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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended DECEMBER 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
____________
Commission file number 1-5542
DEXTER CORPORATION
(Exact name of registrant as specified in its charter)
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CONNECTICUT 06-0321410
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE ELM STREET
WINDSOR LOCKS, CONNECTICUT 06096
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area
code: 860-292-7675
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the registrant's common stock as of February 25, 2000,
held by nonaffiliates of the registrant was $863,099,437.
The number of shares of the registrant's common stock, $1 par value, outstanding
at February 25, 2000 was 23,054,409.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:
Dexter Corporation's 1999 Annual Report to Shareholders (Parts I, II and IV).
Proxy Statement to be filed separately with the Securities and Exchange
Commission accompanying the notice of the annual meeting of Dexter Corporation's
shareholders to be held on April 27, 2000 (Part III).
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TABLE OF CONTENTS
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PAGE
NUMBER
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 3
Item 3. Legal Proceedings........................................... 4
Item 4. Submission of Matters to a Vote of Security Holders......... 5
Item 4a. Executive Officers of the Registrant........................ 5
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 7
Item 6. Selected Financial Data..................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 7a. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 8
Item 8. Financial Statements and Supplementary Data................. 9
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 9
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 10
Item 11. Executive Compensation...................................... 10
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 10
Item 13. Certain Relationships and Related Transactions.............. 10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 11
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As used herein, the term "Dexter" and the term "Company" shall mean Dexter
Corporation and its consolidated subsidiaries unless the context otherwise
indicates, the term "1999 Annual Report" shall mean the Company's 1999 Annual
Report to Shareholders, and the term "Proxy Statement" shall mean the Proxy
Statement to be filed separately with the Securities and Exchange Commission
accompanying Dexter's notice of the annual meeting of Dexter's shareholders to
be held on April 27, 2000. The 1999 Annual Report is filed as an exhibit to this
report. Portions of the 1999 Annual Report and Proxy Statement are incorporated
herein by reference as hereinafter stated.
PART I
ITEM 1 BUSINESS
GENERAL
Founded in 1767 and incorporated in the state of Connecticut in 1914,
Dexter Corporation operates specialty materials businesses with leadership
positions in markets that provide opportunities for profitable growth. The
principal markets served by the Company are the worldwide aerospace,
electronics, food packaging and medical markets. For an analysis of operations
of the business of Dexter, see pages 26 through 31 of the 1999 Annual Report,
incorporated herein by reference, which includes Life Technologies, Inc.
information on pages 28 and 29, Segment Data on pages 30 and 31, and Geographic
Information on page 31. Also, see Events, Trends and Vulnerabilities and
Acquisitions and Divestitures information on pages 24 and 25 of the 1999 Annual
Report which are incorporated herein by reference.
The financial information in the hereinafter mentioned pages and sections
should be read in conjunction with the Financial Statements contained on pages
18 through 22, Quarterly Financial Information on page 23, Analysis of Financial
Condition and Operations contained on pages 24 and 25, Analysis of Operations
contained on pages 26 through 31, and Analysis of Financial Position contained
on pages 32 through 41 of the 1999 Annual Report.
SEGMENT INFORMATION AND PRODUCTS
The Company has three operating segments: life sciences, nonwovens, and
specialty polymers. The businesses of Dexter are organized and reported based on
the commonality of the products, services and technologies employed within these
segments.
The life sciences segment focuses on the development and manufacture of
precise, reproducible biological and biochemical products used in applications
of life sciences discovery, development and production processes for research
and commercial applications. Life Technologies, Inc. is reported in this
segment.
The nonwovens segment focuses on the proprietary formulation and
manufacture of long-fiber, wet-formed, and hydroentangled products, primarily
for use in the food packaging, medical, and hygiene markets. The Nonwoven
Materials business and its cogeneration facility, which provides electricity and
steam to the Nonwoven Materials, Windsor Locks, Connecticut facility, as well
as, electricity to the local utility, are reported in this segment.
The specialty polymers segment includes businesses whose product offerings
are based on polymer technology for the formulation and processing of specialty
adhesives, coatings, and encapsulants primarily for use in the aerospace and
electronics markets. Long-term polymer research and development for this segment
is performed at the segment's specialty polymer research and development
laboratories in San Diego, California. The Adhesive & Coating Systems business
and the Electronic Materials business are reported in this segment. In 1999, the
Magnetic Technologies business, with approximately two-thirds of its sales into
the electronics market, ceased to be a stand-alone business and became an
integral part of the Electronic Materials business. The Packaging Coatings
business and Dexter SAS, a French subsidiary, whose product offerings were based
on polymer technology serving the food packaging and industrial markets were
also included in this segment but were divested in February 1999. In addition,
in November 1999, the Company
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divested its printed wiring board product line that was part of the Electronic
Materials business. For additional information on these divestitures, refer to
the Acquisitions and Divestitures footnote on page 25 of the 1999 Annual Report
which is incorporated herein by reference.
For additional information on the Company's segment and product information
refer to Segment Data on pages 30 and 31 of the 1999 Annual Report which is
incorporated herein by reference.
SUPPLIERS
Dexter buys materials for its products from many suppliers and is not
dependent on any one supplier or group of suppliers for any significant raw
materials purchased.
The materials bought include natural fibers such as hemp and woodpulp;
synthetic fibers such as glass, rayon and polyester; basic chemical materials
(many of which are derived from petroleum products) for the manufacture of
synthetic resins; resins produced by others, including polypropylene; solvents,
additives and pigments; highly purified chemicals and products collected from
natural sources for Life Technologies' products; and magnetic materials. For
further discussion of raw materials, see Events, Trends and Vulnerabilities on
pages 24 and 25 of the 1999 Annual Report which is incorporated herein by
reference.
CUSTOMERS
In 1999, no single customer accounted for more than 5 percent of
consolidated revenues, and the ten largest customers accounted for less than 15
percent. Dexter has no single customer contract for the sale of its products
which it deems to be material to its business as a whole.
SALES AND MARKETING
Dexter's customers for most specialty material products are principally
industrial manufacturers who convert or incorporate Dexter's products into their
own final product. Life science products are marketed directly to research
laboratories, pharmaceutical and biotechnology companies, and other customers.
Most of the Company's products are sold by its own sales force of which
approximately 305 were directly engaged in field sales in 1999, 299 in 1998, and
275 in 1997. The remaining products are sold through agents or distributors. In
general, each of the Company's product lines has its own sales force. Management
believes that product research and development, close customer relations and
strong technical service are important factors in Dexter's growth over the
years.
BACKLOG
Dexter continues to maintain a backlog of orders. Such backlog was
approximately $45 million at December 31, 1999 and $85 million at December 31,
1998 and typically represents less than two months sales for businesses where
backlog is applicable. The decrease in backlog was primarily attributable to the
divestitures of product lines in 1999. The Company expects substantially all of
the December 31, 1999 backlog to be shipped in 2000. Backlog was significant in
all businesses except Life Technologies, Inc., where backlog is not considered
to be relevant to the business. Although backlog orders are reasonably firm,
they may be subject to cancellation or delay and amounts are not necessarily
indicative of future sales volume or profitability.
COMPETITION
No company is known to compete with Dexter in all of its major businesses,
but in each market, competition is offered by a number of companies, including
firms substantially larger and with greater financial resources than Dexter.
Dexter's management believes that Dexter is an important factor in each of
its markets. All markets are diverse and highly competitive and emphasize the
quality of their products. The businesses of the Company are characterized by
technological leadership and the continual introduction of new products and
services.
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Dexter continues to experience competition from imports in several of its
domestic markets. For further discussion on competition, see Events, Trends and
Vulnerabilities on pages 24 and 25 of the 1999 Annual Report which is
incorporated herein by reference.
RESEARCH AND DEVELOPMENT
Dexter engages in research and development with respect to new product
development and product applications primarily for its own use, with only minor
contract services provided for others. For further information on research and
development, see the section entitled Events, Trends and Vulnerabilities on
pages 24 and 25 of the 1999 Annual Report which is incorporated herein by
reference.
The total number of employees engaged in research and development were
approximately 381, 483, and 465 at December 31, 1999, 1998 and 1997,
respectively. The decrease in the number of employees was primarily attributable
to the divestiture of the Packaging Coatings business. For information on
research and development expenditures, and acquired in-process research and
development costs, see the Statement of Income on page 18 and the Acquisitions
and Divestitures footnote on page 25 of the 1999 Annual Report which are
incorporated herein by reference.
ENVIRONMENTAL REGULATION
The Company is subject to federal, state and other legal requirements
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment. The Company does not believe that
the continuing cost of complying with such regulations and other costs related
to environmental matters will have a material adverse effect on the Company's
financial position, results of operations or cash flows. Capital expenditures
for environmental projects were $0.6 million for 1999 and are estimated to range
from $0.5 - $1 million for 2000. For further discussion of other current
environmental matters, see Events, Trends and Vulnerabilities on pages 24 and 25
and the Environmental Liabilities footnote on page 35 of the 1999 Annual Report,
both of which are incorporated herein by reference. See Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, of
this Form 10-K, on page 7, for information on administrative proceedings arising
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980.
EMPLOYEES
Approximately 1,500 of the Company's 4,600 employees (see page 16 of the
1999 Annual Report which is incorporated herein by reference) are employed
outside the United States. There has not been a significant work stoppage in
recent years and management believes employee relations are good.
GEOGRAPHIC INFORMATION
For information regarding geographic operations, see Events, Trends and
Vulnerabilities on pages 24 and 25, Geographic Information on page 31, and the
Currency Exchange Effects footnote on page 35 of the 1999 Annual Report which
are incorporated herein by reference.
ITEM 2 PROPERTIES
For certain information on properties, see the Property, Plant and
Equipment footnote on page 33, the Leases footnote on page 34, and the section
entitled Business and Subsidiary Headquarters on the inside back cover of the
1999 Annual Report, all of which are incorporated herein by reference.
The executive office of Dexter, located in Windsor Locks, Connecticut, is
owned by the Company. In addition, the following general descriptions of
Dexter's properties, including the locations of principal facilities, are
presented by business. The company considers its facilities to be adequate and
suitable for their current use. The capacity utilization percentage for Dexter's
production facilities in 1999 was approximately 74%. There were no material
leases under which properties described below were held.
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In the life sciences segment, during 1999, Life Technologies, Inc. operated
five principal production facilities of which three are owned (approximately
314,000 square feet), and two are leased (approximately 105,000 square feet).
Life Technologies, Inc.'s production facilities in excess of 25,000 square feet
are located in Grand Island, New York; Auckland, New Zealand; and Inchinnan,
Scotland, which it owns, and Frederick, Maryland and Paris, France which it
leases. Life Technologies, Inc. has its corporate office, a corporate research
and development facility, and other administrative facilities located in
Rockville, Maryland (approximately 238,000 square feet), which it owns. In
addition, Life Technologies, Inc. leases a distribution center located in
Frederick, Maryland of approximately 50,000 square feet. The capacity
utilization percentage at Life Technologies, Inc. production facilities in 1999
was approximately 79%.
In the nonwovens segment, during 1999, the Nonwoven Materials business
operated production facilities in Windsor Locks, Connecticut (approximately
842,000 square feet); Chirnside, Scotland (approximately 203,000 square feet)
and Stalldalen, Sweden (approximately 452,000 square feet), which the Company
owns. The Nonwoven Materials business also leases a production facility in
Radcliffe, England totaling approximately 175,000 square feet. The Nonwoven
Materials business has a distribution facility located in Windsor Locks,
Connecticut of approximately 250,000 square feet, which is leased. The
cogeneration facility located in Windsor Locks, Connecticut (approximately
42,000 square feet) is owned by the Company. The capacity utilization percentage
for the Nonwoven Materials business production facilities in 1999 was
approximately 96%.
During 1999, the specialty polymers segment consisted of the following
businesses and their principal facilities:
The Adhesive & Coating Systems business, in 1999, operated four principal
facilities owned by the Company totaling approximately 494,000 square feet.
These facilities are located in Bay Point, California; Waukegan, Illinois;
Bassano, Italy; and Seabrook, New Hampshire. The Adhesive & Coating Systems
business capacity utilization percentage in 1999 was approximately 63%.
The Electronic Materials business, throughout 1999, operated seven
production facilities and laboratories in the United States, Germany and Japan,
of which five are owned (approximately 499,000 square feet) and two are leased
(approximately 66,000 square feet). These facilities, which are in excess of
25,000 square feet, are located in Olean, New York; Industry, California;
Hicksville, New York; Elk Grove, Illinois; Fremont, California; Munich, Germany;
and Yokohama-Shi, Japan. In addition, during 1999, two facilities in excess of
25,000 square feet were operated in the printed wiring board product line, which
was divested along with its manufacturing facilities in November 1999. In
December 1999, the Richardson, Texas production facility, which was in excess of
25,000 square feet, was shut down and production was relocated to other
Electronic Materials facilities. The Electronic Materials business capacity
utilization percentage for ongoing businesses in 1999 was approximately 57%.
In February 1999, the Packaging Coatings business, including Dexter SAS,
its French industrial coatings subsidiary, was divested. Principal production
facilities for this business were located in Birmingham, Alabama; Hayward,
California; Tournus, France; Deeside, Wales; Gruningen, Switzerland; and in
Singapore.
ITEM 3 LEGAL PROCEEDINGS
In January 2000, International Specialty Products Inc. and ISP Investments
Inc. (collectively, "ISP") filed an action against the Company and seven of the
Company's directors in United States District Court, District of Connecticut
(Case Number 300-CV-257 SRU) for a declaratory judgment, injunctive relief and
damages. The action arises out of ISP's interest in acquiring all of the shares
of the Company's common stock not owned by ISP. In the action, ISP seeks, among
other things, declaratory and injunctive relief invalidating a supermajority
voting requirement contained in the Company's bylaws and the Company's
Shareholders' Rights Plan, and sustaining various proposals ISP seeks to present
to the Company's stockholders at the Company's forthcoming annual meeting
concerning the Shareholders' Right Plan and the number of directors to be
elected at such meeting.
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Also in January 2000, persons claiming to be shareholders of Dexter
commenced an action in a Connecticut Superior Court on behalf of themselves and
a putative class consisting of all Dexter shareholders against Dexter and the
directors of Dexter. Such plaintiffs allege, among other things, that the
defendants breached their fiduciary duties by reducing the threshold for
activation of the Shareholders' Rights Plan from 20% to 11% and failing to
negotiate a merger with ISP. By way of relief, the complaint seeks, among other
things, damages in an unspecified amount.
While the outcome of the above discussed legal proceedings cannot be
forecast with certainty, management believes that such proceedings will not have
a material adverse effect on the Company's financial condition or results of
operations or cash flows.
The Company and its subsidiaries are also engaged in other legal
proceedings, none of which are expected to have a material adverse effect on the
financial condition, results of operations, or cash flows of the Company. For
additional discussion of legal proceedings pertaining to the Company, see the
Contingencies footnote on page 34 of the 1999 Annual Report, which is
incorporated herein by reference. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, of this Form 10-K, on
page 7, for information on administrative proceedings arising under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during
the fourth quarter of fiscal year 1999.
ITEM 4a EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Dexter Corporation, together with the offices in
Dexter Corporation presently held by them, their other business experience since
January 1, 1995, and their ages, are as follows:
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OTHER BUSINESS EXPERIENCE
NAME TITLE SINCE 1/1/95 AGE
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K. Grahame Walker Chairman and Chief Executive Chairman, President and Chief 62
Officer (effective September Executive Officer
1999)
David G. Gordon President and Chief Operating Vice President; President, 48
Officer (effective September Nonwoven Materials Business;
1999) President, D & S Plastics
International
Bruce H. Beatt Vice President, General Counsel 47
and Secretary (since 1992)
Ronald C. Benham Vice President; President, 57
Electronic Materials Business
(since 1992)
John B. Blatz Vice President, Environmental Corporate Director of 48
and Process Management Environmental Affairs
(effective January 1999)
Kathleen Burdett Vice President and Chief 44
Financial Officer (since 1995)
John B. Lockwood Vice President, Taxes (effective Director of Taxes 42
July 1999)
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OTHER BUSINESS EXPERIENCE
NAME TITLE SINCE 1/1/95 AGE
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Jeffrey W. McClelland Vice President; President, President, Adhesive & Coating 57
Adhesive & Coating Systems Systems Business
Business (since 1998)
Lawrence D. McClure Vice President, Human Resources Vice President, Organization 51
(since 1995) Capabilities, Aetna Life &
Casualty Company
A. Duncan Middleton Vice President; President Senior Vice President, European 53
Nonwoven Materials Business Operations, Nonwoven Materials
(effective September 1999) Business
Rosanne S. Potter Treasurer (effective July 1999) Leader of Global Facilities 40
Integration, Hercules, Inc.;
Assistant Vice President and
Treasurer, BetzDearborn;
Treasurer, American Tool
Companies, Inc.; Assistant
Treasurer, Morton International,
Inc.
Dale J. Ribaudo Vice President and Controller Treasurer 42
(effective March 1999)
John D. Thompson Senior Vice President, Strategic 50
and Business Development (since
1995)
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In addition, David Woodhead, Vice President of the Company and President of
the Magnetic Technologies business, retired from the Company in December 1999.
Pursuant to the Bylaws of the Company, each officer holds his/her office
until death, resignation, removal from office or the election or appointment of
his/her successor. The Bylaws provide that the Board of Directors shall elect a
President and a Secretary each year at its first meeting following the annual
meeting of shareholders and may at that time elect other officers of the
Company, and it is expected that the Board of Directors will so act at its
meeting scheduled for April 27, 2000. No family relationships exist between any
of the executive officers of Dexter.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
For information regarding the market for the registrant's common stock and
related stockholder matters, see Summary of Financial Data on pages 16 and 17,
Statement of Financial Position on pages 20 and 21, Statement of Changes in
Shareholders' Equity on page 22, Shareholders' Equity, Preferred Stock and Stock
Compensation Plans footnotes on page 40, Stock Plans footnote on page 41, and
Shareholder/Investor Information on page 42 of the 1999 Annual Report which are
incorporated herein by reference.
ITEM 6 SELECTED FINANCIAL DATA
For information regarding selected financial data, see the Summary of
Financial Data on pages 16 and 17 of the 1999 Annual Report which is
incorporated herein by reference. For a discussion of this Financial Data, see
the Quarterly Financial Information on page 23, Analysis of Financial Condition
and Operations on pages 24 and 25, Analysis of Operations on pages 26 through
28, Life Technologies, Inc. on pages 28 and 29, and Segment Data on pages 30 and
31 of the 1999 Annual Report which are incorporated herein by reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For information required by this item, see the Management Statement on page
15 and the Summary of Financial Data on pages 16 and 17 of the 1999 Annual
Report which are incorporated herein by reference. For information concerning
results of operations, see Analysis of Operations on pages 26 through 28, Life
Technologies, Inc. on pages 28 and 29, Segment Data on pages 30 and 31, and
Geographic Information on page 31 of the 1999 Annual Report which are
incorporated herein by reference. For information on liquidity, reference the
Events, Trends and Vulnerabilities and Liquidity footnotes in Analysis of
Financial Condition and Operations on pages 24 and 25, the Working Capital
discussion on page 32, the Property, Plant and Equipment footnote on page 33,
the Short-term Debt footnote on page 33, and the Long-term Debt footnote on
pages 38 and 39 of the 1999 Annual Report which are incorporated herein by
reference. For information on capital resources, reference the Liquidity
discussion in Analysis of Financial Condition and Operations on page 25, the
Property, Plant and Equipment footnote on page 33, the Short-term Debt footnote
on page 33, the Long-term Debt footnote on pages 38 and 39, and the
Shareholders' Equity footnote on page 40 of the 1999 Annual Report which are
incorporated herein by reference. For the discussion of legal proceedings
pertaining to the Company, see Item 3, Legal Proceedings on page 4 of this Form
10-K, and the Contingencies footnote on page 34 of the 1999 Annual Report which
are incorporated herein by reference. For information on environmental matters,
see Events, Trends and Vulnerabilities footnote on pages 24 and 25, and the
Environmental Liabilities footnote on page 35 of the 1999 Annual Report which
are incorporated herein by reference.
