsidiaries in connection with any taxes, assessments or charges not provided for on its books the failure to pay any of which would have a Material Adverse Effect; (H) Except as otherwise disclosed in Exhibit "4.01(H)" to this Agreement, Borrower and each of its Subsidiaries has complied with all applicable Laws the noncompliance with which would have a Material Adverse Effect with respect to (1) restrictions, specifications or other requirements pertaining to products that it manufactures and sells or to the services it performs, or that it intends to manufacture, sell or perform, (2) the conduct or planned conduct of its business operations, and (3) the use, maintenance and operation or planned use, maintenance and operation of the real and personal property owned or leased by it in the operation or planned operation of its business; (I) All necessary consents, approvals or authorizations of, or filing, registration or qualification with, any Person required to be obtained by Borrower or Guarantor in connection with the execution and delivery of, as applicable, this Agreement, the Note and the Guaranty or the undertaking or performance of any Obligation hereunder or thereunder has been obtained; (J) Any employee benefit plan including those subject to ERISA maintained by Borrower or any of its Subsidiaries or to which any of them contributed or contributes meets the minimum funding standards established in Section 302 of ERISA and complies in all material respects with all applicable requirements of ERISA and of the Internal Revenue Code and with all applicable rulings and regulations issued under the provisions of ERISA and the Internal Revenue Code, and no Prohibited Transaction or Reportable Event, within the meaning of Section 4043 of ERISA, has occurred and is outstanding with respect to any such employee benefit plan. Furthermore, no employee benefit plan, including pension plan, has asserted or threatened to assert a claim or demand for withdrawal liability under ERISA as a result of any withdrawal from any said plan by Borrower or any 23 Subsidiary or any member of its Controlled Group which has occurred on or before the date hereof; (K) Neither Borrower nor any of its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of the Loan will be used, directly or indirectly, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock; (L) Borrower and each of its Subsidiaries has obtained all licenses, permits, franchises or other governmental authorizations necessary to the ownership of its property and assets and to the conduct of its business, the failure to obtain which would have a Material Adverse Effect; (M) Neither Borrower nor any of its Subsidiaries is a guarantor or surety of, or otherwise responsible in any manner with respect to, any undertaking of any Person (other than Borrower or any of its Subsidiaries) except as set forth in the Historical Financial Statements; (N) Except as disclosed in Exhibit 4.01(E), Borrower has no knowledge of any violations by Borrower or any of its Subsidiaries which would have a Material Adverse Effect of any law pertaining to environmental matters, including, without limitation the federal Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), Environmental Cleanup Responsibility Act ("ECRA") and the federal Resource Conservation and Recovery Act ("RCRA") relating to the operations and properties of Borrower or any of its Subsidiaries; (0) Neither Borrower or any of its Subsidiaries has received a summons, citation, notice, directive, letter or other communication, written or oral, not heretofore fully complied with, from any governmental authority concerning any intentional or unintentional action or omission by Borrower or any of its Subsidiaries resulting in any material releasing, spilling, leaking, pumping, pouring, emitting, emptying, dumping or otherwise disposing of Hazardous Waste (as defined in 12 U.S.C. ss. 6903(5)) or Hazardous Substance (as defined in 42 U.S.C. ss. 9609(14); (P) Borrower presently has no corporate affiliates or Subsidiaries other than the Subsidiaries listed on Exhibit "4.01(P)" hereto and is not presently required by GAAP to consolidate its financial statements with those of any Person other than said Subsidiaries; 24 (Q) There are no liens, security interests or other encumbrances on or affecting any of Borrower's or any of its Subsidiaries, personal or real property, other than Permitted Liens. (R) Borrower is, as among itself and its Subsidiaries, the primary chemical operating company in the United States and is not merely a holding company for its operating Subsidiaries, and Guarantor is, as among Borrower and its operating Subsidiaries, an operating Subsidiary with substantial assets and not merely a holding company for other operating Subsidiaries. SECTION 4.02 Survival. By completing the Closing, Bank does not thereby -------- waive any breach of warranty or misrepresentation made by Borrower hereunder, or under any other document or agreement delivered to Bank at Closing or otherwise referred to herein, and all of Bank's claims and rights resulting from any breach or misrepresentation by Borrower is expressly reserved by Bank. All of the foregoing representations and warranties set forth in this Section 4 shall survive until all obligations hereunder are paid and satisfied in full. SECTION 4.03 No Default. Each request by Borrower that Bank make an ---------- advance or issue a Letter of Credit under the Loan shall, as of the date of such request, constitute a representation and warranty by Borrower to Bank that no Event of Default or event which with the passage of time or the giving of notice or both would constitute an Event of Default exists hereunder. SECTION 5. COVENANTS. ---------- SECTION 5.01 Affirmative Covenants. Borrower covenants and agrees with --------------------- Bank that, so long as any of the obligations hereunder remain unsatisfied or Bank has any commitment in connection therewith, it will and will cause each Subsidiary (or, as to subsection 5.01(K), each U.S. Subsidiary) to: (A) Furnish to Bank: (1) Within ninety (90) days after each fiscal year of Borrower, a copy of Borrower's Annual Financial Statements and Form 10K filing for such fiscal year; (2) Within forty-five (45) days of the close of each fiscal quarter, a copy of Borrower's Quarterly Financial Statements and Form 10Q filing for such fiscal quarter; (3) Concurrently with the foregoing, a certificate (the "Compliance Certificate") of Borrower, signed on its behalf by its chief financial officer, reflecting compliance 25 or non-compliance with the financial covenants set forth in Exhibit "5.01(J)" hereof; and (4) Upon Bank's request, annual projections of Borrower's financial condition. (B) Maintain its properties in good condition and repair (normal wear and tear excepted), and pay and discharge or cause to be paid and discharged when due, the cost of repairs to or maintenance of the same. (C) Carry insurance with reputable insurers in form and amount and against fire (with extended coverage), liability and such otherrisks as are customary with companies in the same or similar business in the same area as Borrower or such Subsidiary. (D) Pay or cause to be paid when due, all taxes, assessments and charges or levies imposed upon Borrower