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