Pursuant to authority granted under the "Comprehensive Environmental
Response, Compensation and Liability Act of 1980" and various other federal and
state environmental laws, the U.S. Environmental Protection Agency (USEPA) and
state environmental authorities identify sites at which action is to be taken to
mitigate the risk of release of hazardous substances into the environment. The
Company is engaged in continuing negotiations with the USEPA and state
authorities with regard to 18 such sites. Due to the uncertainty of the remedial
measures to be adopted at various sites and the fact that imposition of joint
and several liability is possible under various laws, the liability of the
Company with respect to any site at which remedial measures have not been
completed cannot be established with certainty. Based upon the information
available at this time, the Company believes it has properly provided for its
best estimate of the liabilities and that the outcome of these matters will not
have a material adverse effect upon its financial condition, results of
operations or cash flows in the future.
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IMPACT OF THE YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Any of the
Company's systems, equipment, or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could potentially result in a system failure or miscalculation
causing disruption of operation, including, among other things, a temporary
inability to properly manufacture products, process transactions, send invoices,
or engage in similar normal business activities.
During 1999 the Company completed a comprehensive project plan to identify
and remediate as necessary internal information technology systems and
intelligent devices containing embedded chips. As part of this project, the
Company developed and tested detailed contingency and business continuation
plans that identified workarounds in the event of a malfunction to a priority
system or process. In addition, the Company identified suppliers of key goods
and services, requested information about their year 2000 readiness and audited
certain key suppliers for year 2000 readiness.
To date, the Company has not experienced any significant adverse effects
related to the year 2000 transition. All critical internal information
technology systems made a seamless transition into the year 2000 and there were
no notable problems with intelligent devices that may have been effected by
faulty embedded chips or other year 2000 problems. The Company is not aware of
any significant year 2000 problems at any of its customers nor has the Company
noted any disruption in its supply chain related to year 2000 issues.
The Company has spent approximately $5.7 million (approximately 53%
expensed and 47% capitalized) as of December 31, 1999 to become year 2000
compliant. The Company believes that any additional resources needed to address
year 2000 issues will not be material. The Company further believes that by
having successfully executed its year 2000 plan, the possibility of significant
interruptions of normal operations has been reduced. However, the possibility
does exist for currently unidentified year 2000 problems to arise in the future
that could have a material adverse effect on the Company.
ITEM 7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Dexter is exposed to market risk related to changes in foreign currency
exchange rates, interest rates and commodity prices, and selectively uses
financial instruments to manage these risks. The Company does not enter into
financial instruments for speculation or trading purposes. A discussion of the
Company's accounting policies for derivative financial instruments is included
in the Long-term Debt footnote on pages 38 and 39, and the Currency Exchange
Effects footnote on page 35 of the 1999 Annual Report which are incorporated
herein by reference.
The Company has two interest rate exchange agreements in place with
financial institutions to limit exposure to interest rate volatility.
Additionally, the Company enters into forward foreign currency contracts to
mitigate the risks of doing business in foreign currencies. The Company hedges
currency exposures of firm commitments and specific assets and liabilities
denominated in non-functional currencies to protect against the possibility of
diminished cash flow and adverse impact on earnings. The Company's currency
exposures vary, but are primarily concentrated in the Euro, British Pound
Sterling, Swedish Krona and Japanese Yen. Selective translation exposures are
hedged using foreign currency-denominated debt. The Company's exposure to
commodity price changes relates to certain manufacturing operations that utilize
certain commodities as raw materials. The Company manages its exposure to
changes in those prices primarily through its procurement and sales practices.
At December 31, 1999, the company had no financial instruments outstanding as
hedges of commodity price risk.
These financial exposures are monitored and managed by Dexter as an
integral part of Dexter's overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce the potentially
adverse effect on Dexter's results. The value of market risk sensitive financial
instruments is subject to change as a result of movement in market rates and
prices. Sensitivity analysis is one technique used to evaluate the impact of
such possible movements on the valuation of these instruments. Based on a
hypothetical ten-percent change in the value of business unit functional
currencies at December 31, 1999, the
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company estimates that the fair market value of the forward foreign currency
contracts would have changed by $4 million. Further, the impact on Dexter's
future cash flow related to foreign currency-denominated debt would be $2.4
million.
In addition, based on a hypothetical one percentage point decrease in
interest rates at December 31, 1999, the company estimates that the fair market
value of the interest rate exchange agreements would have decreased by $0.8
million. Changes in the fair market value of the forward foreign currency
contracts and interest rate exchange agreements are substantially offset by
changes in the fair value of the underlying hedged positions. Further, based on
a hypothetical one percentage point decrease in interest rates at December 31,
1999, the company estimates that the fair market value of its fixed-rate
long-term debt would have increased by $6 million, which includes the effect of
interest rate exchange agreements. A hypothetical one percentage point increase
in interest rates related to floating rate debt at December 31, 1999 would have
decreased future pretax earnings and cash flow by $0.8 million annually.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Summary of Financial Data contained on pages 16
and 17, Financial Statements contained on pages 18 through 22, Quarterly
Financial Information on page 23, Analysis of Financial Condition and Operations
contained on pages 24 and 25, Analysis of Operations contained on pages 26
through 31, and Analysis of Financial Position contained on pages 32 through 41
of the Company's 1999 Annual Report which are incorporated herein by reference.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Within 24 months prior to the date of the most recent financial statements
referred to above in Item 8, no Form 8-K under the Securities Exchange Act of
1934, as amended, reporting a change in accountants, has been required to be
filed.
FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed or
incorporated by reference in this Report on Form 10-K are forward-looking
statements, as that term is defined under Federal Securities Laws and are
subject to risks and uncertainties and other factors which could cause actual
results to differ materially from those stated in such statements. These
forward-looking statements include, but are not limited to, statements about
future growth in the Company's revenues and earnings and improvements in the
markets served by the Company. Actual results could differ materially from such
forward-looking statements because of, among other things, the following
factors: unit volume growth substantially different from the Company's targeted
range, the impact of competitive products and pricing, changes in the prices of
raw materials, fluctuations in foreign currency rates, changes in laws and
regulations, the possibility of adverse rulings by, or adverse developments in
negotiations with, the government, and other risks identified in the Company's
1999 Annual Report in the section entitled Events, Trends and Vulnerabilities on
pages 24 and 25 which are incorporated herein by reference.
9
<PAGE> 12
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information regarding directors of the Company, see the section
entitled "Proposal (1) Election of Directors" of the Proxy Statement to be filed
separately with the Securities and Exchange Commission and which is incorporated
herein by reference. Information regarding executive officers of the Company is
included as Item 4a of Part I as required by Instruction 3 of Item 401(b) of
Regulation S-K. For information required by Item 405 of Regulation S-K, see the
section entitled "Certain Transactions and Legal Matters" of the Proxy Statement
to be filed separately with the Securities and Exchange Commission and which is
incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
For information required by this item, see the section entitled
"Compensation of Executive Officers" of the Proxy Statement to be filed
separately with the Securities and Exchange Commission and which is incorporated
herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information regarding the beneficial ownership of shares of Common
Stock of the Company by certain persons, see the section entitled "Beneficial
Ownership of the Company's Stock" of the Proxy Statement to be filed separately
with the Securities and Exchange Commission and which is incorporated herein by
reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information regarding certain relationships and related transactions of
directors, see the section entitled "Proposal (1) Election of Directors" of the
Proxy Statement to be filed separately with the Securities and Exchange
Commission and which is incorporated herein by reference.
No other member of executive management or other individual as outlined in
Item 404 of Regulation S-K was otherwise directly or indirectly involved in
relationships or related transactions with the registrant in which the executive
officer or other individual had a material interest.
10
<PAGE> 13
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<C> <S> <C> <C>
(a) 1. Financial Statements:
The response to this item is set forth commencing on page F-1 of this report.
2. Financial Statement Schedule:
The response to this item is set forth commencing on page F-1 of this report.
3. Exhibits:
Exhibit 3A -- Restated Certificate of Incorporation of Dexter Corporation,
filed with the Secretary of the State of Connecticut on June
26, 1990, was filed as Exhibit 3A-2 with the registrant's
Quarterly Report on Form 10-Q (File No. 1-5542) for the
quarter ended June 30, 1990, and is hereby incorporated
herein by reference.
Exhibit 3A(1) -- Amendment to the Restated Certificate of Incorporation of
the registrant, filed with the Secretary of State of
Connecticut on April 23, 1998, was filed as Exhibit 3A(1)
with the registrant's quarterly report on Form 10-Q (File
No. 1-5542) for the quarter ended March 31, 1998, and is
hereby incorporated herein by reference.
Exhibit 3B -- Bylaws of Dexter Corporation, as amended April 25, 1991,
were filed as Exhibit 3B with the registrant's report on
Form 10-Q (File No. 1-5542) for the quarter ended March 31,
1991, and is hereby incorporated herein by reference.
Exhibit 4A -- Rights Agreement dated as of August 23, 1996, between the
registrant and ChaseMellon Shareholder Services, L.L.C. was
filed as Exhibit 4 to Form 8-K (File No. 1-5542), which was
filed with the Securities and Exchange Commission on
September 9, 1996, and is hereby incorporated herein by
reference.
Exhibit 4A(1) -- Amendment dated October 4, 1999 to Rights Agreement, dated
as of August 23, 1996, between the registrant and
ChaseMellon Shareholders Services, L.L.C. was filed as
Exhibit 4 to Form 8-K (File No. 1-5542), which was filed
with the Securities and Exchange Commission on October 13,
1999, and is hereby incorporated herein by reference.
Exhibit 4A(2) -- Amendment dated February 8, 2000, to Rights Agreement, dated
as of August 23, 1996, between the registrant and
ChaseMellon Shareholder Services, L.L.C. was filed as
exhibit 4.3 to Form 8-A/A, which was filed with the
Securities and Exchange Commission on February 14, 2000, and
is hereby incorporated herein by reference.
Exhibit 4B -- Note Agreement, dated July 24, 1990, between the registrant
and The Prudential Insurance Company of America was filed as
Exhibit 4C with the registrant's Quarterly Report on Form
10-Q (File No. 1-5542) for the quarter ended June 30, 1990,
and is hereby incorporated herein by reference.
Exhibit 4B(1) -- Amendment, dated November 14, 1991, to the Note Agreement,
dated July 24, 1990, was filed as Exhibit 4C(1) with the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1991, and is hereby
incorporated herein by reference.
</TABLE>
11
<PAGE> 14
<TABLE>
<C> <S> <C> <C>
Exhibit 4B(2) -- Amendment, dated February 9, 1993, to the Note Agreement,
dated July 24, 1990, was filed as Exhibit 4C(2) with the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1992, and is hereby
incorporated herein by reference.
Exhibit 4B(3) -- Amendment, dated September 30, 1993, to the Note Agreement,
dated July 24, 1990, was filed as Exhibit 4C(3) with the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1993, and is hereby
incorporated herein by reference.
Exhibit 4C -- Note Agreement, dated November 14, 1991, between the
registrant and The Prudential Insurance Company of America,
was filed as Exhibit 4D with the registrant's report on Form
10-K (File No. 1-5542) for the fiscal year ended December
31, 1993, and is hereby incorporated herein by reference.
Exhibit 4C(1) -- Amendment, dated February 9, 1993, to the Note Agreement,
dated November 14, 1991, was filed as Exhibit 4C(2) with the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1992, and is hereby
incorporated herein by reference.
Exhibit 4C(2) -- Amendment, dated September 30, 1993, to the Note Agreement,
dated November 14, 1991, was filed as Exhibit 4D(2) with the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1993, and is hereby
incorporated herein by reference.
Exhibit 4D -- Master Shelf Agreement, dated September 30, 1993, between
the registrant and The Prudential Insurance Company of
America, as amended and restated on December 17, 1993, was
filed as Exhibit 4E with the registrant's report on Form
10-K (File No. 1-5542) for the fiscal year ended December
31, 1993, and is hereby incorporated herein by reference.
Exhibit 4E -- Five Year, $300,000,000 Credit Agreement among Dexter
Corporation, The First National Bank of Chicago, Bank of
America National Trust and Savings Association, Fleet
National Bank, and the Lenders named therein, dated December
15, 1998, was filed as Exhibit 4E to Form 8-K (File No.
1-5542) which was filed with the Securities and Exchange
Commission on January 12, 1999, and is hereby incorporated
herein by reference.
Exhibit 4E(1) -- Amendment dated February 8, 1999, to the Five Year,
$300,000,000 Credit Agreement dated December 15, 1998.
Exhibit 4E(2) -- Amendment dated September 20, 1999, to the Five Year
$300,000,000 Credit Agreement dated December 15, 1998.
Exhibit 4F -- 364 Day, $300,000,000 Credit Agreement among Dexter
Corporation, The First National Bank of Chicago, Bank of
America National Trust and Savings Association, Fleet
National Bank, and the Lenders named therein, dated December
15, 1998, was filed as Exhibit 4F to Form 8-K (File No.
1-5542) which was filed with the Securities and Exchange
Commission on January 12, 1999, and is hereby incorporated
herein by reference.
Exhibit 4F(1) -- Amendment dated February 8, 1999, to the 364 day,
$300,000,000 Credit Agreement dated December 15, 1998.
Exhibit 4F(2) -- Commitment Reduction Notice dated February 26, 1999, which
amends the 364 Day Credit Agreement dated December 15, 1998.
</TABLE>
12
<PAGE> 15
<TABLE>
<C> <S> <C> <C>
Exhibit 4F(3) -- Amendment dated September 20, 1999 to the 364 Day Credit Agreement dated
December 15, 1998.
Exhibit 10A -- Agreement, dated September 20, 1999, between the registrant and K. Grahame
Walker. Omitted pursuant to the Instruction to item 601(10)(iii) of Regulation
S-K and Rule 12b-31 under the Securities Exchange Act of 1934 are copies of
nine other agreements between the registrant and the following named executive
officers, each of which agreements is substantially identical to Exhibit 10A in
all material respects except as to the individual party thereto and the
identification of his/her position with the registrant: Bruce H. Beatt, John B.
Blatz, Kathleen Burdett, David G. Gordon, John B. Lockwood, Lawrence D.
McClure, Rosanne S. Potter, Dale J. Ribaudo, and John D. Thompson.
Exhibit 10B -- Agreement, dated September 20, 1999, between the registrant and Ronald C.
Benham. Omitted pursuant to the Instruction to Item 601(10)(iii) of Regulation
S-K and Rule 12b-31 under the Securities Exchange Act of 1934 are copies of two
other agreements between the registrant and the following named executive
officers, each of which agreements is substantially identical to Exhibit 10B in
all material respects except as to the individual party thereto and the
identification of his position with the registrant: Jeffrey W. McClelland and
A. Duncan Middleton.
Exhibit 10C -- Dexter Corporation's Executive Supplemental Retirement Plan, as amended and
restated and effective January 1, 1989, was filed as Exhibit 10F(1) to the
registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended
December 31, 1991, and is hereby incorporated herein by reference.
Exhibit 10C(1) -- Amendment, dated October 22, 1993, to Dexter Corporation's Executive
Supplemental Retirement Plan, was filed as Exhibit 10D(2) with the registrant's
quarterly report on Form 10-Q (File No. 1-5542) for the quarter ended September
30, 1993, and is hereby incorporated herein by reference.
Exhibit 10C(2) -- Amendment, dated January 1, 2000, to Dexter Corporation's Executive
Supplemental Retirement Plan.
Exhibit 10D -- Dexter Corporation's 1988 Stock Option Plan, was filed as Exhibit 28(d) to the
registrant's Registration Statement on Form S-8 (File No. 33-27597) dated March
17, 1989, and is hereby incorporated herein by reference.
Exhibit 10E -- Dexter Corporation's Executive Deferred Compensation Benefit Plan, as amended,
was filed as Exhibit 10G to the registrant's report on Form 10-K (File No.
1-5542) for the fiscal year ended December 31, 1996, and is hereby incorporated
herein by reference.
Exhibit 10F -- Dexter Corporation's Amended and Restated Retirement Equalization Plan was
filed as Exhibit 10F to the registrant's report on Form 10-K (File No. 1-5542)
for the fiscal year ended December 31, 1998, and is hereby incorporated herein
by reference.
Exhibit 10G -- Dexter Corporation's Transferred Executives' Supplemental Retirement Program,
as amended and restated, was filed as Exhibit 10J with the registrant's report
on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1993, and
is hereby incorporated herein by reference.
</TABLE>
13
<PAGE> 16
<TABLE>
<C> <S> <C> <C>
Exhibit 10G(1) -- Amendment, dated January 1, 2000, to Dexter Corporation's Transferred
Executives' Supplemental Retirement Program.
Exhibit 10H -- Dexter Corporation's 1994 Long-Term Incentive Plan was filed as Exhibit 10K
with the registrant's quarterly report on Form 10-Q (File No. 1-5542) for the
quarter ended March 31, 1994, and is hereby incorporated herein by reference.
Exhibit 10I -- Dexter Corporation's 1994 Stock Plan for Outside Directors was filed as Exhibit
10L with the registrant's quarterly report on Form 10-Q (File No. 1-5542) for
the quarter ended March 31, 1994, and is hereby incorporated herein by
reference.
Exhibit 10I(1) -- Amendment, dated February 26, 1999, to Dexter Corporation's 1994 Stock Plan for
Outside Directors was filed as exhibit 10I(1) with the registrants' report on
Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1998, and is
hereby incorporated herein by reference.
Exhibit 10J -- Dexter Corporation's 1996 Non-Employee Director's Stock Plan was filed as
Exhibit 10L with the registrant's quarterly report on Form 10-Q (File No.
1-5542) for the quarter ended March 31, 1996, and is hereby incorporated herein
by reference.
Exhibit 10J(1) -- Amendment, dated April 24, 1997, to Dexter Corporation's 1996 Non-Employee
Director's Stock Plan was filed as Exhibit 10J(1) to the registrant's report on
Form 10-K (File No. 1-5542) for the fiscal period ended December 31, 1997, and
is hereby incorporated herein by reference.
Exhibit 10K -- Dexter Corporation's Senior Management Executive Incentive Plan was filed as
Exhibit 10M with the registrant's quarterly report on Form 10-Q (File No.