or such Subsidiary or on any of its property or which it is required to withhold and pay over, except where contested in good faith by appropriate proceedings with adequate reserves therefor (as determined by Borrower's certified public accountants) having been set aside on its books. (E) Maintain complete and accurate books and records and permit access by Bank during business hours and upon reasonable prior notice (which may be oral or written) to such books and records and permit Bank to inspect its properties and operations. Bank may at any time and from time to time on reasonable notice to Borrower, but not more often than once every three (3) months unless an Event of Default shall have occurred and is continuing, audit and conduct examinations of Borrower's or any Subsidiary's books and records and make abstracts and copies thereof, and Borrower will pay to Bank Bank's standard fees therefor. (F) Take all necessary steps to preserve and qualify its existence and franchises and comply with all present and future Laws applicable to it in the operation of its business, where the failure to do so would have a Material Adverse Effect. (G) Give prompt notice to the Bank of (1) any litigation to which it is a party if an adverse decision therein would have a Material Adverse Effect, and (2) the institution of any other suit or any administrative proceeding involving Borrower or any Subsidiary that would have a Material Adverse Effect. (H) Notify Bank promptly upon becoming aware of the occurrence of any Event of Default or of any fact, condition or event that, with the giving of notice or passage of time, or 26 both, could become an Event of Default, or of the failure of any obligor to observe any of its undertakings hereunder or under the Guaranty. (I) (1) Fund all its employee benefit plans in accordance with no less than the minimum funding standards of Section 302 of ERISA, (2) promptly advise Bank of the occurrence of any Reportable Event or Prohibited Transaction with respect to any such Employee Benefit Plan(s) and the action which Borrower or such Subsidiary proposes to take with respect thereto; and (3) promptly advise Bank of any claim for withdrawal liability made against it or a member of its Controlled Group. (J) Be in compliance with the financial covenants set forth in Exhibit 115.01(J)" hereto. (K) Maintain its major and primary deposit accounts with Bank. (L) Provide Bank with prompt written notice of any change in the management or control of Borrower or any Subsidiary, "control" for this purpose meaning the power to directly or indirectly control the policies and affairs of a Person through the ownership of stock or otherwise. SECTION 5.02 Negative Covenants. Borrower hereby covenants and agrees ------------------ that so long as any of the Obligations remain unsatisfied or Bank has any commitment in connection therewith, without the prior written consent of Bank, Borrower will not or suffer or permit any Subsidiary to: (A) Hereafter enter into any merger, consolidation or reorganization, or acquire any stock in or all or substantially all of the assets of or any partnership or joint venture interest in, or make any Investment (other than a Permitted Investment) in any other Person, except: (a) a merger or consolidation of one subsidiary into Borrower or another Subsidiary, (b) Investments (including intercompany advances of Loan proceeds) hereafter made by Borrower in Borrower's Subsidiaries and 25% Entities, provided that the aggregate of all such Investments (measured, as to -------- equity investments, by paid-in capital, and, as to debt, by the outstanding principal amount thereof) hereafter made by Borrower shall not exceed $10,000,000 at any time outstanding as to Subsidiaries and $2,500,000 at any time outstanding as to 25% Entities, and (c) Acquisitions of the stock or assets of any Person having an Approved Line of Business. 27 (B) Sell, transfer, lease or otherwise dispose of all or (except for (i) the sale of Inventory in the ordinary course of its business, and (ii) and disposition of fixed assets which in Borrower's reasonable judgment are no longer necessary in the operation of its or such Subsidiary's business in the ordinary course thereof) any part of its assets, except for sales of any business unit (whether by sale of stock or assets) having a sales price of $5,000,000 or less per sale transaction and of $10,000,000 or less in the aggregate for all such sale transactions. (C) Mortgage, pledge, grant or permit to exist a security interest in or lien on any of its assets of any kind, real or personal, tangible or intangible, now owned or hereafter acquired, except for Permitted Liens, or enter into or suffer to permit or exist any agreement by which it agrees not to grant liens in favor of Bank (either by specific reference to Bank or by reference to any Person generally). (D) Directly or indirectly apply any part of the proceeds of the Loans to the purchasing or carrying of any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations or rulings thereunder. (E) Be subject to any agreement or restriction which prohibits any Subsidiary from repaying or making cash dividends on or reductions of any Investment by the Borrower or any other Subsidiary in such Subsidiary. SECTION 6. DEFAULT. -------- SECTION 6.01 Events of Default. Each of the following events shall ----------------- constitute an Event of Default and upon the occurrence thereof Bank shall thereupon have the option (which is not intended to diminish, alter or limit any other of Bank's rights described in this Agreement, the Collateral Documents or any related agreements and documents) (A) to declare Borrower in default under this Agreement, the Note, and all other agreements with Bank, (B) to terminate any undertaking of Bank in connection with the Loan, and (C) require that Borrower provide the Bank, and Borrower agree to provide to the Bank, cash or cash equivalents acceptable to Bank in an amount equal to the face amount of all outstanding Letters of Credit, and/or (D) to declare all Obligations immediately due and payable, including, but not limited to, interest, principal, expenses, advances to protect Bank's position and reasonable attorneys' fees to enforce this Agreement, the Note, and all related agreements and documents, and all of Bank's rights hereunder and thereunder, all without demand, notice, presentment or protest, or further action of any kind: 28 (A) Borrower fails to pay to Bank when due any installment of principal, interest, fee or other charge payable hereunder or under the Note within ten (10)days after written notice thereof given by Bank to Borrower. (B) Borrower or any other obligor fails to observe or perform any other Obligation to be observed or performed by it hereunder or under the Note or the Guaranty, or under any other existing or future agreement between any Obligor and Bank, which failure, if other than a failure to comply with the provisions of Sections 5.01(A), 5.01(J) or 5.02 hereof, is not cured within thirty (30) days of Bank's giving Borrower written notice of the occurrence thereof. (C) Any Financial Statement or any representation made herein or provided to Bank pursuant to any requirement hereof is materially false, incorrect, or incomplete when