1-5542) for the quarter ended March 31, 1996, and is hereby incorporated herein
by reference.
Exhibit 10L -- Dexter Corporation's 1999 Long-Term Incentive Plan was filed as Exhibit 4.1 to
the registrant's registration statement on Form S-8 (File No. 333-76873) dated
April 22, 1999 and is hereby incorporated herein by reference.
Exhibit 13 -- Dexter Corporation's 1999 Annual Report to Shareholders.
Exhibit 21 -- Subsidiaries of the Registrant.
Exhibit 23 -- Consent of Certified Public Accountants.
Exhibit 27 -- Financial Data Schedule.
Long-term debt of the registrant or various of its subsidiaries is outstanding under numerous instruments. No
such instrument authorizes an amount of securities thereunder in excess of 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis other than that filed as Exhibit 4E as referenced
above. The registrant agrees that it will furnish a copy of any other long-term debt instrument to the
Securities and Exchange Commission upon its request.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 14, 2000
DEXTER CORPORATION
(Registrant)
By: /s/ Kathleen Burdett
------------------------------------
Kathleen Burdett
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 14, 2000:
<TABLE>
<S> <C>
/s/ K. Grahame Walker Chairman; Director
- --------------------------------------------------- (principal executive officer)
K. Grahame Walker
/s/ Kathleen Burdett Vice President and Chief Financial Officer
- --------------------------------------------------- (principal financial officer)
Kathleen Burdett
/s/ Dale J. Ribaudo Vice President and Controller
- --------------------------------------------------- (principal accounting officer)
Dale J. Ribaudo
/s/ Charles H. Curl Director
- ---------------------------------------------------
Charles H. Curl
/s/ Henrietta Holsman Fore Director
- ---------------------------------------------------
Henrietta Holsman Fore
/s/ Bernard M. Fox Director
- ---------------------------------------------------
Bernard M. Fox
/s/ Robert M. Furek Director
- ---------------------------------------------------
Robert M. Furek
Director
- ---------------------------------------------------
Martha Clark Goss
/s/ Edgar G. Hotard Director
- ---------------------------------------------------
Edgar G. Hotard
/s/ Peter G. Kelly Director
- ---------------------------------------------------
Peter G. Kelly
/s/ Jean-Francois Saglio Director
- ---------------------------------------------------
Jean-Francois Saglio
/s/ George M. Whitesides Director
- ---------------------------------------------------
George M. Whitesides
</TABLE>
15
<PAGE> 18
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 19
INDEX TO
FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Accountants........................... F-2
1999 ANNUAL
FINANCIAL STATEMENTS REPORT PAGE
- ------------------------------------------------------------ -----------
Summary of Financial Data................................. 16-17
Statement of Income....................................... 18
Statement of Cash Flows................................... 19
Statement of Financial Position........................... 20-21
Statement of Changes in Shareholders' Equity.............. 22
Quarterly Financial Information........................... 23
Analysis of Financial Condition and Operations............ 24-25
Analysis of Operations.................................... 26-31
Analysis of Financial Position............................ 32-41
FINANCIAL STATEMENT SCHEDULE
- -------------------------
Schedule II Valuation and Qualifying Accounts............ F-3
</TABLE>
------------------------------------------
Schedules other than those listed above are omitted for the reason
that the information required on such schedules is contained in
the Company's 1999 Annual Report to Shareholders, elsewhere in
Form 10-K or they are not required or are not applicable.
F-1
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Dexter Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index on page F-1 of this Form 10-K, present fairly, in all material respects,
the consolidated financial position of Dexter Corporation at December 31, 1999,
1998, and 1997, and the consolidated results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule, are the responsibility of Dexter
Corporation's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 28, 2000
F-2
<PAGE> 21
SCHEDULE II
DEXTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
COLUMN A COLUMN B ADDITIONS COLUMN D COLUMN E
- ------------------------------------------ ---------- ------------------------ ---------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1999
Environmental Reserve..................... $15,316 $2,321 $12,995
Restructuring Reserve..................... 471 $2,430 1,670 1,231
Allowance for Doubtful Accounts........... 7,112 1,526 3,646(a) 4,992
------- ------ ------ -------
$22,899 $3,956 $7,637 $19,218
======= ====== ====== =======
1998
Environmental Reserve..................... $15,825 $ 509 $15,316
Restructuring Reserve..................... 34 (437)(b) 471
Allowance for Doubtful Accounts........... 7,663 $ 910 1,461 7,112
------- ------ ------ -------
$23,522 $ 910 $1,533 $22,899
======= ====== ====== =======
1997
Environmental Reserve..................... $16,336 $ 511 $15,825
Restructuring Reserve..................... 74 40 34
Allowance for Doubtful Accounts........... 6,620 $2,240 $123(c) 1,320 7,663
------- ------ ---- ------ -------
$23,030 $2,240 $123 $1,871 $23,522
======= ====== ==== ====== =======
</TABLE>
- ---------------
(a) Includes divestitures of $2,814.
(b) Due to recovery of insurance claim.
(c) Due to acquisitions.
F-3
<PAGE> 1
EXHIBIT 4E (1)
AMENDMENT NO. 1
TO FIVE YEAR CREDIT AGREEMENT AND WAIVER
This Amendment No. 1 to Five Year Credit Agreement and Waiver (this
"Amendment") is entered into as of February 8, 1999, by and among Dexter
Corporation, a Connecticut corporation (the "Borrower"), The First National Bank
of Chicago, individually and as agent ("Agent"), and the other financial
institutions signatory hereto.
RECITALS
A. The Borrower, the Agent and the Lenders are party to that certain
five year credit agreement dated as of December 15, 1998 (the "Credit
Agreement"). Unless otherwise specified herein, capitalized terms used in this
Amendment shall have the meanings ascribed to them by the Credit Agreement.
B. The Borrower, the Agent and the undersigned Required Lenders wish to
amend the Credit Agreement on the terms and conditions set forth below.
Now, therefore, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
1. Amendment to Credit Agreement. The Credit Agreement is
hereby amended as follows:
(a) Section 6.10(i) of the Credit Agreement is
amended in its entirety to read as follows:
"(i) any Subsidiary may declare and pay dividends or make
distributions to its shareholders ratably relative to their
respective ownership interests in such Subsidiary and".
2. Consent and Waiver. The Required Lenders hereby waive any
Unmatured Default or Default existing under the Credit Agreement (including any
Unmatured Default or Default arising out of a breach of Sections 6.3(a) or
6.10(i)) which would not have arisen had this Amendment been in effect at all
times since December 15, 1998.
3. Representations and Warranties of the Borrower. The
Borrower represents and warrants that:
(a) The execution, delivery and performance by the
Borrower of this Amendment have been duly authorized by all necessary
corporate action and that this Amendment is a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as the enforcement thereof may be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally;
<PAGE> 2
(b) Each of the representations and warranties
contained in the Credit Agreement is true and correct in all material
respects on and as of the date hereof as if made on the date hereof;
(c) After giving effect to this Amendment, no Default
or Unmatured Default has occurred and is continuing.
4. Effective Date. This Amendment shall become effective upon
the execution and delivery hereof by the Borrower, the Agent and the Required
Lenders.
5. Reference to and Effect Upon the Credit Agreement.
(a) Except as specifically amended, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy
of the Agent or any Lender under the Credit Agreement or any Loan
Document, nor constitute a waiver of any provision of the Credit
Agreement or any Loan Document, except as specifically set forth
herein. Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of similar import shall mean and be a reference to the Credit
Agreement as amended hereby.
6. Costs and Expenses.
The Borrower hereby affirms its obligation under
Section 9.7 of the Credit Agreement to reimburse the Agent for all
reasonable costs, internal charges and out-of-pocket expenses paid or
incurred by the Agent in connection with the preparation, negotiation,
execution and delivery of this Amendment, including but not limited to
the attorneys' fees and time charges of attorneys for the Agent with
respect thereto.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
8. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
9. Counterparts. This Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed an original but
all such counterparts shall constitute one and the same instrument.
(signature page to follow)
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date and year first above written.
DEXTER CORPORATION
By: /s/ Dale J. Ribaudo
Name: Dale J. Ribaudo
Title: Treasurer
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Tom Dao
Name: Tom Dao
Title: Corporate Banking Officer
FLEET BANK,
Individually and as Syndication Agent
By: /s/ Marlene R. Haddad
Name: Marlene R. Haddad
Title: Senior Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
Individually and as Documentation Agent
By: /s/ Donald J. Chin
Name: Donald J. Chin
Title: Managing Director
ABN AMRO BANK N.V.,
Individually and as Co-Agent
By: /s/ James S. Adelsheim
Name: James S. Adelsheim
Title: Group Vice President
By: /s/ David A. Carroll
Name: David A. Carroll
Title: Officer
<PAGE> 4
BANKBOSTON, N.A.,
Individually and as Co-Agent
By: /s/ Harvey H. Thayer, Jr.
Name: Harvey H. Thayer, Jr.
Title: Managing Director
BANCA COMMERCIALE ITALIANA,
NEW YORK BRANCH,
Individually and as Co-Agent
By: /s/ Charles Dougherty
Name: Charles Dougherty
Title: Vice President
By: /s/ Karen Purelis
Name: Karen Purelis
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Kenneth P. Sneider, Jr.
Name: Kenneth P. Sneider, Jr.
Title: Vice President
WACHOVIA BANK, N.A.
By: /s/ Henry H. Hagan
Name: Henry H. Hagan
Title: Senior Vice President
per pro BROWN BROTHERS HARRIMAN & CO.
By: /s/ Jared S. Keyes
Name: Jared S. Keyes
Title: Manager
COMMERZBANK AG,
Individually and as Co-Agent
By: /s/ Robert Donohue
Name: Robert Donohue
Title: Senior Vice President
<PAGE> 5
By: /s/ Peter Doyle
Name: Peter Doyle
Title: Assistant Vice President
DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH,
Individually and as Co-Agent
By: /s/ Peter L. Hargraves
Name: Peter L. Hargraves
Title: Vice President
By: /s/ John A. O'Neill
Name: John A. O'Neill
Title: Vice President
FIRST UNION NATIONAL BANK,
Individually and as Co-Agent
By: /s/ Stephen T. Dorosh
Name: Stephen T. Dorosh
Title: Vice President
MELLON BANK, N.A.,
Individually and as Co-Agent
By: /s/ Mark Ricci
Name: Mark Ricci
Title: Banking Officer
SUNTRUST BANK, ATLANTA,
Individually and as Co-Agent
By: /s/ W. David Wisdom
Name: W. David Wisdom
Title: Vice President
By: /s/ Robin R. Cowan
Name: Robin R. Cowan
Title: Operations Officer
<PAGE> 6
BANQUE NATIONALE DE PARIS
By: /s/ Richard L. Sted
Name: Richard L. Sted
Title: Senior Vice President
By: /s/ Sophie Revillard Kaufman
Name: Sophie Revillard Kaufman
Title: Vice President
<PAGE> 1
EXHIBIT 4E (2)
AMENDMENT NO. 2
TO FIVE YEAR CREDIT AGREEMENT
This Amendment No. 2 to Five Year Credit Agreement (this "Amendment")
is entered into as of September 20, 1999, by and among Dexter Corporation, a
Connecticut corporation (the "Borrower"), Bank One, NA (f/k/a The First National
Bank of Chicago), individually and as agent ("Agent"), and the other financial
institutions signatory hereto.
RECITALS
A. The Borrower, the Agent and the Lenders are party to that certain
five year credit agreement dated as of December 15, 1998 (as amended, the
"Credit Agreement"). Unless otherwise specified herein, capitalized terms used
in this Amendment shall have the meanings ascribed to them by the Credit
Agreement.
B. The Borrower, the Agent and the undersigned Required Lenders wish to
amend the Credit Agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
1. Amendments to Credit Agreement. The Credit Agreement is
hereby amended as follows:
(a) Section 6.1(d) of the Credit Agreement is amended
in its entirety to read as follows:
"(d) Intentionally omitted."
(b) Section 6.25 of the Credit Agreement is amended
in its entirety to read as follows:
"6.25 Intentionally Omitted."
(c) The definition of "Agreement Accounting
Principles" in Article I of the Credit Agreement is amended by deleting
the proviso thereto in its entirety.
(d) The last sentence of Section 12.3.1 of the Credit
Agreement is amended by deleting it in its entirety and substituting in
lieu thereof the following:
"Each such assignment shall (unless each of the
Borrower and the Agent otherwise consents) be in an amount not less
than the lesser of (i) $10,000,000 or (ii) the
<PAGE> 2
remaining amount of the assigning Lender's Commitment (calculated as at
the date of such assignment)."
2. Representations and Warranties of the Borrower. The
Borrower represents and warrants that:
(a) The execution, delivery and performance by the
Borrower of this Amendment have been duly authorized by all necessary
corporate action and that this Amendment is a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as the enforcement thereof may be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally;
(b) Each of the representations and warranties
contained in the Credit Agreement is true and correct in all material
respects on and as of the date hereof as if made on the date hereof;
(c) After giving effect to this Amendment, no Default
or Unmatured Default has occurred and is continuing.
3. Effective Date. This Amendment shall become effective as of
the date first written above upon the execution and delivery hereof by the
Borrower, the Agent and the Required Lenders.
4. Reference to and Effect Upon the Credit Agreement.
(a) Except as specifically amended, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy
of the Agent or any Lender under the Credit Agreement or any Loan
Document, nor constitute a waiver of any provision of the Credit
Agreement or any Loan Document, except as specifically set forth
herein. Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of similar import shall mean and be a reference to the Credit
Agreement as amended hereby.
5. Costs and Expenses.
The Borrower hereby affirms its obligation under Section 9.7
of the Credit Agreement to reimburse the Agent for all reasonable costs,
internal charges and out-of-pocket expenses paid or incurred by the Agent in
connection with the preparation, negotiation,
-2-
<PAGE> 3
execution and delivery of this Amendment, including but not limited to the
attorneys' fees and time charges of attorneys for the Agent with respect
thereto.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION,
735 ILCS SECTION 105/5-1 ET SEQ., BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS
OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
7. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
8. Counterparts. This Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed an original but
all such counterparts shall constitute one and the same instrument.
(signature pages follow)
-3-
<PAGE> 4
REAFFIRMATION OF GUARANTY
Each of the undersigned acknowledges receipt of a copy of the Amendment
No. 2 to the Dexter Corporation Five Year Credit Agreement (the "Amendment")
dated September 20, 1999, consents to such Amendment and hereby reaffirms its
obligations under the Subsidiary Guaranty (as defined in the Agreement).
Dated as of August 26, 1999.
DEXTER MAGNETIC TECHNOLOGIES, INC.
By: /s/ Bruce H. Beatt
Name: Bruce H. Beatt
Title: Assistant Secretary
DEXTER HYSOL AEROSPACE, INC.
By: /s/ Bruce H. Beatt
Name: Bruce H. Beatt
Title: Secretary
DEXTER ACQUISITION DELAWARE, INC.
By: /s/ Bruce H. Beatt
Name: Bruce H. Beatt
Title: Secretary
<PAGE> 5
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Agreement as of the date first above written.
DEXTER CORPORATION
By: /s/ Rosanne S. Potter
Name: Rosanne S. Potter
Title: Treasurer
Address: One Elm Street
Windsor Locks, CT 06096-2334
Attn: Rosanne Potter
Telephone: (860) 292-7621
Fax: (860) 654-8429
<PAGE> 6
BANK ONE, NA,
(Main Office -- Chicago),
Individually and as Agent
Commitment $35,000,000.00
By: /s/ C. L. Turner
Name: C. L. Turner
Title: Managing Director
Address: 151 West 51st Street
New York, NY 10019
Attn: C. L. Turner
Telephone: (212) 373-1574
Fax: (212) 373-1180
<PAGE> 7
FLEET NATIONAL BANK,
Individually and as Syndication Agent
Commitment $30,000,000.00
By: /s/ Roger C. Boucher
Name: Roger C. Boucher
Title: Senior Vice President
Address: One Federal Street
MA0FD07L
Boston, MA 02110
Attn: Roger C. Boucher
Telephone: (617) 346-0616
Fax: (617) 346-0145
<PAGE> 8
BANK OF AMERICA, N.A.
Individually and as Documentation Agent
Commitment $30,000,000.00
By: /s/ Wendy Gorman
Name: Wendy Gorman
Title: Vice President
Address: 335 Madison Avenue
New York, NY 10017
Attn: Wendy Gorman
Telephone: (212) 503-7363
Fax: (212) 503-7878
<PAGE> 9
ABN AMRO BANK N.V.,
Individually and as Co-Agent
Commitment $15,000,000.00
By: /s/ Hamilton Bullard
Name: Hamilton Bullard
Title: Assistant Vice President
Address: 208 South LaSalle Street
Suite 1500
Chicago, IL 60603
Attn: James S. Adelsheim
Telephone: (312) 992-5110
Fax: (312) 992-5111
<PAGE> 10
BANKBOSTON, N.A.,
Individually and as Co-Agent
Commitment $15,000,000.00
By: /s/ Harvey H. Thayer, Jr.
Name: Harvey H. Thayer, Jr.
Title: Managing Director
Address: 100 Federal Street
MS 01-10-01
Boston, MA 02110
Attn: Harvey H. Thayer, Jr.
Telephone: (617) 434-1996
Fax: (617) 434-0601
<PAGE> 11
BANK OF TOKYO MITSUBISHI TRUST COMPANY ,
Individually and as Co-Agent
Commitment $15,000,000.00
By: /s/ Pamela Donnelly
Name: Pamela Donnelly
Title: Vice President
Address: 1251 Avenue of the Americas
12th Floor
New York, NY 10020-1104
Attn: Pamela Donnelly
Telephone: (212) 782-4378
Fax: (212) 782-6445
<PAGE> 12
BANCA COMMERCIALE ITALIANA,
NEW YORK BRANCH ,
Individually and as Co-Agent
Commitment $15,000,000.00
By: /s/ Charles Dougherty
Name: Charles Dougherty
Title: Vice President
By: /s/ E. Bermant
Name: E. Bermant
Title: FVP/Deputy Manager
Address: One William Street
New York, NY 10004
Attn: Charles Dougherty
Telephone: (212) 607-3883
Fax: (212) 809-2124
<PAGE> 13
COMMERZBANK AG,
New York And Grand Cayman Branches,
Individually and as Co-Agent
Commitment $15,000,000.00
By: /s/ Robert Donohue
Name: Robert Donohue
Title: Senior Vice President
By: /s/ Peter Doyle
Name: Peter Doyle
Title: Assistant Vice President
Address: 2 World Financial Center
New York, NY 10281
Attn: Robert Donohue
Peter T. Doyle
Telephone: (212) 266-7659
Fax: (212) 266-7594
<PAGE> 14
FIRST UNION NATIONAL BANK,
Individually and as Co-Agent
Commitment $15,000,000.00
By: /s/ Stephen Dorosh
Name: Stephen Dorosh
Title: Vice President
Address: 10 State House Square, 2nd Floor
Hartford, CT 06103
Attn: Matt Riley
Telephone: (860) 692-7214
Fax: (860) 247-1356
<PAGE> 15
MELLON BANK, N.A.,
Individually and as Co-Agent
Commitment $15,000,000.00
By: /s/ William M. Feathers
Name: William M. Feathers
Title: Assistant Vice President
Address: One Mellon Bank Center, Room 0370
Pittsburgh, PA 15258
Attn: William M. Feathers
Telephone: (412) 234-4598
Fax: (412) 234-8888
<PAGE> 16
SUNTRUST BANK, ATLANTA,
Individually and as Co-Agent
Commitment $15,000,000.00
By: /s/ W. David Wisdom
Name: W. David Wisdom
Title: Vice President
Address: 711 5th Avenue, 16th Floor
New York, NY 10022
Attn: Craig W. Farnsworth
Telephone: (212) 583-2608
Fax: (212) 371-9386
<PAGE> 17
BANQUE NATIONALE DE PARIS
Commitment $12,500,000.00
By: /s/ Sophie Revillard Kaufman
Name: Sophie Revillard Kaufman
Title: Vice President
By: /s/ Gwen Abbott
Name: Gwen Abbott
Title: Assistant Vice President
Address: 499 Park Avenue
New York, NY 10022
Attn: Sophie Revillard Kaufman
Telephone: (212) 415-9601
Fax: (212) 415-9606
<PAGE> 18
THE BANK OF NEW YORK
Commitment $12,500,000.00
By: /s/ Kenneth P. Sneider, Jr.