made. (D) Borrower or any Subsidiary becomes insolvent or generally fails to pay, or admits its inability to pay, debts as they become due or makes a general assignment for the benefit of any of its creditors, and, as to other than an obligor, the same is reasonably likely to have a Material Adverse Effect. (E) Borrower or any Subsidiary applies for, consents to, or acquiesces in the appointment of, a trustee, receiver or other custodian for it or any of its property or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for Borrower or such Subsidiary or for a substantial part of its property and is not discharged within sixty (60) days; and, in any such event, as to other than an Obligor, the same is reasonably likely to have a Material Adverse Effect. (F) Any bankruptcy, reorganization, liquidation, dissolution or other case and proceeding under any bankruptcy or insolvency law is commenced in respect of Borrower or any Subsidiary and if such case or proceeding is not commenced by Borrower or such Subsidiary, it is consented to or acquiesced in by Borrower or such Subsidiary or remains for sixty (60) days undismissed, and, in any such event, as to other than an obligor, the same is reasonably likely to have a Material Adverse Effect. (G) Borrower and its Subsidiaries discontinue their business operations taken as a whole or materially change the nature of their business taken as a whole from the Approved Line of Business. (H) Borrower or any Subsidiary shall suffer final judgment(s) for the payment of money not covered by insurance or reserves reasonably satisfactory to Bank if any such judgment or judgments would have a Material Adverse Effect and shall not 29 discharge, satisfy or stay the same within a period of sixty (60) days, or any lien shall attach against any property of Borrower or any Subsidiary by reason of any judgment or any execution issued in connection therewith where, as to other than an obligor, the same is reasonably likely to have a Material Adverse Effect. (I) (1) Any reportable event which Bank reasonably determines to constitute grounds for the termination of any employee benefit plan by the PBGC or for the appointment by any United States District Court of a trustee to administer or liquidate any Employee Benefit Plan; (2) the termination of any employee benefit plan, or any Defined Benefit Plan described in Section 414(j) or Section 414(k) of the Internal Revenue Code, the present value of whose benefits that may be guaranteeable under Title IV of ERISA exceeds the amount of plan assets allocable to such benefits; (3) the appointment by any United States District Court of a trustee to administer any Employee Benefit Plan; (4) the institution by the PBGC of proceedings to terminate any Employee Benefit Plan; (5) the failure by Borrower or any Subsidiary or any member of any Controlled Group to meet the minimum funding standards established in Section 302 of ERISA; or (6) the assertion of any claim of, or demand for, withdrawal liability under ERISA by any multi-employer pension plan to which Borrower or any subsidiary or any member of its Controlled Group heretofore contributed or currently contributes; but onlv if any of the events described in clauses (1) - (6), ------- individually or in the aggregate, would have a Material Adverse Effect. (K) (a) Failure by Borrower or any Subsidiary to perform or observe any term, condition or covenant of any bond, note, debenture, loan agreement, indenture, guaranty, trust agreement, mortgage or similar instrument to which it is a party or by which it is bound, or by which any of its properties or assets may be affected (a "Debt Instrument"), and, as a result thereof (assuming the giving of appropriate notice thereof, if required), Indebtedness which is included therein or secured or covered thereby shall have been declared due and payable prior to the date on which such Indebtedness would otherwise become due and payable; or (b) Any event or condition referred to in any Debt Instrument shall have occurred or failed to occur, and, as a result thereof, Indebtedness which is included therein or secured or covered thereby shall have been declared due and payable prior to the date on which such Indebtedness would otherwise become due and payable; or (c) Failure to pay any Indebtedness for borrowed money due at final maturity or pursuant to demand under any Debt Instrument; 30 and in any of said events set forth in (a), (b) and (c) the same has a Material Adverse Effect. SECTION 6.02 Remedies. After any acceleration of the Obligations, Bank -------- shall have in addition to the rights and remedies given itby this Agreement, the Note and the Guaranty, all those allowedby all applicable Laws. SECTION 7. MISCELLANEOUS. -------------- SECTION 7.01 Construction. The provisions of this Agreement shall be in ------------- addition to those of the Note and the Guaranties all of which shall be construed as integrated and complementary to each other. SECTION 7.02 [INTENTIONALLY OMITTED]. SECTION 7.03 Enforcement and Waiver by the Bank. Bank shall have the ---------------------------------- right at all times to enforce the provisions of this Agreement and the Note in strict accordance with the terms hereof and thereof, notwithstanding any conduct or custom on the part of Bank in refraining from so doing at any time or times. The failure of Bank at any time or times to enforce its rights under such provisions, strictly in accordance with such provisions, shall not be construed as having created a custom in any way or manner contrary to specific provisions of this Agreement or as having in any way or manner modified or waived this Agreement. All rights and remedies of Bank are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. SECTION 7.04 Expenses of the Bank. Borrower agrees to pay all costs and -------------------- expenses, including reasonable attorneys' fees and expenses, and filing, search and other out-of-pocket expenditures (including, during the continuance of any Event of Default, environmental audit, consulting and appraisal fees), incurred by Bank in connection with the preparation, negotiation, amendment, extension, replacement, modification, enforcement, work-out or termination of this Agreement, the Note, the Loan and the Guaranty and the collection or attempted collection of the Note or any other Obligations, and the protection, preservation or defense of Bank's rights and interests. SECTION 7.05 Notices. Any notices or consents required or permitted by ------- this Agreement shall (except as otherwise specifically provided in this Agreement) be in writing and shall be sufficiently delivered if delivered in person, or by commercial courier against receipt or if sent by certified mail, postage prepaid, return receipt requested, or by telecopy, as follows, unless such address or telecopy number is changed by written notice hereunder: 31 (A) If to Borrower: Sybron Chemicals Inc. Birmingham Road Birmingham, New Jersey 08011 Attention: Richard M. Klein Lawrence R. Hoffman, Esq. Telecopy No. (609) 893-2063 (B) If to Bank: CoreStates Bank, N.A. 600 Cuthbert Blvd. Haddon Township, New Jersey 08108 Attention: Richard J. Preskenis Vice President Telecopy No. (609) 858-7622 SECTION 7.06 Waiver and Release by Borrower. To the maximum extent ------------------------------ permitted by applicable Laws, Borrower: (A) Waives (1) protest of all commercial paper at any time held by Bank on which Borrower is any way liable; and (2) except as otherwise set forth herein, notice and opportunity to be heard, after acceleration in the manner provided in Section 6.01 hereof, before exercise by Bank of the remedies of set-off, or of other summary procedures permitted by any applicable Laws or by any agreement with Borrower and, except where required hereby or by any applicable Laws, notice of any other action taken by Bank; and (B) Releases Bank and its officers, attorneys, agents and employees from all claims for loss or damage caused by any act or omission on the part of any of them except willful misconduct or gross negligence or bad faith. SECTION 7.07 Applicable Law. The substantive Laws of the State of New -------------- Jersey shall govern the construction of this Agreement and the rights and remedies of the parties hereto. SECTION 7.08 Binding Effect; Assictnment and Entire -------------------------------------- Agreement. ---------- This Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and permitted assigns of the parties hereto. Borrower has no right to assign any of its respective rights or Obligations hereunder without the prior 32 written consent of Bank. Bank may, subject to Section 2.09 hereof, assign its rights hereunder to other financial institutions. This Agreement, and the documents executed and delivered pursuant hereto, constitute the entire agreement among the parties relating to the subject matter thereof. SECTION 7.09 Severability. If any provision of this Agreement is held ------------ invalid under any applicable Laws, such invalidity will not affect any other provision of this Agreement that can be given effect without the invalid provision, and, to this end, the provisions hereof are severable. SECTION 7.10 Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument. SECTION 7.11 Headings. The headings of any paragraph or section of this -------- Agreement are for convenience only and shall not be used to interpret any provision of this Agreement. SECTION 7.12 Modification. No modification or amendment hereof or of ------------ any agreement referred to herein shall be binding or enforceable unless in writing and signed on behalf of the party against whom enforcement is sought. SECTION 7.13 Third Parties. No rights are intended to be created ------------- hereunder for the benefit of any third party donee, creditor or incidental beneficiary of Borrower. SECTION 7.14 Seal. This Agreement is intended to take effect as an ---- instrument under seal. SECTION 7.15 WAIVER OF JURY TRIAL. BORROWER AND BANK IRREVOCABLY -------------------- WAIVETRIAL BY JURY AND THE RIGHT THERETO IN ANY LITIGATION IN ANYCOURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF, THIS AGREEMENT, THE NOTES, COLLATERAL DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF. SECTION 7.16 Jurisdiction. Borrower and Bank hereby irrevocably consent ------------ to the non-exclusive jurisdiction of the Superior Courts of New Jersey and of the United States District Court for New Jersey in any and all actions and proceedings in connection with this Agreement or the Note and irrevocably consent, in addition to any methods of service of process permissible under applicable law, to service of process by certified mail, return receipt requested to the address of the Borrower and Bank as set forth herein. 33 SECTION 7.17 Indemnity. Borrower agrees to indemnify, defend and hold --------- the Bank Indemnitees harmless from and against any and all loss, liability, obligation, damage, penalty, judgment, claim, deficiency and expense (including interest, penalties, reasonable attorneys' fees and amounts paid in settlement) to which any Bank Indemnitee may become subject arising out of or based upon this Agreement, the Note or the Loan through the alleged negligence of such Bank Indemnitee or otherwise, except and to the extent that Borrower proves that such loss, liability, etc. was caused by the gross negligence or willful misconduct or bad faith of the Person otherwise so indemnified, and in no event including (i) income taxes imposed on Bank by reason of interest income received on the Loans or (ii) the internal administrative expenses incurred by Bank in the administration of the Loans. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the day and year first above written. SYBRON CHEMICALS INC. By: s/s Lawrence R. Hoffman ------------------------- CORESTATES BANK, N.A. By: s/s/ Richard J. Preskenis --------------------------- 34 EXHIBIT 5.01(J) Financial Covenants (a) Leverage Ratio of not more than 2.5 to 1.0 as of the end of each fiscal quarter, commencing with fiscal quarter ending December 31, 1996. (b) Current Ratio of not less than 1.5 to 1.0 as of the end of each fiscal quarter, commencing with fiscal quarter ending December 31, 1996. (c) Cash Flow Ratio of not less than 3.0 to 1.0 as of the end of each fiscal quarter, commencing with fiscal quarter ending December 31, 1996. (d) Fixed Charge Coverage Ratio of not less than 1.75 to 1.0 as of the end of each fiscal quarter, commencing with fiscal quarter ending December 31, 1996. (e) Tangible Net Worth as of the end of each fiscal year, commencing with fiscal year ending December 31, 1996, of not less than the then prior fiscal year Tangible Net Worth plus 50% of net income for the fiscal year then ended. (f) Borrower will not have any losses. REVOLVING LOAN NOTE $40,000,000 February 18, 1997 FOR VALUE RECEIVED and intending to be legally bound, the undersigned, SYBRON CHEMICALS INC. ("Borrower"), promises to pay to the order of CORESTATES BANK, N.A. ("Bank"), the principal sum of FORTY MILLION DOLLARS ($40,000,000) or such lesser sum which constitutes the principal balance outstanding under the Revolving Loan established by Bank pursuant to the provisions of that certain Loan Agreement of even date herewith between Borrower and Bank (as the same may from time to time be amended, restated, supplemented or otherwise modified, the "Loan Agreement"), the terms of which are incorporated herein by reference. This Note is that certain Revolving Loan Note issued to Bank and referred to in the Loan Agreement and evidences the obligation of Borrower to repay the Loans under the Revolving Loan. All capitalized terms used and not defined herein shall have the meanings given them in the Loan Agreement. 1. Rate and Payment of Interest. Principal and interest shall be ---------------------------- calculated and payable as set forth in the Loan Agreement. If any payment of principal of, or interest on, this Note shall fall due on a day which is not a Business Day, then such due date shall be extended to the next Business Day and additional interest shall accrue and be payable for the period of such extension. 2. Holder's Rights Upon Default. If an Event of Default occurs under ---------------------------- the Loan Agreement, Bank shall thereupon have the option at any time and from time to time to accelerate Borrower's obligations to Bank and exercise all rights and remedies set forth in the Loan Agreement and in any of the other loan documents referred to therein, as well as any and all rights and remedies otherwise available to Bank at law or in equity to collect the unpaid indebtedness evidenced hereby. Any failure or delay of Bank to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other right at any other time or times. The waiver by Bank of a breach or default of any provision of this Note shall not operate or be construed as a waiver of any subsequent breach or default thereof. 