Name: Kenneth P. Sneider, Jr.
Title: Vice President
Address: One Wall Street - 22nd Floor
New York, NY 10286
Attn: Kenneth P. Sneider, Jr.
Telephone: (212) 635-6863
Fax: (212) 635-1480
<PAGE> 19
THE ROYAL BANK OF SCOTLAND PLC
Commitment $12,500,000.00
By: /s/ Scott Barton
Name: Scott Barton
Title: Vice President
Address: Wall Street Plaza
88 Pine Street
New York, NY 10005
Attn: Scott Barton
Telephone: (212) 269-0938
Fax: (212) 480-0791
<PAGE> 20
WACHOVIA BANK, N.A.
Commitment $12,500,000.00
By: /s/ Jeffrey S. Nurkiewicz
Name: Jeffrey S. Nurkiewicz
Title: Vice President
Address: 191 Peachtree Street, N.E.
Atlanta, GA 30303
Attn: Jeffrey S. Nurkiewicz
Telephone: (404) 332-1288
Fax: (404) 332-6898
<PAGE> 21
per pro BROWN BROTHERS HARRIMAN & CO.
Commitment $7,500,000.00
By: /s/ Jared S. Keyes
Name: Jared S. Keyes
Title: Manager
Address: 40 Water Street
Boston, MA 02103
Attn: Jared Keyes
Telephone: (617) 772-1160
Fax: (617) 772-1138
<PAGE> 22
DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH,
Individually and as Co-Agent
Commitment $15,000,000
By: /s/ John A. O'Neill
Name: John A. O'Neill
Title: Vice President
By: /s/ Daniel F. Lenzo
Name: Daniel F. Lenzo
Title: Vice President
Address: c/o Den Danske Bank, New York
Branch
280 Park Avenue, 4th Floor East
Building
New York, NY 10017
Attn: Peter Hargraves
Telephone: (212) 984-8433
Fax: (212) 599-2493
<PAGE> 23
BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE,
INC.
Commitment $12,500,000
By: /s/ Frederic W. Hall
Name: Frederic W. Hall
Title: Vice President
By: /s/ Christopher P. Miller
Name: Christopher P. Miller
Title: Senior Associate
Address: 565 Fifth Avenue
New York, NY 10017
Attn: Frederic W. Hall
Telephone: (212) 880-1036
Fax: (212) 880-1040
<PAGE> 1
EXHIBIT 4F (1)
AMENDMENT NO. 1
TO 364-DAY CREDIT AGREEMENT AND WAIVER
This Amendment No. 1 to 364-day Credit Agreement and Waiver (this
"Amendment") is entered into as of February 8, 1999, by and among Dexter
Corporation, a Connecticut corporation (the "Borrower"), The First National Bank
of Chicago, individually and as agent ("Agent"), and the other financial
institutions signatory hereto.
RECITALS
A. The Borrower, the Agent and the Lenders are party to that certain
364-day credit agreement dated as of December 15, 1998 (the "Credit Agreement").
Unless otherwise specified herein, capitalized terms used in this Amendment
shall have the meanings ascribed to them by the Credit Agreement.
B. The Borrower, the Agent and the undersigned Required Lenders wish to
amend the Credit Agreement on the terms and conditions set forth below.
Now, therefore, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
1. Amendment to Credit Agreement. The Credit Agreement is
hereby amended as follows:
(a) Section 6.10(i) of the Credit Agreement is
amended in its entirety to read as follows:
"(i) any Subsidiary may declare and pay dividends or make
distributions to its shareholders ratably relative to their
respective ownership interests in such Subsidiary and".
2. Consent and Waiver. The Required Lenders hereby waive any
Unmatured Default or Default existing under the Credit Agreement (including any
Unmatured Default or Default arising out of a breach of Sections 6.3(a) or 6.10)
which would not have arisen had this Amendment been in effect at all times since
December 15, 1998.
3. Representations and Warranties of the Borrower. The
Borrower represents and warrants that:
(a) The execution, delivery and performance by the
Borrower of this Amendment have been duly authorized by all necessary
corporate action and that this Amendment is a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as the enforcement thereof may be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally;
(b) Each of the representations and warranties
contained in the Credit Agreement is true and correct in all material
respects on and as of the date hereof as if made on the date hereof;
<PAGE> 2
(c) After giving effect to this Amendment, no Default
or Unmatured Default has occurred and is continuing.
4. Effective Date. This Amendment shall become effective upon
the execution and delivery hereof by the Borrower, the Agent and the Required
Lenders.
5. Reference to and Effect Upon the Credit Agreement.
(a) Except as specifically amended, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy
of the Agent or any Lender under the Credit Agreement or any Loan
Document, nor constitute a waiver of any provision of the Credit
Agreement or any Loan Document, except as specifically set forth
herein. Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of similar import shall mean and be a reference to the Credit
Agreement as amended hereby.
6. Costs and Expenses.
The Borrower hereby affirms its obligation under
Section 9.7 of the Credit Agreement to reimburse the Agent for all
reasonable costs, internal charges and out-of-pocket expenses paid or
incurred by the Agent in connection with the preparation, negotiation,
execution and delivery of this Amendment, including but not limited to
the attorneys' fees and time charges of attorneys for the Agent with
respect thereto.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
8. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
9. Counterparts. This Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed an original but
all such counterparts shall constitute one and the same instrument.
(signature page to follow)
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date and year first above written.
DEXTER CORPORATION
By: /s/ Dale J. Ribaudo
Name: Dale J. Ribaudo
Title: Treasurer
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Tom Dao
Name: Tom Dao
Title: Corporate Banking Officer
FLEET BANK,
Individually and as Syndication Agent
By: /s/ Marlene R. Haddad
Name: Marlene R. Haddad
Title: Senior Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
Individually and as Documentation Agent
By: /s/ Donald J. Chin
Name: Donald J. Chin
Title: Managing Director
ABN AMRO BANK N.V.,
Individually and as Co-Agent
By: /s/ James S. Adelsheim
Name: James S. Adelsheim
Title: Group Vice President
By: /s/ David A. Carroll
Name: David A. Carroll
Title: Officer
<PAGE> 4
BANKBOSTON, N.A.,
Individually and as Co-Agent
By: /s/ Harvey H. Thayer, Jr.
Name: Harvey H. Thayer, Jr.
Title: Managing Director
BANCA COMMERCIALE ITALIANA,
NEW YORK BRANCH,
Individually and as Co-Agent
By: /s/ Charles Dougherty
Name: Charles Dougherty
Title: Vice President
By: /s/ Karen Purelis
Name: Karen Purelis
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Kenneth P. Sneider, Jr.
Name: Kenneth P. Sneider, Jr.
Title: Vice President
WACHOVIA BANK, N.A.
By: /s/ Henry H. Hagan
Name: Henry H. Hagan
Title: Senior Vice President
per pro BROWN BROTHERS HARRIMAN & CO.
By: /s/ Jared S. Keyes
Name: Jared S. Keyes
Title: Manager
COMMERZBANK AG,
Individually and as Co-Agent
By: /s/ Robert Donohue
Name: Robert Donohue
Title: Senior Vice President
<PAGE> 5
By: /s/ Peter Doyle
Name: Peter Doyle
Title: Assistant Vice President
DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH,
Individually and as Co-Agent
By: /s/ Peter L. Hargraves
Name: Peter L. Hargraves
Title: Vice President
By: /s/ John A. O'Neill
Name: John A. O'Neill
Title: Vice President
FIRST UNION NATIONAL BANK,
Individually and as Co-Agent
By: /s/ Stephen T. Dorosh
Name: Stephen T. Dorosh
Title: Vice President
MELLON BANK, N.A.,
Individually and as Co-Agent
By: /s/ Mark Ricci
Name: Mark Ricci
Title: Banking Officer
SUNTRUST BANK, ATLANTA,
Individually and as Co-Agent
By: /s/ W. David Wisdom
Name: W. David Wisdom
Title: Vice President
By: /s/ Robin R. Cowan
Name: Robin R. Cowan
Title: Operations Officer
<PAGE> 6
BANQUE NATIONALE DE PARIS
By: /s/ Richard L. Sted
Name: Richard L. Sted
Title: Senior Vice President
By: /s/ Sophie Revillard Kaufman
Name: Sophie Revillard Kaufman
Title: Vice President
<PAGE> 1
EXHIBIT 4F (2)
COMMITMENT REDUCTION NOTICE
To: The First National Bank of Chicago,
As Agent (the "Agent") under the Credit
Agreement Described Below.
Re: 364 Day Credit Agreement, dated December 15, 1998 (the "Credit Agreement"),
among Dexter Corporation (the "Borrower"), the Agent, and the Lenders named
therein. Terms used herein and not otherwise defined shall have the meanings
assigned thereto in the Credit Agreement.
Ladies and Gentlemen:
The Borrower hereby gives notice under the Credit Agreement that the
Scheduled Asset Sale occurred today and the Borrower has received proceeds in
excess of $200,000,000.00. Pursuant to Section 2.7 of the Agreement, the
Aggregate Commitment under the 364 Day Credit Agreement is automatically and
permanently reduced from $300,000,000.00 to $100,000,000.00.
Very truly yours,
Dexter Corporation
By: /s/ Dale Ribaudo
Name: Dale Ribaudo
Title: Treasurer
Date: February 26, 1999
<PAGE> 1
EXHIBIT 4F (3)
AMENDMENT NO. 2
TO 364 DAY CREDIT AGREEMENT
This Amendment No. 2 to 364 Day Credit Agreement (this "Amendment") is
entered into as of September 20, 1999, by and among Dexter Corporation, a
Connecticut corporation (the "Borrower"), Bank One, NA (f/k/a The First National
Bank of Chicago), individually and as agent ("Agent"), and the other financial
institutions signatory hereto.
RECITALS
A. The Borrower, the Agent and the Lenders are party to that certain
364 day credit agreement dated as of December 15, 1998 (as amended, the "Credit
Agreement"). Unless otherwise specified herein, capitalized terms used in this
Amendment shall have the meanings ascribed to them by the Credit Agreement.
B. The Borrower, the Agent and the undersigned Lenders wish to amend
the Credit Agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
1. Amendments to Credit Agreement. The Credit Agreement is
hereby amended as follows:
(a) Section 6.1(d) of the Credit Agreement is amended
in its entirety to read as follows:
"(d) Intentionally omitted."
(b) Section 6.25 of the Credit Agreement is amended
in its entirety to read as follows:
"6.25 Intentionally Omitted."
(c) The definition of "Agreement Accounting
Principles" in Article I of the Credit Agreement is amended by deleting
the proviso thereto in its entirety.
(d) The definition of "Facility Termination Date" in
Article I of the Credit Agreement is amended by deleting the date
"December 13, 1999" and substituting in lieu thereof "September 18,
2000".
(e) The last sentence of Section 12.3.1 of the Credit
Agreement is amended by deleting it in its entirety and substituting in
lieu thereof the following:
"Each such assignment shall (unless each of the
Borrower and the Agent otherwise consents) be in an amount not less
than the lesser of (i) $10,000,000 or (ii) the remaining amount of the
assigning Lender's Commitment (calculated as at the date of such
assignment)."
<PAGE> 2
(f) The first sentence of Section 2.20 is amended by
deleting the words "date hereof" therein and substituting in lieu
thereof "Facility Termination Date."
2. Representations and Warranties of the Borrower.
The Borrower represents and warrants that:
(a) The execution, delivery and performance by the
Borrower of this Amendment have been duly authorized by all necessary
corporate action and that this Amendment is a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as the enforcement thereof may be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights
generally;
(b) Each of the representations and warranties
contained in the Credit Agreement is true and correct in all material
respects on and as of the date hereof as if made on the date hereof;
(c) After giving effect to this Amendment, no Default
or Unmatured Default has occurred and is continuing.
3. Effective Date. This Amendment shall become effective as of
the date first written above upon the execution and delivery hereof by the
Borrower, the Agent and all of the Lenders.
4. Reference to and Effect Upon the Credit Agreement.
(a) Except as specifically amended, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(b) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy
of the Agent or any Lender under the Credit Agreement or any Loan
Document, nor constitute a waiver of any provision of the Credit
Agreement or any Loan Document, except as specifically set forth
herein. Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of similar import shall mean and be a reference to the Credit
Agreement as amended hereby.
5. Costs and Expenses.
The Borrower hereby affirms its obligation under Section 9.7
of the Credit Agreement to reimburse the Agent for all reasonable costs,
internal charges and out-of-pocket expenses paid or incurred by the Agent in
connection with the preparation, negotiation, execution and delivery of this
Amendment, including but not limited to the attorneys' fees and time charges of
attorneys for the Agent with respect thereto.
-2-
<PAGE> 3
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION,
735 ILCS SECTION 105/5-1 ET SEQ., BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS
OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
7. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
8. Counterparts. This Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed an original but
all such counterparts shall constitute one and the same instrument.
(signature pages follow)
-3-
<PAGE> 4
REAFFIRMATION OF GUARANTY
Each of the undersigned acknowledges receipt of a copy of the Amendment
No. 2 to the Dexter Corporation 364 Day Credit Agreement (the "Amendment") dated
September 20, 1999, consents to such Amendment and hereby reaffirms its
obligations under the Subsidiary Guaranty (as defined in the Agreement).
Dated as of August 26, 1999.
DEXTER MAGNETIC TECHNOLOGIES, INC.
By: /s/ Bruce H. Beatt
Name: Bruce H. Beatt
Title: Assistant Secretary
DEXTER HYSOL AEROSPACE, INC.
By: /s/ Bruce H. Beatt
Name: Bruce H. Beatt
Title: Secretary
DEXTER ACQUISITION DELAWARE, INC.
By: /s/ Bruce H. Beatt
Name: Bruce H. Beatt
Title: Secretary
<PAGE> 5
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent
have executed this Agreement as of the date first above written.
DEXTER CORPORATION
By: /s/ Rosanne Potter
Name: Rosanne Potter
Title: Treasurer
Address: One Elm Street
Windsor Locks, CT 06096-2334
Attn: Rosanne S. Potter
Telephone: (860) 292-7621
Fax: (860) 654-8429
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 6
BANK ONE, NA,
(Main Office -- Chicago),
Individually and as Agent
Commitment $20,833,333.32
By: /s/ C. L. Turner III
Name: C. L. Turner III
Title: Managing Director
Address: 151 West 51st Street
New York, NY 10019
Attn: C. L. Turner
Telephone: (212) 373-1574
Fax: (212) 373-1180
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 7
FLEET NATIONAL BANK,
Individually and as Syndication Agent
Commitment $10,000,000.00
By: /s/ Roger C. Boucher
Name: Roger C. Boucher
Title: Senior Vice President
Address: One Federal Street
MA0FD07L
Boston, MA 02110
Attn: Roger C. Boucher
Telephone: (617) 346-0616
Fax: (617) 346-0145
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 8
BANK OF AMERICA, N.A.
Individually and as Documentation Agent
Commitment $10,000,000.00
By: /s/ Wendy Gorman
Name: Wendy Gorman
Title: Vice President
Address: 335 Madison Avenue
New York, NY 10017
Attn: Wendy Gorman
Telephone: (212) 503-7363
Fax: (212) 503-7878
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 9
ABN AMRO BANK N.V.,
Individually and as Co-Agent
Commitment $5,000,000.00
By: /s/ Hamilton Bullard
Name: Hamilton Bullard
Title: Assistant Vice President
Address: 208 South LaSalle Street
Suite 1500
Chicago, IL 60603
Attn: James S. Adelsheim
Telephone: (312) 992-5110
Fax: (312) 992-5111
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 10
BANKBOSTON, N.A.,
Individually and as Co-Agent
Commitment $5,000,000.00
By: /s/ Harvey H. Thayer, Jr.
Name: Harvey H. Thayer, Jr.
Title: Managing Director
Address: 100 Federal Street
MS 01-10-01
Boston, MA 02110
Attn: Harvey H. Thayer, Jr.
Telephone: (617) 434-1996
Fax: (617) 434-0601
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 11
BANK OF TOKYO MITSUBISHI TRUST COMPANY ,
Individually and as Co-Agent
Commitment $5,000,000.00
By: /s/ Pamela Donnelly
Name: Pamela Donnelly
Title: Vice President
Address: 1251 Avenue of the Americas
12th Floor
New York, NY 10020-1104
Attn: Pamela Donnelly
Telephone: (212) 782-5637
Fax: (212) 782-5635
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 12
BANCA COMMERCIALE ITALIANA,
NEW YORK BRANCH ,
Individually and as Co-Agent
Commitment $5,000,000.00
By: /s/ Charles Dougherty
Name: Charles Dougherty
Title: Vice President
By: /s/ E. Bermant
Name: E. Bermant
Title: FVP/Deputy Manager
Address: One William Street
New York, NY 10004
Attn: Charles Dougherty
Telephone: (212) 607-3883
Fax: (212) 809-2124
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 13
COMMERZBANK AG
New York and Grand Cayman Branches,
Individually and as Co-Agent
Commitment $5,000,000.00
By: /s/ Robert Donohue
Name: Robert Donohue
Title: Senior Vice President
By: /s/ Peter Doyle
Name: Peter Doyle
Title: Assistant Vice President
Address: 2 World Financial Center
New York, NY 10281
Attn: Robert Donohue
Peter T. Doyle
Telephone: (212) 266-7659
Fax: (212) 266-7594
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 14
FIRST UNION NATIONAL BANK,
Individually and as Co-Agent
Commitment $5,000,000.00
By: /s/ Stephen Dorosh
Name: Stephen Dorosh
Title: Vice President
Address: 10 State House Square, 2nd Floor
Hartford, CT 06103
Attn: Matt Riley
Telephone: (860) 692-7214
Fax: (860) 247-1356
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 15
MELLON BANK, N.A.,
Individually and as Co-Agent
Commitment $5,000,000.00
By: /s/ William M. Feathers
Name: William M. Feathers
Title: Assistant Vice President
Address: One Mellon Bank Center, Room 0370
Pittsburgh, PA 15258
Attn: William M. Feathers
Telephone: (412) 234-4598
Fax: (412) 234-8888
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 16
SUNTRUST BANK, ATLANTA,
Individually and as Co-Agent
Commitment $5,000,000.00
By: /s/ W. David Wisdom
Name: W. David Wisdom
Title: Vice President
Address: 711 5th Avenue, 16th Floor
New York, NY 10022
Attn: Craig W. Farnsworth
Telephone: (212) 583-2608
Fax: (212) 371-9386
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 17
BANQUE NATIONALE DE PARIS
Commitment $4,166,666.67
By: /s/ Sophie Revillard Kaufman
Name: Sophie Revillard Kaufman
Title: Vice President
By: /s/ Gwen Abbott
Name: Gwen Abbott
Title: Assistant Vice President
Address: 499 Park Avenue
New York, NY 10022
Attn: Sophie Revillard Kaufman
Telephone: (212) 415-9601
Fax: (212) 415-9606
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 18
THE BANK OF NEW YORK
Commitment $4,166,666.67
By: /s/ Kenneth P. Sneider, Jr.
Name: Kenneth P. Sneider, Jr.
Title: Vice President
Address: One Wall Street - 22nd Floor
New York, NY 10286
Attn: Kenneth P. Sneider, Jr.
Telephone: (212) 635-6863
Fax: (212) 635-1480
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 19
THE ROYAL BANK OF SCOTLAND PLC
Commitment $4,166,666.67
By: /s/ Scott Barton
Name: Scott Barton
Title: Vice President
Address: Wall Street Plaza
88 Pine Street
New York, NY 10005
Attn: Scott Barton
Telephone: (212) 269-0938
Fax: (212) 480-0791
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 20
WACHOVIA BANK, N.A.
Commitment $4,166,666.67
By: /s/ Jeffrey S. Nurkiewicz
Name: Jeffrey S. Nurkiewicz
Title: Vice President
Address: 191 Peachtree Street, N.E.
Atlanta, GA 30303
Attn: Jeffrey S. Nurkiewicz
Telephone: (404) 332-1288
Fax: (404) 332-6898
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 21
per pro BROWN BROTHERS HARRIMAN & CO.
Commitment $2,500,000.00
By: /s/ Jared S. Keyes
Name: Jared S. Keyes
Title: Manager
Address: 40 Water Street
Boston, MA 02103
Attn: Jared Keyes
Telephone: (617) 772-1160
Fax: (617) 772-1138
Amendment No. 2 - 364 Day Credit Agreement
<PAGE> 1
EXHIBIT 10 A
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of September 20,
1999, by and between the Dexter Corporation, a Connecticut corporation (the
"Company"), and K. Grahame Walker (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a senior executive or key employee of the
Company and has made and is expected to continue to make major contributions to
the short and long-term profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executive officers and other key
employees, including the Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that its senior executives and
other key employees are not practically disabled from discharging their duties
in respect of a proposed or actual transaction involving a Change in Control;
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company; and
WHEREAS, this agreement is intended to supersede and replace the
Agreement (the "Prior Agreement") between the Company and the Executive
described on Annex A hereto.
NOW, THEREFORE, the Company and Executive agree as follows:
1. Certain Defined Terms: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a rate
not less than the Executive's annual fixed or base compensation as in effect for
Executive immediately prior to the occurrence of a Change in Control or such
higher rate as may be determined from time to time by the Board of Directors of
the Company (the "Board") or a Committee thereof;
(b) "Cause" means that, prior to any termination pursuant to Section
3(b) hereof, the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or theft in
connection with his duties or in the course of his employment with
the Company or any Subsidiary;
<PAGE> 2
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(ii) intentional wrongful damage to property of the Company or
any Subsidiary;
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) intentional wrongful engagement in any Competitive
Activity;
and any such act shall have been materially harmful to the Company. For purposes
of this Agreement, no act or failure to act on the part of the Executive shall
be deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done or omitted to be done
by the Executive not in good faith and without reasonable belief that his action
or omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the Board then in office at a meeting of the Board called and
held for such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if the Executive
chooses to have counsel present at such meeting), to be heard before the Board,
finding that, in the good faith opinion of the Board, the Executive had
committed an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or propriety of any such
determination;
(c) "Change in Control" means the occurrence during the Term of any
of the following events:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 19% or more of the combined
voting power of the then outstanding Voting Stock of the Company;
provided, however, that for purposes of this Section 1(c)(i), the
following acquisitions shall not constitute a Change in Control: (A)
any issuance of Voting Stock of the Company directly from the
Company that is approved by the Incumbent Board (as defined in
Section 1(c)(ii), below), (B) any acquisition by the Company of
Voting Stock of the Company, (C) any acquisition of Voting Stock of
the Company by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary, or (D) any
acquisition of Voting Stock of the Company by any Person pursuant to
a Business Combination that complies with clauses (A), (B) and (C)
of section 1(c)(iii) below; or
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a Director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least two-thirds of the Directors then
comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such
nomination) shall be deemed to have been a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or
<PAGE> 3
-3-
threatened election contest (within the meaning of Rule 14a-11 of
the Exchange Act) with respect to the election or removal of
Directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(iii) consummation of a reorganization, merger or consolidation,
a sale or other disposition of all or substantially all of the
assets of the Company, or other transaction (each, a "Business
Combination"), unless, in each case, immediately following such
Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners of Voting
Stock of the Company immediately prior to such Business Combination
beneficially own, directly or indirectly, more than two-thirds of
the combined voting power of the then outstanding shares of Voting
Stock of the entity resulting from such business Combination
(including, without limitation, an entity which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries), (B) no Person (other than the Company, such entity
resulting form such Business Combination, or any employee benefit
plan (or related trust) sponsored or maintained by the Company, any
Subsidiary or such entity resulting form such Business Combination)
beneficially owns, directly or indirectly, 19% or more of the
combined voting power of the then outstanding shares of Voting Stock
of the entity resulting from such Business Combination, and (C) at
least a majority of the members of the Board of Directors of the
entity resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial
agreement or of the action of the Board providing for such Business
Combination; or
(iv) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company, except pursuant to a
Business Combination that complies with clauses (A), (B) and (C) of
Section 1(c)(iii).
(d) "Competitive Activity" means the Executive's participation,
without the written consent of an officer of the Company, in the management of
any business enterprise if such enterprise engages in substantial and direct
competition with the Company and such enterprise's sales of any product or
service competitive with any product or service of the Company amounted to 10%
of such enterprise's net sales for its most recently completely fiscal year and
if the Company's net sales of said product or service amounted to 10% of the
Company's net sales for its most recently completed fiscal year. "Competitive
Activity" will not include (i) the mere ownership of securities in any such
enterprise and the exercise of rights appurtenant thereto and (ii) participation
in the management of any such enterprise other than in connection with the
competitive operations of such enterprise;
(e) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under any and all employee retirement income and
welfare benefit policies, plans, programs or arrangements in which Executive is
entitled to participate, including without limitation any stock option, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement, or other retirement income or welfare benefit, deferred
compensation, incentive compensation, group or other life, health,
medical/hospital or other insurance (whether funded by actual insurance or
self-insured by the Company), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies, plans,
programs or arrangements that
<PAGE> 4
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may be adopted hereafter by the Company, providing perquisites, benefits and
service credit for benefits at least as great in the aggregate as are payable
thereunder prior to a Change in Control;
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(g) "Incentive Pay" means an annual amount equal to not less than
the highest aggregate annual bonus, incentive or other payments of cash
compensation, in addition to Base Pay, made or to be made in regard to services
rendered in any calendar year during the three calendar years immediately
preceding the year in which the Change in Control occurred pursuant to any
bonus, incentive, profit-sharing, performance, discretionary pay or similar
agreement, policy, plan, program or arrangement (whether or not funded) of the
Company, or any successor thereto providing benefits at least as great as the
benefits payable thereunder prior to a Change in Control;
(h) "Severance Period" means the period of time commencing on the
date of an occurrence of a Change in Control and continuing until the earliest
of (i) the expiration of thirty days after the first anniversary of the
occurrence of the Change in Control, (ii) the Executive's death, or (iii) the
Executive's attainment of age 65; provided, however, that commencing on the 30th
day following each anniversary of the Change in Control, the Severance Period
will automatically be extended for an additional year unless, not later than 120
calendar days prior to such date, either the Company or the Executive shall have
given written notice to the other that the Severance Period is not to be so
extended; and
(i) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(j) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on December 31, 2003, or
(ii) the expiration of the Severance Period; provided, however, that (A)
commencing on January 1, 2004 and each January 1 thereafter, the term of this
Agreement will automatically be extended for an additional year unless, not
later than September 30 of the immediately preceding year, the Company or the
Executive shall have given notice that it or the Executive, as the case may be,
does not wish to have the Term extended and (B) if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company or
any Subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 1(j), the Executive shall not be deemed to
have ceased to be an employee of the Company or any Subsidiary by reason of the
transfer of Executive's employment between the Company and any Subsidiary, or
among any Subsidiaries.
(k) "Voting Stock" means securities entitled to vote generally in
the election of directors.
2. Operation of Agreement: This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement will not be operative unless and until a Change
in Control occurs, whereupon without further action this Agreement shall become
immediately operative.
3. Termination Following a Change in Control: (a) In the event of the
occurrence of a Change in Control, the Executive's employment may be terminated
by the Company during
<PAGE> 5
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the Severance Period and the Executive shall not be entitled to the benefits
provided by Section 4 only upon the occurrence of one or more of the following
events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits
pursuant to, the long-term disability plan in effect for, or
applicable to, Executive immediately prior to the Change in Control;
or
(iii) Cause.
If, during the Severance Period, the Executive's employment is terminated by the
Company other than pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii), the
Executive will be entitled to the benefits provided by Section 4 hereof.
b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary during
the Severance Period with the right to severance compensation as provided in
Section 4 upon the occurrence of one or more of the following events (regardless
of whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially
equivalent office or position, of or with the Company and/or a
Subsidiary, as the case may be, which the Executive held immediately
prior to a Change in Control, or the removal of the Executive as a
Director of the Company (or any successor thereto) if the Executive
shall have been a Director of the Company immediately prior to the
Change in Control;
(ii) (I) A significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties
attached to the position with the Company and any Subsidiary which
the Executive held immediately prior to the Change in Control; (II)
a reduction in the aggregate of the Executive's Base Pay and
Incentive Pay received from the Company and any Subsidiary; or (III)
the termination or denial of the Executive's rights to Employee
Benefits or a reduction in the scope or value thereof;
(iii) A determination by the Executive (which determination will
be conclusive and binding upon the parties hereto provided it has
been made in good faith and in all events will be presumed to have
been made in good faith unless otherwise shown by the Company by
clear and convincing evidence) that a change in circumstances has
occurred following a Change in Control, including without limitation
a change in the scope of the business or other activities for which
the Executive was responsible immediately prior to the Change in
Control, which has rendered the Executive substantially unable to
carry out, has substantially hindered Executive's performance of, or
has caused Executive to suffer a substantial reduction in, any of
the authorities, powers, functions, responsibilities or duties
attached to the position held by the Executive immediately prior to
the Change in Control, which situation is not remedied within
<PAGE> 6
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10 calendar days after written notice to the Company from the
Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially
all of its business and/or assets, unless the successor or
successors (by liquidation, merger, consolidation, reorganization,
transfer or otherwise) to which all or substantially all of its
business and/or assets have been transferred (directly or by
operation of law) assumed all duties and obligations of the Company
under this Agreement pursuant to Section 10(a);
(v) The Company relocates its principal executive offices, or
requires the Executive to have his principal location of work
changed, to any location which is in excess of 25 miles from the
location thereof immediately prior to the Change of' Control, or
requires the Executive to travel away from his office in the course
of discharging his responsibilities or duties hereunder at least 20%
more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to any
prior year) than was required of Executive in any of the three full
years immediately prior to the Change of Control without, in either
case, his prior written consent;
(vi) During the period commencing on the 30th day immediately
preceding the date on which the Severance Period, including any
extension thereof, is scheduled to terminate pursuant to Section
1(h) (other than termination of the Severance Period pursuant to
Section 1(h)(iii) which shall not entitle Executive to terminate
employment under this Section 3(b)(vi)) and ending on the last day
of the Severance Period, for any reason, including without
limitation other employment; or
(vii) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or
any successor thereto.
(c) A termination by the Company pursuant to Section 3(a) or by the
Executive pursuant to Section 3(b) will not affect any rights which the
Executive may have pursuant to any agreement, policy, plan, program or
arrangement of the Company providing Employee Benefits, which rights shall be
governed by the terms thereof.
4. Severance Compensation: (a) If, following the occurrence of a Change
in Control, the Company terminates the Executive's employment during the
Severance Period other than pursuant to Section 3(a), or if the Executive
terminates his employment pursuant to Section 3(b), the Company will pay to the
Executive the following amounts within five business days after the date (the
"Termination Date") that the Executive's employment is terminated (the effective
date of which shall be the date of termination, or such other date that may be
specified by the Executive if the termination is pursuant to Section 3(b)) and
continue to provide to the Executive the following benefits:
(i) A lump sum payment (the "Severance Payment") in an amount
equal to the multiple set forth under Column I on Annex A hereto
times the sum of (A) Base Pay (at the highest rate in effect for any
period prior to the Termination Date), plus (B) Incentive Pay
(determined in accordance with the standards set forth in Section
1(g)).
<PAGE> 7
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(ii) (A) for, the number of months set forth under Column II on
Annex A hereto (the "Continuation Period") following the Termination
Date, the Company will arrange to provide the Executive with
Employee Benefits that are welfare benefits (but not stock option,
stock purchase, stock appreciation or similar compensatory benefits)
substantially similar to those which the Executive was receiving or
entitled to receive immediately prior to the Termination Date, and
(B) such Continuation Period will be considered service with the
Company for the purpose of determining service credits and benefits
due and payable to the Executive under the Company's retirement
income, supplemental executive retirement and other benefit plans of
the Company applicable to the Executive, his dependents or his
beneficiaries immediately prior to the Termination Date. If and to
the extent that any benefit described in subsections (A) and (B) of
this Section 4(a)(ii) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any
Subsidiary, as the case may be, then the Company will itself pay or
provide for the payment to the Executive, his dependents and
beneficiaries, of such Employee Benefits. Without otherwise limiting
the purposes or effect of Section 5, Employee Benefits otherwise
receivable by the Executive pursuant to the subsection (A) of this
Section 4(a)(ii) will be reduced to the extent comparable welfare
benefits are actually received by the Executive from another
employer during the Continuation Period following the Executive's
Termination Date.
(b) Upon the occurrence of a Change in Control, and without regard
to the termination of the employment of the Executive, all outstanding and
unexercised options theretofore granted by the Company shall, notwithstanding
anything to the contrary set forth in the plan or agreement relating to such
options, become immediately exercisable in full.
(c) Upon the occurrence of a Change in Control, and without regard
to the termination of the employment of the Executive, any and all restrictions
on all outstanding restricted stock theretofore granted by the Company shall,
notwithstanding anything to the contrary set forth in the plan or agreement
relating to such restricted stock, expire immediately.
(d) There will be no right of set-off or counterclaim in respect of
any claim, debt or obligation against any payment to or benefit for the
Executive provided for in this Agreement, except as expressly provided in the
last sentence of Section 4(a)(ii).
(e) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit required
to be made or provided hereunder on a timely basis, the Company will pay
interest on the amount or value thereof at an annualized rate of interest equal
to the so-called composite "prime rate" as quoted from time to time during the
relevant period in the Northeast Edition of The Wall Street Journal. Such
interest will be payable as it accrues on demand. Any change in such prime rate
will be effective on and as of the date of such change.
(f) Notwithstanding any other provision hereof, the parties'
respective rights and obligations under this Section 4 and under Section 7 will
survive any termination or expiration of this Agreement following a Change in
Control or the termination of the Executive's employment following a Change in
Control for any reason whatsoever.
5. No Mitigation Obligation: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment
<PAGE> 8
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following the Termination Date, and (b) to measure the amount of damages which
Executive may suffer as a result of termination of employment hereunder.
Accordingly, the payment of the severance compensation by the Company to the
Executive in accordance with the terms of this Agreement is hereby acknowledged
by the Company to be reasonable and will be liquidated damages, and the
Executive will not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor will any
profits, income, earnings or other benefits from any source whatsoever create
any mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a)(ii).
6. Certain Additional Payments by the Company: (a) Anything in this
Agreement to the contrary notwithstanding, in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment or distribution by the Company or any of its affiliates to or for
the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise pursuant to
or by reason of any other agreement, policy, plan, program or arrangement,
including without limitation any stock option, stock appreciation right or
similar right, or the lapse or termination of any restriction on or the vesting
or exercisability of any of the foregoing (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any successor provision thereto) by reason of being
considered "contingent on a change in ownership or control" of the Company,
within the meaning of Section 280G of the Code (or any successor provision
thereto) or to any similar tax imposed by state or local law, or any interest or
penalties with respect to such tax (such tax or taxes, together with any such
interest and penalties, being hereafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment or
payments (collectively, a "Gross-Up Payment"); provided, however, that no
Gross-up Payment shall be made with respect to the Excise Tax, if any,
attributable to (A) any incentive stock option, as defined in Section 422A of
the Code ("ISO") granted prior to the execution of this Agreement, or (B) any
stock appreciation or similar right, whether or not limited, granted in tandem
with any ISO described in clause (A). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including any Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 6(f) hereof, all
determinations required to be made under this Section 6, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Termination Date, if
applicable, and any such other time or times as may be requested by the Company
or the Executive. If the Accounting Firm determines that any Excise Tax is
payable by the Executive, the Company shall pay the required Gross-Up Payment to
the Executive within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it shall, at the
same time as it makes such determination, furnish the Company and the Executive
an opinion that the Executive has substantial authority not to report any Excise
Tax on his federal, state or local income or other tax return. As a result of
the uncertainty in the application of Section 4999 of the Code (or any
<PAGE> 9
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successor provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Section
6(f) hereof and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by Section 6(b) hereof. Any determination by the Accounting Firm as
to the amount of the Gross-Up Payment shall be binding upon the company and the
Executive.
(d) The federal, state and local income or other tax returns filed
by the Executive shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section 6(b)
hereof shall be borne by the Company. If such fees and expenses are initially
paid by the Executive, the Company shall reimburse the Executive the full amount
of such fees and expenses within five business days after receipt from the
Executive of a statement therefor and reasonable evidence of his payment
thereof.