3. Borrower's Waiver. Borrower hereby waives protest, demand, notice of ----------------- nonpayment and all other notices in connection with the delivery, acceptance, performance or enforcement of this Note. Borrower hereby waives any and all rights it may have to a jury trial in connection with any litigation commenced against Borrower with respect to this Note. 4. Expenses. Borrower agrees to reimburse Bank for all expenses, -------- including reasonable attorneys' fees and costs, incurred by Bank to enforce the provisions of this Note, protect and preserve Bank's rights under the Loan Agreement, and collect Borrower's obligations hereunder. 2 5. Governing Law. This Note shall be construed and governed by the laws ------------- of the State of New Jersey without regard to conflict of laws principles. Borrower hereby irrevocably consents to the non-exclusive jurisdiction of the Superior Courts of New Jersey and of the United States District Court for New Jersey in any and all actions and proceedings in connection with this Agreement or the Note. 6. Miscellaneous. The provisions of this Note are severable ------------- and the invalidity or unenforceability of any provision shall not alter or impair the remaining provisions of this Note. IN WITNESS WHEREOF, this Revolving Loan Note has been executed and delivered as of the date set forth above. SYBRON CHEMICALS INC. /s/ Lawrence R. Hoffman ----------------------- By: Lawrence R. Hoffman 3 GUARANTY AGREEMENT THIS GUARANTY AGREEMENT ("Guaranty") is made and entered into as of this 18th day of February, 1997, by SYBRON CHEMIE NEDERLAND B.V. ("Guarantor"), in consideration of the extension of credit by CORESTATES BANK, N.A. ("Bank") to SYBRON CHEMICALS INC. ("Borrower"), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. 1. Guaranty of Obligations. The Guarantor hereby guarantees, and becomes ----------------------- surety for, the prompt payment and performance of all liabilities, obligations, covenants and duties owing by the Borrower to the Bank of any kind or nature under or in connection with that certain Loan Agreement (as amended from time to time, the "Loan Agreement") between Bank and Borrower of even date herewith relating to a $40,000,000 Revolving Loan, as more fully set forth therein, and any amendments, extensions, renewals or increases thereof and all costs and expenses of the Bank incurred in the documentation, negotiation, modification, enforcement, collection or otherwise in connection with any of the foregoing, including reasonable attorneys' fees and expenses (collectively, the "Obligations"). If the Borrower defaults under any such Obligations, the Guarantor will pay the amount due to the Bank. 2. Nature of Guaranty; Waivers. This is a guaranty of payment and not of ----------------------------- collection and the Bank shall not be required, as a condition of the Guarantor's liability, to make any demand upon or to pursue any of its rights against the Borrower, or to pursue any rights which may be available to it with respect to any other person who may be liable for the payment of the Obligations. This is an absolute, unconditional, irrevocable and continuing guaranty and will remain in full force and effect until all of the Obligations have been indefeasibly paid in full. This Guaranty will not be affected by any surrender, exchange, acceptance, compromise or release by the Bank of any other party, or any other guaranty or any security held by it for any of the Obligations, by any failure of the Bank to take any steps to perfect or maintain its lien or security interest in or to preserve its rights to any security or other collateral for any of the Obligations or any guaranty, or by any irregularity, unenforceability or invalidity of any of the Obligations or any part thereof or any security or other guaranty thereof. The Guarantor's obligations hereunder shall not be affected, modified or impaired by any counterclaim, set-off, deduction or defense based upon any claim the Guarantor may have against the Borrower or the Bank, except payment or performance of the Obligations. Notice of acceptance of this Guaranty, notice of extensions of credit to the Borrower from time to time, notice of default, diligence, presentment, notice of dishonor, protest, demand for payment, and any defense based upon the Bank's failure to comply with the notice requirements of the applicable version of Uniform Commercial Code ss. 9-504 are hereby waived. The Bank at any time and from time to time, without notice to or the consent of the Guarantor, and without impairing or releasing, discharging or modifying the Guarantor's liabilities hereunder, may (a) change the manner, place, time or terms of payment or performance of or interest rates on, or other terms relating 2 to, any of the Obligations; (b) renew, substitute, modify, amend or alter, or grant consents or waivers relating to any of the Obligations, any other guaranties, or any security for any Obligations or guaranties; (c) apply any and all payments by whomever paid or however realized including any proceeds of any collateral, to any Obligations of the Borrower in such order, manner and amount as the Bank may determine in its sole discretion; (d) deal with any other person with respect to any Obligations in such manner as the Bank deems appropriate in its sole discretion; (e) substitute, exchange or release any security or guaranty; or (f) take such actions and exercise such remedies hereunder as provided herein. 3. Repayments or Recovery from the Bank. If any demand is made at any time ------------------------------------ upon the Bank for the repayment or recovery of any amount received by it in payment or on account of any of the Obligations and if the Bank repays all or any part of such amount by reason of any judgment, decree or order of any court or administrative body or by reason of any settlement or compromise of any such demand, the Guarantor will be and remain liable hereunder for the amount so repaid or recovered to the same extent as if such amount had never been received originally by the Bank. The provisions of this section will be and remain effective notwithstanding any contrary action which may have been taken by the Guarantor in reliance upon such payment, and any such contrary action so taken will be without prejudice to the Bank's rights hereunder and will be deemed to have been conditioned upon such payment having become final and irrevocable. 3 4. Enforceability of Obligations. No modification, limitation or discharge ----------------------------- of the Obligations arising out of or by virtue of any bankruptcy, reorganization or similar proceeding for relief of debtors under federal or state law will affect, modify, limit or discharge the Guarantor's liability in any manner whatsoever and this Guaranty will remain and continue in full force and effect and will be enforceable against the Guarantor to the same extent and with the same force and effect as if any such proceeding had not been instituted. The Guarantor waives all rights and benefits which might accrue to it by reason of any such proceeding and will be liable to the full extent hereunder, irrespective of any modification, limitation or discharge of the liability of the Borrower that may result from any such proceeding. 