(f) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than 10
business days after the Executive actually receives notice of such claim and the
Executive shall further apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid (in each case, to the extent
known by the Executive). The Executive shall not pay such claim prior to the
earlier of (i) the expiration of the 30-calendar-day period following the date
on which he gives such notice to the Company and (ii) the date that any payment
of amount with respect to such claim is due. If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
<PAGE> 10
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(i) provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the
Company;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including without limitation accepting legal representation
with respect to such claim by an attorney competent in respect of
the subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 6(f), the Company shall control all proceedings taken in connection with
the contest of any claim contemplated by this Section 6(f) and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
(provided, however, that the Executive may participate therein at his own cost
and expense) and may, at its option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income or other tax, including interest
or penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such contested claim
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(g) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 6(f) hereof, the Executive receives any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 6(f) hereof) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after any taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 6(f) hereof,
a determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial or refund prior to the expiration
of 30 calendar days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of any such
<PAGE> 11
-11-
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this Section 6.
7. Legal Fees and Expenses; Security. (a) It is the intent of the
Company that the Executive not be required to incur legal fees and the related
expenses associated with the interpretation, enforcement or defense of
Executive's rights under this Agreement by litigation or otherwise because the
cost and expense thereof would substantially detract from the benefits intended
to be extended to the Executive hereunder. Accordingly, if it should appear to
the Executive that the Company has failed to comply with any of its obligations
under this Agreement or in the event that the Company or any other person takes
or threatens to take any action to declare this Agreement void or unenforceable,
or institutes any litigation or other action or proceeding designed to deny, or
to recover from, the Executive the benefits provided or intended to be provided
to the Executive hereunder, the Company irrevocably authorizes the Executive
from time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all, attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
(b) The severance compensation, benefits and other amounts payable
pursuant to this Agreement shall be secured by amounts deposited or to be
deposited in trust pursuant to certain trust agreements to which the Company
shall be a party.
8. Employment Rights; Termination Prior to Change in Control: Nothing
expressed or implied in this Agreement will create any right or duty on the part
of the Company or the Executive to have the Executive remain in the employment
of the Company or any Subsidiary prior to or following any Change in Control.
Any termination of employment of the Executive or the removal of the Executive
from the office or position in the Company following the commencement of any
discussion with a third person that ultimately results in a change in control
shall be deemed to be a termination or removal of the Executive after a Change
in Control for purposes of this Agreement.
9. Withholding of Taxes: The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
10. Successors and Binding Agreement: (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly all or
substantially all of the business or assets of the
<PAGE> 12
-12-
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 10(a) and 10(b) hereof. Without limiting the generality or
effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by Executive's
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 10(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
11. Notices: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express, UPS, or Purolator, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
12. Governing Law: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Connecticut, without giving effect to
the principles of conflict of laws of such State.
13. Validity: If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
14. Miscellaneous: No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
<PAGE> 13
-13-
15. Counterparts: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
16. Prior Agreement: This Agreement supersedes and replaces the Prior
Agreement which shall, without further action, be terminated as of the date
hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
DEXTER CORPORATION
By /s/ David G. Gordon
-------------------------------------
David G. Gordon, President
By /s/ K. Grahame Walker
-------------------------------------
K. Grahame Walker
<PAGE> 14
-14-
ANNEX A
<TABLE>
<CAPTION>
Months of Welfare
Multiple of Annual Benefit Continuation
Prior Base Salary and and Additional Retirement
Agreement Incentive Pay Severance Income Service Credit
--------- ----------------------- -------------------------
<S> <C> <C>
December 15, 1989 2 24
</TABLE>
<PAGE> 1
EXHIBIT 10 B
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of September 20,
1999, by and between the Dexter Corporation, a Connecticut corporation (the
"Company"), and Ronald C. Benham (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a senior executive or key employee of the
Company and has made and is expected to continue to make major contributions to
the short and long-term profitability, growth and financial strength of the
Company;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executive officers and other key
employees, including the Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that its senior executives and
other key employees are not practically disabled from discharging their duties
in respect of a proposed or actual transaction involving a Change in Control;
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company; and
WHEREAS, this agreement is intended to supersede and replace the
Agreement (the "Prior Agreement") between the Company and the Executive
described on Annex A hereto.
NOW, THEREFORE, the Company and Executive agree as follows:
1. Certain Defined Terms: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a
rate not less than the Executive's annual fixed or base compensation as in
effect for Executive immediately prior to the occurrence of a Change in Control
or such higher rate as may be determined from time to time by the Board of
Directors of the Company (the "Board") or a Committee thereof;
(b) "Cause" means that, prior to any termination pursuant to
Section 3(b) hereof, the Executive shall have committed:
(i) an intentional act of fraud, embezzlement or
theft in connection with his duties or in the course of his
employment with the Company or any Subsidiary;
<PAGE> 2
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(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret
processes or confidential information of the Company or any
Subsidiary; or
(iv) intentional wrongful engagement in any
Competitive Activity;
and any such act shall have been materially harmful to the Company. For purposes
of this Agreement, no act or failure to act on the part of the Executive shall
be deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done or omitted to be done
by the Executive not in good faith and without reasonable belief that his action
or omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the Board then in office at a meeting of the Board called and
held for such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if the Executive
chooses to have counsel present at such meeting), to be heard before the Board,
finding that, in the good faith opinion of the Board, the Executive had
committed an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or propriety of any such
determination;
(c) "Change in Control" means the occurrence during the Term of any of
the following events:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 19% or more of the combined voting power of the then
outstanding Voting Stock of the Company; provided, however,
that for purposes of this Section 1(c)(i), the following
acquisitions shall not constitute a Change in Control: (A) any
issuance of Voting Stock of the Company directly from the
Company that is approved by the Incumbent Board (as defined in
Section 1(c)(ii), below), (B) any acquisition by the Company
of Voting Stock of the Company, (C) any acquisition of Voting
Stock of the Company by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
Subsidiary, or (D) any acquisition of Voting Stock of the
Company by any Person pursuant to a Business Combination that
complies with clauses (A), (B) and (C) of section 1(c)(iii)
below; or
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a Director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least two-thirds of the Directors then comprising
the Incumbent Board (either by a specific vote or by approval
of the proxy statement of the Company in which such person is
named as a nominee for director, without objection to such
nomination) shall be deemed to have been a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or
<PAGE> 3
-3-
threatened election contest (within the meaning of Rule 14a-11
of the Exchange Act) with respect to the election or removal
of Directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board; or
(iii) consummation of a reorganization, merger or
consolidation, a sale or other disposition of all or
substantially all of the assets of the Company, or other
transaction (each, a "Business Combination"), unless, in each
case, immediately following such Business Combination, (A) all
or substantially all of the individuals and entities who were
the beneficial owners of Voting Stock of the Company
immediately prior to such Business Combination beneficially
own, directly or indirectly, more than two-thirds of the
combined voting power of the then outstanding shares of Voting
Stock of the entity resulting from such business Combination
(including, without limitation, an entity which as a result of
such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries), (B) no Person (other than the Company, such
entity resulting form such Business Combination, or any
employee benefit plan (or related trust) sponsored or
maintained by the Company, any Subsidiary or such entity
resulting form such Business Combination) beneficially owns,
directly or indirectly, 19% or more of the combined voting
power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination, and (C) at
least a majority of the members of the Board of Directors of
the entity resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of
the initial agreement or of the action of the Board providing
for such Business Combination; or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company, except
pursuant to a Business Combination that complies with clauses
(A), (B) and (C) of Section 1(c)(iii).
(d) "Competitive Activity" means the Executive's
participation, without the written consent of an officer of the Company, in the
management of any business enterprise if such enterprise engages in substantial
and direct competition with the Company and such enterprise's sales of any
product or service competitive with any product or service of the Company
amounted to 10% of such enterprise's net sales for its most recently completely
fiscal year and if the Company's net sales of said product or service amounted
to 10% of the Company's net sales for its most recently completed fiscal year.
"Competitive Activity" will not include (i) the mere ownership of securities in
any such enterprise and the exercise of rights appurtenant thereto and (ii)
participation in the management of any such enterprise other than in connection
with the competitive operations of such enterprise;
(e) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee retirement
income and welfare benefit policies, plans, programs or arrangements in which
Executive is entitled to participate, including without limitation any stock
option, stock purchase, stock appreciation, savings, pension, supplemental
executive retirement, or other retirement income or welfare benefit, deferred
compensation, incentive compensation, group or other life, health,
medical/hospital or other insurance (whether funded by actual insurance or
self-insured by the Company), disability, salary continuation, expense
reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies, plans,
programs or arrangements that
<PAGE> 4
-4-
may be adopted hereafter by the Company, providing perquisites, benefits and
service credit for benefits at least as great in the aggregate as are payable
thereunder prior to a Change in Control;
(f) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(g) "Incentive Pay" means an annual amount equal to not less
than the highest aggregate annual bonus, incentive or other payments of cash
compensation, in addition to Base Pay, made or to be made in regard to services
rendered in any calendar year during the three calendar years immediately
preceding the year in which the Change in Control occurred pursuant to any
bonus, incentive, profit-sharing, performance, discretionary pay or similar
agreement, policy, plan, program or arrangement (whether or not funded) of the
Company, or any successor thereto providing benefits at least as great as the
benefits payable thereunder prior to a Change in Control;
(h) "Severance Period" means the period of time commencing on
the date of an occurrence of a Change in Control and continuing until the
earliest of (i) the expiration of thirty days after the first anniversary of the
occurrence of the Change in Control, (ii) the Executive's death, or (iii) the
Executive's attainment of age 65; provided, however, that commencing on the 30th
day following each anniversary of the Change in Control, the Severance Period
will automatically be extended for an additional year unless, not later than 120
calendar days prior to such date, either the Company or the Executive shall have
given written notice to the other that the Severance Period is not to be so
extended; and
(i) "Subsidiary" means an entity in which the Company directly
or indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(j) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on December 31, 2003,
or (ii) the expiration of the Severance Period; provided, however, that (A)
commencing on January 1, 2004 and each January 1 thereafter, the term of this
Agreement will automatically be extended for an additional year unless, not
later than September 30 of the immediately preceding year, the Company or the
Executive shall have given notice that it or the Executive, as the case may be,
does not wish to have the Term extended and (B) if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company or
any Subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 1(j), the Executive shall not be deemed to
have ceased to be an employee of the Company or any Subsidiary by reason of the
transfer of Executive's employment between the Company and any Subsidiary, or
among any Subsidiaries.
(k) "Voting Stock" means securities entitled to vote generally
in the election of directors.
2. Operation of Agreement: This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement will not be operative unless and until a Change
in Control occurs, whereupon without further action this Agreement shall become
immediately operative.
3. Termination Following a Change in Control: (a) In the event of the
occurrence of a Change in Control, the Executive's employment may be terminated
by the Company during
<PAGE> 5
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the Severance Period and the Executive shall not be entitled to the benefits
provided by Section 4 only upon the occurrence of one or more of the following
events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled
within the meaning of, and begins actually to receive
disability benefits pursuant to, the long-term disability plan
in effect for, or applicable to, Executive immediately prior
to the Change in Control; or
(iii) Cause.
If, during the Severance Period, the Executive's employment is terminated by the
Company other than pursuant to Section 3(a)(i), 3(a)(ii) or 3(a)(iii), the
Executive will be entitled to the benefits provided by Section 4 hereof.
b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary during
the Severance Period with the right to severance compensation as provided in
Section 4 upon the occurrence of one or more of the following events (regardless
of whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a Subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a Director of the Company (or
any successor thereto) if the Executive shall have been a
Director of the Company immediately prior to the Change in
Control;
(ii) (I) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and any Subsidiary which the Executive held
immediately prior to the Change in Control; (II) a reduction
in the aggregate of the Executive's Base Pay and Incentive Pay
received from the Company and any Subsidiary; or (III) the
termination or denial of the Executive's rights to Employee
Benefits or a reduction in the scope or value thereof;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including without limitation a
change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused Executive to suffer
a substantial reduction in, any of the authorities, powers,
functions, responsibilities or duties attached to the position
held by the Executive immediately prior to the Change in
Control, which situation is not remedied within
<PAGE> 6
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10 calendar days after written notice to the Company from the
Executive of such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of law) assumed all
duties and obligations of the Company under this Agreement
pursuant to Section 10(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location which is in excess
of 25 miles from the location thereof immediately prior to the
Change of' Control, or requires the Executive to travel away
from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any of the
three full years immediately prior to the Change of Control
without, in either case, his prior written consent;
(vi) During the period commencing on the 30th day
immediately preceding the date on which the Severance Period,
including any extension thereof, is scheduled to terminate
pursuant to Section 1(h) (other than termination of the
Severance Period pursuant to Section 1(h)(iii) which shall not
entitle Executive to terminate employment under this Section
3(b)(vi)) and ending on the last day of the Severance Period,
for any reason, including without limitation other employment;
or
(vii) Without limiting the generality or effect of
the foregoing, any material breach of this Agreement by the
Company or any successor thereto.
(c) A termination by the Company pursuant to Section 3(a) or
by the Executive pursuant to Section 3(b) will not affect any rights which the
Executive may have pursuant to any agreement, policy, plan, program or
arrangement of the Company providing Employee Benefits, which rights shall be
governed by the terms thereof.
4. Severance Compensation: (a) If, following the occurrence of a Change
in Control, the Company terminates the Executive's employment during the
Severance Period other than pursuant to Section 3(a), or if the Executive
terminates his employment pursuant to Section 3(b), the Company will pay to the
Executive the following amounts within five business days after the date (the
"Termination Date") that the Executive's employment is terminated (the effective
date of which shall be the date of termination, or such other date that may be
specified by the Executive if the termination is pursuant to Section 3(b)) and
continue to provide to the Executive the following benefits:
(i) A lump sum payment (the "Severance Payment") in
an amount equal to the multiple set forth under Column I on
Annex A hereto times the sum of (A) Base Pay (at the highest
rate in effect for any period prior to the Termination Date),
plus (B) Incentive Pay (determined in accordance with the
standards set forth in Section 1(g)).
<PAGE> 7
-7-
(ii) (A) for, the number of months set forth under
Column II on Annex A hereto (the "Continuation Period")
following the Termination Date, the Company will arrange to
provide the Executive with Employee Benefits that are welfare
benefits (but not stock option, stock purchase, stock
appreciation or similar compensatory benefits) substantially
similar to those which the Executive was receiving or entitled
to receive immediately prior to the Termination Date, and (B)
such Continuation Period will be considered service with the
Company for the purpose of determining service credits and
benefits due and payable to the Executive under the Company's
retirement income, supplemental executive retirement and other
benefit plans of the Company applicable to the Executive, his
dependents or his beneficiaries immediately prior to the
Termination Date. If and to the extent that any benefit
described in subsections (A) and (B) of this Section 4(a)(ii)
is not or cannot be paid or provided under any policy, plan,
program or arrangement of the Company or any Subsidiary, as
the case may be, then the Company will itself pay or provide
for the payment to the Executive, his dependents and
beneficiaries, of such Employee Benefits. Without otherwise
limiting the purposes or effect of Section 5, Employee
Benefits otherwise receivable by the Executive pursuant to the
subsection (A) of this Section 4(a)(ii) will be reduced to the
extent comparable welfare benefits are actually received by
the Executive from another employer during the Continuation
Period following the Executive's Termination Date.
(b) Upon the occurrence of a Change in Control, and without
regard to the termination of the employment of the Executive, all outstanding
and unexercised options theretofore granted by the Company shall,
notwithstanding anything to the contrary set forth in the plan or agreement
relating to such options, become immediately exercisable in full.
(c) Upon the occurrence of a Change in Control, and without
regard to the termination of the employment of the Executive, any and all
restrictions on all outstanding restricted stock theretofore granted by the
Company shall, notwithstanding anything to the contrary set forth in the plan or
agreement relating to such restricted stock, expire immediately.
(d) There will be no right of set-off or counterclaim in
respect of any claim, debt or obligation against any payment to or benefit for
the Executive provided for in this Agreement, except as expressly provided in
the last sentence of Section 4(a)(ii).
(e) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit required
to be made or provided hereunder on a timely basis, the Company will pay
interest on the amount or value thereof at an annualized rate of interest equal
to the so-called composite "prime rate" as quoted from time to time during the
relevant period in the Northeast Edition of The Wall Street Journal. Such
interest will be payable as it accrues on demand. Any change in such prime rate
will be effective on and as of the date of such change.
(f) Notwithstanding any other provision hereof, the parties'
respective rights and obligations under this Section 4 and under Section 7 will
survive any termination or expiration of this Agreement following a Change in
Control or the termination of the Executive's employment following a Change in
Control for any reason whatsoever.
5. No Mitigation Obligation: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment
<PAGE> 8
-8-
following the Termination Date, and (b) to measure the amount of damages which
Executive may suffer as a result of termination of employment hereunder.
Accordingly, the payment of the severance compensation by the Company to the
Executive in accordance with the terms of this Agreement is hereby acknowledged
by the Company to be reasonable and will be liquidated damages, and the
Executive will not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor will any
profits, income, earnings or other benefits from any source whatsoever create
any mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise, except as expressly provided in the last
sentence of Section 4(a)(ii).
6. Certain Additional Payments by the Company:
(a) Anything in this Agreement to the contrary notwithstanding, in the event
that this Agreement shall become operative and it shall be determined (as
hereafter provided) that any payment or distribution by the Company or any of
its affiliates to or for the benefit of the Executive, whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy, plan, program
or arrangement, including without limitation any stock option, stock
appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any successor
provision thereto) by reason of being considered "contingent on a change in
ownership or control" of the Company, within the meaning of Section 280G of the
Code (or any successor provision thereto) or to any similar tax imposed by state
or local law, or any interest or penalties with respect to such tax (such tax or
taxes, together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment or payments (collectively, a "Gross-Up
Payment"); provided, however, that no Gross-up Payment shall be made with
respect to the Excise Tax, if any, attributable to (A) any incentive stock
option, as defined in Section 422A of the Code ("ISO") granted prior to the
execution of this Agreement, or (B) any stock appreciation or similar right,
whether or not limited, granted in tandem with any ISO described in clause (A).
The Gross-Up Payment shall be in an amount such that, after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment.
(b) Subject to the provisions of Section 6(f) hereof, all
determinations required to be made under this Section 6, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Termination Date, if
applicable, and any such other time or times as may be requested by the Company
or the Executive. If the Accounting Firm determines that any Excise Tax is
payable by the Executive, the Company shall pay the required Gross-Up Payment to
the Executive within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it shall, at the
same time as it makes such determination, furnish the Company and the Executive
an opinion that the Executive has substantial authority not to report any Excise
Tax on his federal, state or local income or other tax return. As a result of
the uncertainty in the application of Section 4999 of the Code (or any
<PAGE> 9
-9-
successor provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Section
6(f) hereof and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 6(b) hereof. Any determination by the
Accounting Firm as to the amount of the Gross-Up Payment shall be binding upon
the company and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 6(b) hereof shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than 10
business days after the Executive actually receives notice of such claim and the
Executive shall further apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid (in each case, to the extent
known by the Executive). The Executive shall not pay such claim prior to the
earlier of (i) the expiration of the 30-calendar-day period following the date
on which he gives such notice to the Company and (ii) the date that any payment
of amount with respect to such claim is due. If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
<PAGE> 10
-10-
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without limitation accepting
legal representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably
selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 6(f), the Company shall control all proceedings taken in connection with
the contest of any claim contemplated by this Section 6(f) and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
(provided, however, that the Executive may participate therein at his own cost
and expense) and may, at its option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income or other tax, including interest
or penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such contested claim
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 6(f) hereof, the Executive receives
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 6(f) hereof) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after any taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 6(f)
hereof, a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the Executive
in writing of its intent to contest such denial or refund prior to the
expiration of 30 calendar days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of any such
<PAGE> 11
-11-
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this Section 6.