5. Events of Default. If any Event of Default shall occur under and as ------------------ provided in the Loan Agreement, the Guarantor will, on the demand of the Bank, immediately deposit with the Bank in U.S. dollars all amounts due or to become due under the Obligations and the Bank will use such funds to repay the Obligations. Upon the occurrence of any Event of Default, the Bank in its discretion may exercise with respect to any collateral any one or more of the rights and remedies provided a secured party under the applicable version of the Uniform Commercial Code. 6. Right of Setoff. In addition to all liens upon and rights of setoff ---------------- against the money, securities or other property of the Guarantor given to the Bank by law, the Bank shall have, with respect to the Guarantor's obligations to the Bank under this Guaranty and to the extent permitted by 4 law, a contractual right of setoff against all deposits, moneys, securities and other property of the Guarantor now or hereafter in the possession of or on deposit with, or in transit to, the Bank whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to the Guarantor. Every such right of setoff shall be deemed to have occurred immediately upon the occurrence of an Event of Default hereunder without any action of the Bank although the Bank may enter such setoff on its books and records at a later time. 7. Costs. To the extent that the Bank incurs any costs or expenses in ----- protecting or enforcing its rights under the Obligations or this Guaranty, including reasonable attorneys' fees and the costs and expenses of litigation, such costs and expenses will be due on demand, will be included in the Obligations and will bear interest from the incurring or payment thereof at the Default Rate (as defined in any of the Obligations). 8. Postponement of Subrogation. Until the Obligations are indefeasibly paid --------------------------- in full, the Guarantor postpones and subordinates in favor of the Bank any and all rights which the Guarantor may have to assert any claim against the Borrower based on subrogation rights with respect to payments made hereunder. 5 9. Notices. All notices, demands, requests, consents, approvals and other ------- communications required or permitted hereunder must be in writing and will be effective upon receipt if delivered personally, or if sent by facsimile transmission with confirmation of delivery, or by nationally recognized overnight courier service, to the addresses for the Bank and the Guarantor set forth in the Loan Agreement or to such other address as one may give to the other in writing for such purpose. 10. Preservation of Rights. No delay or omission on the Bank's part to ----------------------- exercise any right or power arising hereunder will impair any such right or power or be considered a waiver of any such right or power, nor will the Bank's action or inaction impair any such right or power. The Bank's rights and remedies hereunder are cumulative and not exclusive of any other rights or remedies which the Bank may have under other agreements, at law or in equity. The Bank may proceed in any order against the Borrower, the Guarantor or any other obligor of, or collateral securing, the Obligations. 11. Illegality. In case any one or more of the provisions contained in this ---------- Guaranty should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 12. Changes in Writing. No modification, amendment or waiver of any -------------------- provision of this Guaranty nor consent to any departure by the Guarantor therefrom, will be effective 6 unless made in a writing signed by the Bank and Guarantor, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Guarantor in any case will entitle the Guarantor to any other or further notice or demand in the same, similar or other circumstance. 13. Entire Agreement. This Guaranty (including the documents and ------------------ instruments referred to herein) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, between the Guarantor and the Bank with respect to the subject matter hereof. 14. Successors and Assigns. This Guaranty will be binding upon and inure to ---------------------- the benefit of the Guarantor and the Bank and their respective heirs, executors, administrators, successors and assigns; provided, however, that the Guarantor may not assign this Guaranty in whole or in part without the Bank's prior written consent and the Bank at any time may assign this Guaranty in whole or in part. 15. Interpretation. In this Guaranty, unless the Bank and the Guarantor -------------- otherwise agree in writing, the singular includes the plural and the plural the singular; references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; the word "or" shall be deemed to include "and/or", the words "including", "includes" and "include" shall be deemed to be followed by the words "without limitation"; and references to sections or exhibits are to 7 those of this Guaranty unless otherwise indicated. Section headings in this Guaranty are included for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose. If this Guaranty is executed by more than one party as Guarantor, the obligations of such persons or entities will be joint and several. 16. Indemnity. The Guarantor agrees to indemnify each of the Bank, its --------- directors, officers and employees and each legal entity, if any, who controls the Bank (the "Indemnified Parties") and to hold each Indemnified Party harmless from and against any and all claims, damages, losses, liabilities and expenses (including all fees of counsel with whom any Indemnified Party may consult and all expenses of litigation or preparation therefor) which any Indemnified Party may incur or which may be asserted against any Indemnified Party as a result of the execution of or performance under this Guaranty; provided, however, that the foregoing indemnity agreement shall not apply to claims, damages, losses, liabilities and expenses attributable to an Indemnified Party's gross negligence or willful misconduct. The indemnity agreement contained in this Section shall survive the termination of this Guaranty. Bank shall give notice to Guarantor of any third party claim which Bank believes may result in any claim under the provisions of this Section 16 promptly after Bank becomes aware of such claim. 17. Governing Law and Jurisdiction. This Guaranty shall be construed and ------------------------------- governed by the laws of the State of New Jersey without regard to conflict of laws principles. The Guarantor hereby irrevocably consents to the non-exclusive 8 jurisdiction of the Superior Courts of New Jersey and of the United States District Court for New Jersey in any and all actions and proceedings in connection with this Guaranty; provided that nothing contained in this Guaranty will prevent the Bank from bringing any action, enforcing any award or judgment or exercising any rights against the Guarantor individually, against any security or against any property of the Guarantor within any other county, state or other foreign or domestic jurisdiction. The Guarantor acknowledges and agrees that the venue provided above is the most convenient forum for both the Bank and the Guarantor. The Guarantor waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Guaranty. 18. WAIVER OF JURY TRIAL. THE GUARANTOR IRREVOCABLY WAIVES ANY AND ALL -------------------- RIGHT THE GUARANTOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS GUARANTY, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION CONTEMPLATED IN ANY OF OUCH DOCUMENTS. THE GUARANTOR ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. The Guarantor acknowledges that it has read and understood all the provisions of this Guaranty, including the confession of judgment and waiver of jury trial, and has been advised by counsel as necessary or appropriate. 9 WITNESS the due execution hereof as a document under seal, as of the date first written above, with the intent to be legally bound hereby. SYBRON CHEMIE NEDERLAND B.V. /s/ Lawrence R. Hoffman ----------------------- Name: Lawrence R. Hoffman Title: Secretary CORESTATES BANK, N.A. /S/ Richard J. Preskenis ------------------------ Name: Richard J. Preskenis Title: Vice President 10 EX-10.11 3 EXHIBIT 10.11 April 19, 1996 Mr. Albert L. Eilender 6 Peach Tree Drive Montville, NJ 07045 Dear Al, We are extremely pleased to offer you the position of Executive Vice President - Corporate Development with Sybron Chemicals Inc. at a base salary of $200,000 per year. You will be eligible for our Executive Bonus Program, which carries a target of 26% of your annual salary, which will be pro-rated in 1996. The actual award will depend on the financial performance of the Company. The first 100% of your target amount will be paid in Company stock converted for the years 1996, 1997 and 1998 at the price as of your starting date, and for subsequent years at the price as of December 31 of the year 3 years prior to the bonus year. Your employment will commence on or about May 15, 1996, you will be reporting to me and work out of our Company headquarters. Al, the following are the general conditions of your employment with our Company: 1. Subject to our direction and control, you will devote your full efforts to the responsibilities and activities identified on the attached job description, and any other such activities that would be appropriate for a senior executive responsible for corporate development. 2. On joining the Company, you will receive options for 25,000 shares of Company stock, according to our Stock Option Plan. 3. You will be a member of the Management Committee, comprised of SCI's senior management, including me. 4. You will be eligible to participate in our hospitalization, dental, group insurance, Savings & Thrift (including defined contribution pension feature), and other senior executive benefit plans in accordance with our current company policy as it may change from time to time. 5. Should you move your household belongings to the area near our headquarters within 12 months of your starting date, the Company will pay for the cost of that move according to company policy. Page Two Albert L. Eilender April 19, 1996 6. You will have the use of a company car under the policy for an executive of your grade, including gas, maintenance and insurance at company expense. The Company will also pay for your reasonable travel and living expenses while you are on company business, according to our policy. 7. Our standard company policies will prevail with respect to termination of employment, including termination for Cause, except that if you are terminated by the Company other than for Cause prior to May 15, 1998, the Company will provide salary continuation until May 15, 1998. "Cause" shall mean any significant incidence of the following: (a) an act of dishonesty by you constituting a felony or other crime involving moral turpitude or resulting or intended to result directly or indirectly in your personal enrichment at the Company's expense, (b) the willful engaging by you in misconduct which is injurious to the Company, (c) habitual drunkenness or drug addiction, (d) the refusal by you substantially to perform your duties, (e) the violation by you of any express direction or reasonable rule or regulation established by the Company from time to time regarding the conduct of its business, and (f) any violation by you of the terms and conditions of this or any other agreement between you and the Company. 8. We require that you undergo and provide us with the results of a routine pre-employment physical examination, including chest X-rays and drug urine test, at Sybron Chemicals' expense. Our offer of employment is contingent on the satisfactory results of this physical. Steve Adler, our Vice President, Human Resources, will provide you with further details. 9. The Federal Immigration Law requires us to request that you provide us with proof of your U.S. citizenship or your legal status as an alien before you begin employment with us. Please refer to the attached letter and Form I-9 in order that you can bring the appropriate papers with you on May 15, 1996. We will make the copies of your papers at that time. 10. You have already advised us in writing of any agreements with your present or previous employers which might affect your employment by or at Sybron Chemicals Inc. You also agree not to reveal any information which is proprietary to your present or previous employers. 11. Please sign the attached Trade Secret, Restrictive Covenant and Patent Agreement in accordance with company policy. Page Three Albert L. Eilender April 19, 1996 We are enclosing a signed duplicate of this letter, and if the terms of our employment offer are satisfactory, please sign and return the duplicate to us by May 1, 1996, in the enclosed self-addressed envelope. Its receipt by Sybron Chemicals Inc. will constitute an agreement between us and will be binding upon and inure to the benefit of you, this Company, and any company succeeding to the general business and properties of this Company by merger, purchase or otherwise. If you have any questions, please feel free to contact me at once. We look forward to your joining us on or about May 15, 1996. Sincerely, /s/ Richard M. Klein -------------------- Richard M. Klein President and Chief Executive Officer AGREED TO: By: /s/ Albert L. Eilender ------------------------ Albert L. Eilender Date: April 23, 1996 April 19, 1996 Mr. Albert L. Eilender 6 Peach Tree Drive Montville, NJ 07045 Dear Al, Supplementing the terms of your Employment Agreement with Sybron Chemicals Inc. (the "Company"), this will confirm that, in the event there shall be a Change in Control (as hereinafter defined) and thereafter your employment with the Company terminates at any time prior to December 31, 1998 Without Cause (as hereinafter defined), you shall be entitled to a lump sum payment equal to twice your annual base salary then in effect, payable no later than 30 days after your employment with the Company so terminates. Termination of your employment with the Company Without Cause shall mean (a) termination by the Company without Cause (as