7. Legal Fees and Expenses; Security. (a) It is the intent of the
Company that the Executive not be required to incur legal fees and the related
expenses associated with the interpretation, enforcement or defense of
Executive's rights under this Agreement by litigation or otherwise because the
cost and expense thereof would substantially detract from the benefits intended
to be extended to the Executive hereunder. Accordingly, if it should appear to
the Executive that the Company has failed to comply with any of its obligations
under this Agreement or in the event that the Company or any other person takes
or threatens to take any action to declare this Agreement void or unenforceable,
or institutes any litigation or other action or proceeding designed to deny, or
to recover from, the Executive the benefits provided or intended to be provided
to the Executive hereunder, the Company irrevocably authorizes the Executive
from time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all, attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
(b) The severance compensation, benefits and other amounts
payable pursuant to this Agreement shall be secured by amounts deposited or to
be deposited in trust pursuant to certain trust agreements to which the Company
shall be a party.
8. Employment Rights; Termination Prior to Change in Control: Nothing
expressed or implied in this Agreement will create any right or duty on the part
of the Company or the Executive to have the Executive remain in the employment
of the Company or any Subsidiary prior to or following any Change in Control.
Any termination of employment of the Executive or the removal of the Executive
from the office or position in the Company following the commencement of any
discussion with a third person that ultimately results in a change in control
shall be deemed to be a termination or removal of the Executive after a Change
in Control for purposes of this Agreement.
9. Withholding of Taxes: The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
10. Successors and Binding Agreement: (a) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly all or
substantially all of the business or assets of the
<PAGE> 12
-12-
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 10(a) and 10(b) hereof. Without limiting the
generality or effect of the foregoing, the Executive's right to receive payments
hereunder will not be assignable, transferable or delegable, whether by pledge,
creation of a security interest, or otherwise, other than by a transfer by
Executive's will or by the laws of descent and distribution and, in the event of
any attempted assignment or transfer contrary to this Section 10(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
11. Notices: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as Federal
Express, UPS, or Purolator, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office and to the Executive
at his principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
12. Governing Law: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Connecticut, without giving effect to
the principles of conflict of laws of such State.
13. Validity: If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
14. Miscellaneous: No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
<PAGE> 13
-13-
15. Counterparts: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
16. Prior Agreement: This Agreement supersedes and replaces the Prior
Agreement which shall, without further action, be terminated as of the date
hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
DEXTER CORPORATION
By /s/ K. Grahame Walker
K. Grahame Walker, Chairman and Chief
Executive Officer
By /s/ Ronald C. Benham
Ronald C. Benham
<PAGE> 14
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ANNEX A
<TABLE>
<CAPTION>
Months of Welfare
Multiple of Annual Benefit Continuation
Prior Base Salary and and Additional Retirement
Agreement Incentive Pay Severance Income Service Credit
--------- ----------------------- ---------------------
<S> <C> <C>
December 20, 1991 1 12
</TABLE>
<PAGE> 1
EXHIBIT 10 C (2)
THE DEXTER CORPORATION
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
(Restated Effective January 1, 2000)
<PAGE> 2
THE DEXTER CORPORATION
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
TABLE OF CONTENTS
Page(s)
-------
Preamble ...................................................i
Article I Definitions........................................1
Article II Amount of Retirement Benefit.......................3
Article III Termination by Disability..........................5
Article IV Form of Pension....................................6
Article V Death Benefits.....................................6
Article VI Suspension of Benefits.............................7
Article VII Administration.....................................8
Article VIII Miscellaneous......................................9
Appendix A Early Retirement Factors..........................11
<PAGE> 3
THE DEXTER CORPORATION
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
PREAMBLE
The Dexter Corporation Executive Supplemental Retirement Plan
was first adopted August 24, 1979. The Plan is intended to reward participating
Executives for their services rendered to the Dexter Corporation and its
participating affiliated corporations by providing assistance for their
financial welfare upon retirement.
The Plan is hereby amended and restated effective January 1,
2000.
i
<PAGE> 4
ARTICLE I
DEFINITIONS
Section 1.01 Actuarial Equivalent. A benefit of equivalent value
when computed on the basis of actuarial tables and interest rates adopted by
Dexter.
Section 1.02 Average Annual Earnings. The annual average of a
Participant's Earnings from Dexter during the highest 60 consecutive calendar
months of his last 120 months as a Participant in the Plan.
Section 1.03 Dexter. The term Dexter refers to The Dexter
Corporation and its participating subsidiary and affiliated corporations.
Section 1.04 Early Retirement Date. The first day of any month
after a Participant attains age 55 and has completed 10 Years of Service,
provided the Participant shall have given Dexter one year's notice of such Early
Retirement Date.
Section 1.05 Earnings. Means a Participant's annual base rate of
pay for the calendar year plus any cash bonus(es) actually paid to the
Participant during the calendar year. Excluded from Earnings is any income
imputed to a Participant by reason of his use of property owned or furnished by
Dexter, any moving expenses and reimbursements, any income due to life insurance
paid by Dexter in excess of non-taxable limits, any income from the exercise of
stock options, and any income from the receipt of the Common Stock of Dexter.
Section 1.06 Effective Date. August 24, 1979, is the Effective
Date of the Plan.
Section 1.07 Executive. An Executive is an individual who, until
further decision of the Board of Directors of Dexter, is an employee of Dexter
eligible to be so selected with a job classification, including but not limited
to: Chairman, Vice Chairman, President, Senior Vice President, Vice President,
Secretary, Treasurer, General Manager, Group Operations Officer and Divisional
Officer.
Section 1.08 Internal Revenue Code or Code. These terms refer to
the Internal Revenue Code of 1986, as amended and as may be further amended from
time to time.
Section 1.09 Normal Retirement Date. The first day of the month
coincident with or next following a Participant's 65th birthday is his Normal
Retirement Date.
Section 1.10 Other Work-Related Retirement Benefits
(a) Plans or Arrangements Sponsored by Dexter:
The total annual amount of any qualified retirement plan benefit and
any other benefits derived from a nonqualified retirement plan sponsored by
Dexter to provide income in the Participant's retirement years, unless otherwise
determined by Dexter, excluding however, any benefits attributable to a salary
reduction arrangement between the Participant and Dexter relating to non-
deductible voluntary employee contributions and contributions made pursuant to
1
<PAGE> 5
Code Sections 401(k) and/or 125 and further excluding any benefits payable under
The Dexter Corporation Executive Deferred Compensation Benefit Plan.
(b) Plans or Arrangements Sponsored by an Employer Other than
Dexter:
Any retirement benefit amounts determined by mutual agreement between
the Participant and Dexter as evidenced by a Participation Agreement Form
executed by the Participant within a reasonable time after the Participant is
determined by Dexter to be eligible to participate in the Plan. Such retirement
benefit amounts would include benefits derived from qualified or nonqualified
retirement plans and plans of deferred compensation sponsored by a former
employer, including, but not limited to a retirement plan for self-employed
persons or partnership. Such retirement benefit amounts would exclude retirement
income from an individual retirement accounts derived from deductible and/or
nondeductible contributions only or any governmental plan, as well as benefits
resulting from voluntary contributions, whether tax deductible or nondeductible,
made by the Participant while not in the employ of Dexter.
Such Other Work-Related Retirement Benefits shall be deemed to be paid
under a joint and 50% survivorship annuity payable at the Participant's Normal
Retirement Date, and the Participant's spouse shall be deemed to be the survivor
annuitant regardless of the actual optional form of payment selected by the
Participant and regardless of the payee or contingent beneficiary actually
designated by the Participant. In the event that the Participant does not have a
spouse at the time of his retirement, a joint and 50% survivorship annuity form
of payment of Other Work-Related Retirement Benefits shall be computed as being
85% of such benefits payable on a life annuity basis at the Participants Normal
Retirement Date.
Section 1.11 Participant. An Executive selected by Dexter to
participate in the Plan and who has accepted participation in the Plan, pursuant
to a written Participation Agreement Form, shall be a Participant in the Plan
but only during the period he continues to be an Executive and only until his
participation is terminated by Dexter or he terminates his employment with
Dexter.
Section 1.12 Plan. The Dexter Corporation Executive Supplemental
Retirement Plan shall be referred to herein as the Plan.
Section 1.13 Service. Service shall include the total years and
fractions of a year during which a Participant has been employed by Dexter as an
employee up to an Executive's actual retirement date, including Years of Service
performed after age 65, the Normal Retirement Date. In determining Service, each
completed month in excess of a full year shall be credited as a completed
twelfth of a year. Service with a predecessor corporation prior to its
acquisition by or merger into Dexter shall not be included; and Service shall be
determined only from the date of last hiring, unless Dexter elects to include
any previous service.
Section 1.14 Social Security. The term Social Security refers to
100% of the primary old-age insurance benefit payable under the Social Security
Act at the Participant's age 65 or later retirement date. In the event that a
Participant shall retire prior to his Normal Retirement Date, Social Security
shall be determined under the law in effect at the time of his
2
<PAGE> 6
retirement and on the assumption that he continue to receive compensation
(including bonus) at the same rate from the date of his actual retirement until
his Normal Retirement Date.
Article II
AMOUNT OF RETIREMENT BENEFIT
Section 2.01 Accrued Benefit. An annual pension amount commencing
on his date of actual retirement and equal to ((1) minus (2)) times (3).
1. 55% of Average Annual Earnings computed through his
date of actual retirement.
2. Social Security plus Other Work-Related Retirement
Benefits
3. Service, to a maximum of 20 years, divided by 20.
At the discretion of Dexter, and solely for purposes of determining the
Accrued Benefit under this Section 2.01, up to 10 additional years of Service
may be credited to an Executive who was hired over the age of 40.
Section 2.02 Normal Retirement Pension. The Normal Retirement
Pension is the Accrued Benefit payable at or after his Normal Retirement Date.
Section 2.03 Regular Early Retirement. If the Participant retires
on an Early Retirement Date, he may make application for either:
(a) A retirement income commencing on his Normal Retirement Date in the
amount of his Accrued Benefit at his Early Retirement Date, or
(b) A retirement income commencing prior to his Normal Retirement Date
which shall be equal to his Accrued Benefit at his Early Retirement Date
adjusted by the Early Retirement Factors in Table I in Appendix A (attached
hereto).
Section 2.04 Special Early Retirement. A retiring Participant who
meets one of the following criteria will be eligible to request a commencement
of his Accrued Benefit from the Plan upon attaining age 62 or at an earlier
date, subject to the Early Retirement Factors in Table II of Appendix A. The
criteria are:
(a) A Participant who is age 55 or older and has 25 or
more years of Service;
(b) In the event there is a Change in Control, as defined
in Section 2.06, all Participants age 55 and older
with 10 or more years of Service;
3
<PAGE> 7
(c) If Dexter sells or there is a discontinuation of
operations for a portion of its business interests, a
Participant who is age 55 or older and is employed in
the affected division, subject to the discretion of
Dexter; or
(d) A Participant who has 10 or more years of Service and
who has received permission from Dexter to retire at
a Special Early Retirement Date.
Section 2.05 Other Termination. Except in the event of a
Participant's death or disability, if a Participant terminates his employment at
Dexter prior to his Early Retirement Date, there shall be no benefits payable
from this Plan.
Section 2.06 Change in Control. As used in this Plan, the term
"Change in Control" means the occurrence of any of the following events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (as defined in
Section 2.06(e)) (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 19% or more of the combined
voting power of the then outstanding Voting Stock (as defined in Section
2.06(e)) of Dexter (as defined in Section 2.06(e)); provided, however, that for
purposes of this Section 2.06(a), the following acquisitions shall not
constitute a Change in Control: (1) any issuance of Voting Stock of Dexter
directly from Dexter that is approved by the Incumbent Board (as defined in
Section 2.06(b)), (2) any acquisition by Dexter of Voting Stock of Dexter, (3)
any acquisition of Voting Stock of Dexter by any employee benefit plan (or
related trust) sponsored or maintained by Dexter or any Subsidiary (as defined
in Section 2.06(e)), or (4) any acquisition of Voting Stock of Dexter by any
Person pursuant to a Business Combination (as defined in Section 2.06(c)) that
complies with clauses (1), (2) and (3) of Section 2.06(c); or
(b) Individuals who, as of the date hereof, constitute the Board (as
defined in Section 2.06(e)) (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a Director subsequent to the date hereof whose election, or
nomination for election by Dexter's shareholders, was approved by a vote of at
least two-thirds of the Directors then comprising the Incumbent Board (either by
a specific vote or by approval of the proxy statement of Dexter in which such
person is named as a nominee for director, without objection to such nomination)
shall be deemed to have been a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest (within the meaning of Rule
14a-11 of the Exchange Act) with respect to the election or removal of Directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation, a sale
or other disposition of all or substantially all of the assets of Dexter, or
other transaction (each, a "Business Combination"), unless, in each case,
immediately following such Business Combination, (1) all or substantially all of
the individuals and entities who were the beneficial owners of Voting Stock of
Dexter immediately prior to such Business Combination beneficially
4
<PAGE> 8
own, directly or indirectly, more than two-thirds of the combined voting power
of the then outstanding shares of Voting Stock of the entity resulting from such
Business Combination (including, without limitation, an entity which as a result
of such transaction owns Dexter or all or substantially all of Dexter's assets
either directly or through one or more subsidiaries), (2) no Person (other than
Dexter, such entity resulting from such Business Combination, or any employee
benefit plan (or related trust) sponsored or maintained by Dexter, any
Subsidiary or such entity resulting from such Business Combination) beneficially
owns, directly or indirectly, 19% or more of the combined voting power of the
then outstanding shares of Voting Stock of the entity resulting from such
Business Combination, and (3) at least a majority of the members of the Board of
Directors of the entity resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the initial agreement or of
the action of the Board providing for such Business Combination; or
(d) Approval by the shareholders of Dexter of a complete liquidation or
dissolution of Dexter, except pursuant to a Business Combination that complies
with clauses (1), (2) and (3) of Section 2.06(c).
(e) For purposes of this Section 2.06, (1) "Board" means the Board of
Directors of Dexter, (2) "Dexter" means The Dexter Corporation, a Connecticut
corporation, (3) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, (4) "Voting Stock" means securities entitled to vote generally in the
election of Directors; and (5) "Subsidiary" means an entity in which Dexter
directly or indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
ARTICLE III
TERMINATION BY DISABILITY
Section 3.01 Disability Pension. If a Participant who has
completed at least ten (10) years of Service but who has not attained his Early
Retirement Date terminates his employment on account of disability and such
Participant is entitled to a long-term disability benefit under another plan
maintained by Dexter or is otherwise determined by Dexter to be disabled, such
Participant shall be entitled to receive a disability pension at his Normal
Retirement Date.
The amount of the disability pension shall be computed under Section
2.01 based on the facts and circumstances as of the date of his disability as if
such date had been his Early Retirement Date, but with credit for Service (to a
maximum of 20 years) to his Normal Retirement Date or, if earlier, the date of
recovery from his disability. It is intended that the Disability Pension be
based on Annual Average Earnings and offsetting computations determined at the
date of such disability, that payments be made as if a Participant had reached
his Early Retirement Date and the Participant made the election provided in
Section 2.03(a) or (b), but with the amount of Service he would have been
credited with had he remained a Participant until his Normal Retirement Date or,
if earlier, the date of recovery from his disability.
5
<PAGE> 9
Section 3.02 Exception to Disability Pension. If the Participant
is covered by a long-term disability plan by Dexter and such plan also provides
for payments to or benefit accruals under another qualified or nonqualified
retirement Plan of Dexter from the date of disability until the Participant
attains his Normal Retirement Date, such Participant will cease to earn accruals
under this Plan as of the date the Participant first becomes eligible for
retirement benefits (payments or accruals) under the long-term disability plan.
ARTICLE IV
FORM OF PENSION
Section 4.01 Standard Form.
(a) Benefits shall be paid to an unmarried Participant in the form of a
life annuity payable in monthly or other mutually convenient installments, and
shall cease upon his death.
(b) A married Participant shall be paid in the form of a 50% joint and
survivor annuity for the lives of the Participant and his spouse, which amount
shall be the actuarial equivalent of the standard form for an unmarried
Participant, provided such election is made in writing and delivered to Dexter
prior to the commencement of pension payments hereunder.
Section 4.02 Optional Forms. The Participant may make an election
to receive an optional form of benefit approved by Dexter which is the actuarial
equivalent of the Standard Form.
Section 4.03 Election of Form of Benefit. Any election made
pursuant to Sections 4.01 or 4.02 shall be made on a Benefit Election Form as
provided by Dexter to the Participant prior to the commencement of benefits
hereunder.
ARTICLE V
DEATH BENEFITS
Section 5.01 Death Prior to Retirement.
(a) In the event that a legally married Participant dies while an
employee of Dexter, his surviving spouse shall receive an annual pension benefit
during such spouse's lifetime equal to 50% of the amount he would have received
had he retired on the date of his death and elected to receive the retirement
benefit payable under Section 4.01(b). Such distributions are subject to the
following provisions: (1) such benefit shall be payable only in the event the
Participant was legally married for at least one year prior to the date of his
death; and (2) if such surviving spouse is more than five years younger than the
Participant, the amount of such pension benefit shall be actuarially adjusted to
reflect this contingency. Such amount of
6
<PAGE> 10
pension shall commence on the first day of the month following the month in
which death occurs.
(b) In the event that a Participant who is either not legally married
or who has been legally married for less than one year dies while employed by
Dexter, there shall be no death benefit whatsoever payable hereunder; and
neither he nor any person claiming through him shall receive any benefits
pursuant to this plan.
Section 5.02 Death After Retirement. When a Participant dies after
his retirement and after the written election of the form of his benefit
payments, death benefits, if any, shall be paid in accordance with the form of
benefit so elected. However, if the retired participant had not yet elected the
form of payment, death benefits shall be paid in accordance with Section 5.01
but based upon his Accrued Benefit at the time of his actual retirement.
ARTICLE VI
SUSPENSION OF BENEFITS
Section 6.01 Suspension of Benefits. No benefits, or no further
benefits, as the case may be, shall be paid to a Participant if Dexter shall
determine that such Participant shall have violated any of the following
covenants:
(a) For two years following the termination of Participant's employment
with Dexter, the Participant will not, without the prior written consent of
Dexter, which consent may be withheld for any reason or no reason, engage in
Competition (as defined below) with Dexter. For this purpose, if the Participant
takes any of the following actions, the Participant will be engaged in
"Competition": engaging in or carrying on, directly or indirectly, any
enterprise, whether as an advisor, principal, agent, partner, officer, director,
employee, stockholder, associate or consultant to any person, partnership,
corporation or any other business entity, if such enterprise's sales of any
product or service competitive with any product or service of Dexter amounted to
10% of such enterprise's net sales for its most recently completed fiscal year
and if Dexter's net sales of said product or service amounted to 10% of Dexter's
net sales for its most recently completed fiscal year; provided, however, that
"Competition" will not include (1) the mere ownership of securities in any
enterprise and exercise of rights appurtenant thereto or (2) participation in
management of any enterprise or business operation thereof other than in
connection with the competitive operation of such enterprise.