defined in your Employment Agreement with the Company), or (b) termination by you by reason of (i) the Company's failure to make any of the payments, or provide any of the material benefits (or their equivalent), under the terms of your Employment Agreement with the Company, or (ii) a material adverse change in your position or in the scope of your duties and responsibilities. A "Change of Control" shall be deemed to have occurred upon the earliest to occur of the following events: (i) sale or disposal of substantially all of the assets of the Company, or (ii) merger or consolidation of the Company with or into such other corporation, other than, in either case, a merger or consolidation of the Company in which holders of shares of the Company's Common Stock immediately prior to the merger or consolidation will have at least a majority of the ownership of common stock of the surviving corporation (and, if one class of common stock is not the only class of voting securities entitled to vote on the election of directors of the surviving corporation, a majority of the voting power of the surviving corporation's voting securities) immediately after the merger or consolidation, which common stock (and, if applicable, voting securities) is to be held in the same proportion as such holders' ownership of Common Stock of the Company immediately before the merger or consolidation, or (iii) the date any entity, person or group, within the meaning the Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended, other than the Company or Citicorp, or any of their subsidiaries, or any employee benefit plan (or related trust) Page Two Mr. A. Eilender April 19, 1996 sponsored or maintained by the Company or any of its subsidiaries, shall have become the beneficial owner of, or shall have obtained voting control over, more than forty percent (40%) of the outstanding shares of the Company's Common Stock. If the above correctly reflects our understanding, please so indicate by signing in the space provided below for such purpose. Sincerely, /s/ Richard M. Klein --------------------- Richard M. Klein President and Chief Executive Officer Sybron Chemicals Inc. AGREED: /s/ Albert L. Eilender - ---------------------- Albert L. Eilender Date: April 23, 1996 EX-21 4 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Country of Owned Company Incorporation By -------- -------------- ----- 1. Sybron Chemicals Inc. USA-DEL. -- 2. Sybron Chemical Holdings Inc. USA-DEL. 1 3. Sybron Chemicals Korea Ltd. KOREA 2 4. Sybron Chemicals (Japan) Ltd. JAPAN 2 5. Sybron Chemical Industries Nederland B.V. HOLLAND 2 6. Sybron Chemicals Canada Ltd. CANADA 2 7. Sybron Quimica S.A. De C.V. MEXICO 2 8. Sybron Chemicals Holdings B.V. HOLLAND 5 9. Sybron Quimica (Iberica) S.A. SPAIN 8 10. Sybron Chemie (Nederland) B.V. HOLLAND 8 11. Sybron Chemie (Deutschland) G.m.b.H. GERMANY 8 12. Sybron Chemicals (SA) Proprietary Limited S. AFRICA 8 13. Sybron Chemicals Handelsgesellschaft G.m.b.H. AUSTRIA 8 14. Sybron Chemicals UK Limited UK 10 15. Sybron Chimica Italia S.p.A. ITALY 8 16. Sybron Chimie France S.A. FRANCE 8 17. Purification Products Company USA-DEL. 2 18. Sybron Chemicals Taiwan Ltd. TAIWAN 2 EX-24 5 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the Board of Directors of Sybron Chemicals Inc., constitutes and appoints Richard M. Klein or Lawrence R. Hoffman his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute Form 10-K, Annual Report on behalf of Sybron Chemicals Inc., for the fiscal year ended December 31, 1996, promulgated by the Securities and Exchange Commission pursuant to Section 13 of the Securities Exchange Act of 1934 and to file the same, and any other documents in connection therewith, from time to time as said attorney-in-fact and agent, or his substitute or substitutes, deems necessary and appropriate, with the Securities and Exchange Commission and such other exchange, self-regulatory organization, or entity to which Sybron Chemicals Inc. may, now or hereafter, be required by applicable regulation to file. Date: March 24, 1997 /s/ David I. Barton --------------- ---------------------------- David I. Barton EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the Board of Directors of Sybron Chemicals Inc., constitutes and appoints Richard M. Klein or Lawrence R. Hoffman his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute Form 10-K, Annual Report on behalf of Sybron Chemicals Inc., for the fiscal year ended December 31, 1996, promulgated by the Securities and Exchange Commission pursuant to Section 13 of the Securities Exchange Act of 1934 and to file the same, and any other documents in connection therewith, from time to time as said attorney-in-fact and agent, or his substitute or substitutes, deems necessary and appropriate, with the Securities and Exchange Commission and such other exchange, self-regulatory organization, or entity to which Sybron Chemicals Inc. may, now or hereafter, be required by applicable regulation to file. Date: March 24, 1997 /s/ John H. Schroeder ----------------- -------------------------- John H. Schroeder EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the Board of Directors of Sybron Chemicals Inc., constitutes and appoints Richard M. Klein or Lawrence R. Hoffman his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute Form 10-K, Annual Report on behalf of Sybron Chemicals Inc., for the fiscal year ended December 31, 1996, promulgated by the Securities and Exchange Commission pursuant to Section 13 of the Securities Exchange Act of 1934 and to file the same, and any other documents in connection therewith, from time to time as said attorney-in-fact and agent, or his substitute or substitutes, deems necessary and appropriate, with the Securities and Exchange Commission and such other exchange, self-regulatory organization, or entity to which Sybron Chemicals Inc. may, now or hereafter, be required by applicable regulation to file. Date: March 24, 1997 /s/ Paul C. Schorr, IV ---------------- --------------------------- Paul C. Schorr, IV EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, a member of the Board of Directors of Sybron Chemicals Inc., constitutes and appoints Richard M. Klein or Lawrence R. Hoffman his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to execute Form 10-K, Annual Report on behalf of Sybron Chemicals Inc., for the fiscal year ended December 31, 1996, promulgated by the Securities and Exchange Commission pursuant to Section 13 of the Securities Exchange Act of 1934 and to file the same, and any other documents in connection therewith, from time to time as said attorney-in-fact and agent, or his substitute or substitutes, deems necessary and appropriate, with the Securities and Exchange Commission and such other exchange, self-regulatory organization, or entity to which Sybron Chemicals Inc. may, now or hereafter, be required by applicable regulation to file. Date: March 24, 1997 /s/ Heinn F. Tomfohrde, III ----------------- ------------------------------ Heinn F. Tomfohrde, III EX-27 6
5 YEAR DEC-31-1997 DEC-31-1997 14,909 0 32,863 0 22,125 72,462 31,533 0 117,064 33,795 0 0 0 23,589 32,499 117,064 174,346 174,346 110,190 156,724 1,259 0 1,969 14,394 5,880 8,514 0 0 0 8,514 1.51 1.51
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