(b) During Participant's employment with Dexter, Dexter has disclosed
to Participant its confidential or proprietary information (as defined in this
Section 6.01(b)) to the extent necessary for Participant to carry out
Participant's obligations as an employee of Dexter. Participant covenants and
agrees that Participant will not, without the prior written consent of Dexter,
at any time, disclose to any person not employed by Dexter, or use in connection
with engaging in Competition with Dexter, any confidential or proprietary
information of Dexter. For this purpose, the term "confidential or proprietary
information" will include all information of any nature and in any form that is
owned by Dexter and that is not publicly available or generally
7
<PAGE> 11
known to persons engaged in businesses similar or related to those of Dexter.
Confidential information will include, without limitation, Dexter's financial
matters, customers, employees, industry contracts, and all other secrets and all
other information of a confidential or proprietary nature. The foregoing
obligations imposed by this Section 6.01(b) will cease if such confidential or
proprietary information will have become, through no fault of the Participant,
generally known to the public or the Participant is required by law to make
disclosure (after giving Dexter notice and an opportunity to contest such
requirement).
(c) The Participant covenants and agrees that for two years following
the termination of Participant's employment with Dexter, Participant will not
attempt to influence, persuade or induce, or assist any other person in so
persuading or inducing, any employee of Dexter to give up, or to not commence,
employment or a business relationship with Dexter.
ARTICLE VII
ADMINISTRATION
Section 7.01 Responsibilities of Dexter as Plan Administrator.
Dexter shall be the Plan Administrator of the Plan. Dexter shall have the
following powers and responsibilities as Plan Administrator of the Plan:
(a) To determine the Executives who shall be eligible to participate in
the Plan, which Executives shall be Participants in the Plan, and the period
during which they shall be Participants.
(b) To determine benefit rights.
(c) To determine the manner of disbursement of benefits.
(d) To make rules and regulations as it may deem necessary to carry out
the provisions of the Plan.
(e) To employ actuaries, attorneys, accountants, and such other
individuals as it shall deem necessary or desirable in the administration of the
Plan, and to delegate to such actuaries, attorneys, accountants and other
individuals such powers and responsibilities as it shall determine.
(f) To determine in accordance with uniform standards any question
arising in the administration, interpretation and application of the Plan, such
determination to be conclusive and binding to the extent the same shall not be
plainly inconsistent with the terms of the Plan or any applicable law.
(g) To decide any disputes which may arise.
(h) To designate, consistent with sound standards, the actuarial bases
to be used for all actuarial calculations.
8
<PAGE> 12
Without limiting the generality of the foregoing, Dexter, as Plan
Administrator, shall have power to determine the amount of Other Work-Related
Retirement Benefits (as defined in Section 1.10) which shall be provided from
any defined contribution plan, the entitlement of an Executive to the disability
pension provided in Section 3.01, the amount of any optional form of payment
elected under Section 4.02, the amount of the actuarial equivalent payable at
Early Retirement Date as provided in Section 2.01B2, and the amount of any
actuarial reduction in the event a spouse is more than five years younger than
an Executive as provided in Sections 4.03 and 5.01. Dexter may allocate some or
all of its powers and responsibilities as Plan Administrator as enumerated above
to such individuals, committees of individuals, firms or corporations as it
shall determine.
Section 7.02 Amendment and Termination of Plan. Dexter shall have
the power, in its uncontrolled discretion, to amend or terminate the Plan at any
time.
Section 7.03 Action by Dexter. Whenever Dexter is required or
authorized to exercise any powers hereunder, or whenever any discretion or
activity is called for by the Board of Directors of Dexter, such action shall be
taken by the Board of Directors, or such other committee of the Board of
Directors, or other person as shall be determined by the Board of Directors.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Prohibition Against Alienation. No benefit payable
under this Plan, whether or not in payment status, shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber or to charge the same shall be void. No such benefit or
interest shall be liable for or subject to the debts, contracts, liabilities or
torts of the Executive or his spouse entitled to any benefit or having any
interest. If any Participant, former Participant, or spouse becomes bankrupt or
attempts to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge any benefit under this Plan, then Dexter may, in its discretion, direct
that any benefit to which such Participant, former Participant, or spouse is
entitled be terminated and that all future payments to which such Participant,
former Participant, or spouse would otherwise be entitled be held and applied
for the benefit of such Participant, former Participant, or spouse, his spouse,
children or other dependents, or any of them, in such manner and in such
proportion as Dexter may deem proper.
Section 8.02 Application of Benefit of Participant. In the event
that Dexter finds that a Participant, former Participant, or spouse is unable to
care for his or her affairs because of illness or accident, any benefits payable
hereunder may, unless claim has been made therefore by a duly appointed
guardian, conservator or other legal representative, be paid to a spouse, child,
parent, or other blood relative of such person, or to anyone found by Dexter to
9
<PAGE> 13
have incurred expense for the support and maintenance of such Participant,
former Participant, or spouse, and any such payment made shall be a complete
discharge of all liability of Dexter under the Plan.
Section 8.03 No Right to Continued Employment. Nothing in this
Plan shall be construed as giving any Participant the right to be retained in
Dexter's employ, or the right to any payment whatsoever except to the extent of
the benefits provided for in the Plan. Dexter expressly reserves the right to
dismiss any Participant at any time without liability for the effect which such
dismissal might have upon any benefit to be paid thereunder.
Section 8.04 Plan Unfunded. It is expressly intended that no funds
shall be set aside by trust, insurance contract, or otherwise, to fulfill any
responsibilities which Dexter may have under the Plan; provided, however, that
nothing in this Section 8.04 shall prohibit Dexter from establishing and
transferring assets to one or more trusts, the assets of which shall be subject
to the claims of the creditors of Dexter in the event of its bankruptcy or
insolvency, in order to secure the payment of benefits under the Plan.
Section 8.05 Governing Law. The provisions of the Plan shall be
construed, administered, and enforced according to the laws of the State of
Connecticut.
Section 8.06 Gender and Number. Words used in the masculine
include the feminine gender. Words used in the singular or plural shall be
construed as if plural or singular, respectively, where they would so apply.
Section 8.07 Titles. Titles of Articles and Sections are inserted
for convenience and shall not affect the meaning or construction of the Plan.
10
<PAGE> 14
<TABLE>
<CAPTION>
APPENDIX A
EARLY RETIREMENT FACTORS
Age When
Benefits Commence Table I Table II
----------------- ------- --------
<C> <C> <C>
55 .500 .700
56 .533 .733
57 .567 .767
58 .600 .800
59 .633 .833
60 .667 .867
61 .733 .933
62 .800 1.000
63 .867 1.000
64 .933 1.000
65 or older 1.000 1.000
</TABLE>
11
<PAGE> 1
EXHIBIT 10G (1)
DEXTER CORPORATION
AMENDMENT TO THE DEXTER CORPORATION
TRANSFERRED EXECUTIVES' SUPPLEMENTAL RETIREMENT PROGRAM
Article I
1.1 This Amendment to The Dexter Corporation Transferred Executives'
Supplemental Retirement Program as amended and restated retroactive to February
26, 1987 (the "Plan") of Dexter Corporation (the "Company") is made pursuant to
Article 6 of the Plan and shall be effective as of January 1, 2000.
Article II
2.1 Section 7.04 of the Plan is amended to read as follows:
7.04 Program Unfunded. It is expressly intended that no funds
shall be set aside by trust, insurance contract, or otherwise, to fulfill any
responsibilities which Dexter may have under the Plan; provided, however, that
nothing in this Section 7.04 shall prohibit Dexter from establishing and
transferring assets to one or more trusts, the assets of which shall be subject
to the claims of the creditors of Dexter in the event of its bankruptcy or
insolvency, in order to secure the payment of benefits under the Plan.
2.2 In all other respects, the Plan as hereby amended is ratified and confirmed.
IN WITNESS WHEREOF, the Company has executed this Amendment as of the
date set forth in Article 1.1, such execution having been duly authorized by the
Company's Board of Directors.
DEXTER CORPORATION
/s/ Bruce H. Beatt
By: Bruce H. Beatt
<PAGE> 1
MANAGEMENT STATEMENT
The management of Dexter Corporation has prepared the financial statements and
review contained on pages 16 through 41 in conformity with generally accepted
accounting principles. Dexter's management is responsible for the integrity and
objectivity of this annual report, including the financial statements, charts,
tables and other supplementary information. The financial statements and review
are presented on the accrual basis of accounting and, accordingly, include some
amounts based on judgment. Information included on these pages is an integral
part of the consolidated statement of financial position and related
consolidated statements of income, cash flows and changes in shareholders'
equity which have been audited by PricewaterhouseCoopers LLP.
Dexter has a clearly stated business ethics policy and code of conduct that
require employees to maintain high standards in their conduct of company
affairs. The company's accounting and control systems are designed to provide
reasonable assurance that financial records accurately reflect the transactions
of Dexter Corporation and that the company's assets are protected from
unauthorized use and preserved in accordance with established policies and
procedures, as implemented by qualified personnel. We modify and improve our
systems in response to changes in business conditions and operations, the advice
of independent certified public accountants, and the recommendations of our own
internal auditors and other independent experts on procedures and controls.
There are no known significant accounting control weaknesses.
PricewaterhouseCoopers LLP, independent certified public accountants, is engaged
to perform quarterly reviews and annual audits. Their audits are conducted in
accordance with generally accepted auditing standards which include
consideration of the company's internal controls. The Audit Committee of the
Board of Directors, made up entirely of outside directors, meets both separately
and jointly with the independent certified public accountants, internal auditors
and management to review accounting policies, adequacy of controls, quality of
financial reporting, and the scope and results of audits. Both the internal
auditors and the independent accountants have free and direct access to the
Audit Committee without the presence of management.
A company with a good reputation is not only a good supplier, customer and
citizen, but a good employer. Dexter has enjoyed a reputation based on integrity
for over two centuries. We are all the guardians of that reputation, and that
responsibility requires vigilance.
<TABLE>
<S> <C> <C>
/s/ K. Grahame Walker /s/ Kathleen Burdett /s/ Dale Ribaudo
- --------------------- -------------------- -------------------
K. Grahame Walker Kathleen Burdett Dale J. Ribaudo
Chairman Vice President Vice President and Controller
and Chief Executive Officer and Chief Financial Officer
</TABLE>
February 28, 2000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Dexter Corporation:
In our opinion, the accompanying consolidated statement of financial position
and the related consolidated statements of income, cash flows, and of changes in
shareholders' equity, contained on pages 16 through 41, present fairly, in all
material respects, the consolidated financial position of Dexter Corporation at
December 31, 1999, 1998, and 1997, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of Dexter Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- --------------------------------
Hartford, Connecticut
February 28, 2000
15
<PAGE> 2
<TABLE>
<CAPTION>
DEXTER CORPORATION
SUMMARY OF FINANCIAL DATA
IN THOUSANDS OF DOLLARS
(EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
NET SALES $1,041,673 $ 1,168,037 $ 1,147,055 $1,100,185
% INCREASE (DECREASE) (11%) 2% 4% 1%
GROSS PROFIT 405,849 426,749 411,688 379,205
AS % OF SALES 39.0% 36.5% 35.9% 34.5%
LIFO CHARGE (CREDIT)
INCLUDED IN COST OF SALES 188 (1,411) (1,067) (4,873)
MARKETING AND ADMINISTRATIVE EXPENSES 251,244 246,911 238,401 223,848
AS % OF SALES 24.1% 21.1% 20.8% 20.3%
RESEARCH AND DEVELOPMENT EXPENSES 49,711 56,656 54,021 51,504
AS % OF SALES 4.8% 4.9% 4.7% 4.7%
INTEREST EXPENSE 20,910 18,210 20,192 20,500
INCOME BEFORE TAXES 181,178 86,547 111,085 98,252
AS % OF SALES 17.4% 7.4% 9.7% 8.9%
TAX RATE 34.0% 46.4% 36.0% 35.5%
INCOME (LOSS) BEFORE MINORITY INTERESTS 119,573 46,400 71,094 63,372
AS % OF SALES 11.5% 4.0% 6.2% 5.8%
INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLES 107,499 31,704 56,427 48,722
AS % OF SALES 10.3% 2.7% 4.9% 4.4%
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES
NET INCOME (LOSS) $ 107,499 $ 31,704 $ 56,427 $ 48,722
AS % OF SALES 10.3% 2.7% 4.9% 4.4%
RETURN ON:
AVERAGE SHAREHOLDERS' EQUITY 25.3% 8.3% 15.1% 13.1%
AVERAGE TOTAL CAPITAL 16.7% 6.6% 12.2% 10.6%
INCOME (LOSS) PER SHARE - DILUTED:
BEFORE CHANGE IN ACCOUNTING PRINCIPLES $ 4.67 $ 1.35 $ 2.41 $ 2.03
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES
NET INCOME (LOSS) - DILUTED $ 4.67 $ 1.35 $ 2.41 $ 2.03
CASH DIVIDENDS DECLARED PER SHARE $ 1.04 $ 1.02 $ .96 $ .88
RATE OF DIVIDEND PAYOUT* 22% 74% 39% 43%
* BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
ACCOUNTING PRINCIPLES.
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
WORKING CAPITAL $ 264,887 $ 267,356 $ 203,916 $ 242,929
PROPERTY, PLANT AND EQUIPMENT, NET 328,146 360,456 348,172 334,266
TOTAL ASSETS 1,074,128 1,208,368 961,776 953,804
LONG-TERM DEBT 218,132 382,163 180,030 209,952
SHAREHOLDERS' EQUITY $ 462,636 $ 388,549 $ 372,861 $ 374,115
PERCENT LONG-TERM DEBT TO CAPITAL 32.0% 49.6% 32.6% 35.9%
EQUITY PER SHARE AT YEAR END $20.29 $ 16.86 $ 16.26 $ 15.94
- -------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
CAPITAL EXPENDITURES $ 52,962 $ 48,434 $ 59,087 $ 62,277
DEPRECIATION AND AMORTIZATION $ 55,455 $ 50,357 $ 45,441 $ 44,239
SHARES OUTSTANDING AT YEAR END (000) 22,806 23,041 22,938 23,464
AVERAGE SHARES OUTSTANDING (000) 22,842 23,007 23,010 23,687
MARKET PRICE PER SHARE - HIGH $ 41 13/16 $ 43 3/8 $ 43 15/16 $ 33 5/8
- LOW $ 26 11/16 $ 23 1/2 $ 28 3/4 $ 23 1/8
- CLOSE $ 39 3/4 $ 31 7/16 $ 43 3/16 $ 31 7/8
PRICE-EARNINGS RATIO RANGE* 9-6 31-17 18-12 16-11
NUMBER OF SHAREHOLDERS AT YEAR END 2,600 2,800 3,000 3,100
NUMBER OF EMPLOYEES AT YEAR END** 4,600 5,000 4,800 4,600
% PAYROLL AND BENEFITS TO SALES** 26% 24% 24% 23%
% RAW MATERIAL COSTS TO SALES** 36% 41% 41% 41%
* BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
ACCOUNTING PRINCIPLES.
** FROM CONTINUING OPERATIONS.
- -------------------------------------------------------------------------------------------------------------------------------
INFLATION ADJUSTED DATA
NET SALES* $1,041,673 $ 1,193,632 $ 1,190,475 $1,168,317
% INCREASE (DECREASE) (13%) 2% (2%)
CASH DIVIDENDS DECLARED PER SHARE* $ 1.04 $ 1.04 $ 1.00 $ .93
MARKET PRICE PER SHARE AT YEAR END** $ 39 3/4 $ 32 1/4 $ 45 $ 33 7/8
* STATED IN AVERAGE 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
** STATED IN YEAR-END 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 3
<TABLE>
<CAPTION>
DEXTER CORPORATION
SUMMARY OF FINANCIAL DATA
IN THOUSANDS OF DOLLARS
(EXCEPT PER SHARE AMOUNTS)
1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
NET SALES $ 1,088,905 $ 974,719 $ 887,112 $ 951,439
% INCREASE (DECREASE) 12% 10% (7%) 1%
GROSS PROFIT 346,699 316,541 293,345 314,275
AS % OF SALES 31.8% 32.5% 33.1% 33.0%
LIFO CHARGE (CREDIT)
INCLUDED IN COST OF SALES 1,881 2,231 (1,290) 1,626
MARKETING AND ADMINISTRATIVE EXPENSES 206,708 188,272 175,141 188,263
AS % OF SALES 19.0% 19.3% 19.7% 19.8%
RESEARCH AND DEVELOPMENT EXPENSES 49,375 46,644 43,803 42,216
AS % OF SALES 4.5% 4.8% 4.9% 4.4%
INTEREST EXPENSE 20,931 20,509 18,756 18,799
INCOME BEFORE TAXES 79,824 73,612 66,438 73,132
AS % OF SALES 7.3% 7.6% 7.5% 7.7%
TAX RATE 35.5% 36.0% 36.5% 37.7%
INCOME (LOSS) BEFORE MINORITY INTERESTS 51,487 47,112 42,188 45,577
AS % OF SALES 4.7% 4.8% 4.8% 4.8%
INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLES 40,578 37,898 34,053 38,203
AS % OF SALES 3.7% 3.9% 3.8% 4.0%
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES (9,875)
NET INCOME (LOSS) $ 40,578 $ 37,898 $ 24,178 $ 38,203
AS % OF SALES 3.7% 3.9% 2.7% 4.0%
RETURN ON:
AVERAGE SHAREHOLDERS' EQUITY 11.4% 11.5% 7.7% 12.1%
AVERAGE TOTAL CAPITAL 9.4% 9.2% 7.0% 10.0%
INCOME (LOSS) PER SHARE - DILUTED:
BEFORE CHANGE IN ACCOUNTING PRINCIPLES $ 1.66 $ 1.55 $ 1.39 $ 1.57
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES $ (.40)
NET INCOME (LOSS) - DILUTED $ 1.66 $ 1.55 $ .99 $ 1.57
CASH DIVIDENDS DECLARED PER SHARE $ .88 $ .88 $ .88 $ .88
RATE OF DIVIDEND PAYOUT* 53% 56% 63% 56%
* BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
ACCOUNTING PRINCIPLES.
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
WORKING CAPITAL $248,623 $209,024 $ 199,146 $ 207,146
PROPERTY, PLANT AND EQUIPMENT, NET 325,203 328,935 309,954 298,869
TOTAL ASSETS 934,161 880,609 820,691 782,025
LONG-TERM DEBT 215,839 225,402 227,307 179,024
SHAREHOLDERS' EQUITY $369,615 $343,633 $ 313,295 $ 315,614
PERCENT LONG-TERM DEBT TO CAPITAL 36.9% 39.6% 42.0% 36.2%
EQUITY PER SHARE AT YEAR END $ 15.26 $ 14.11 $ 12.87 $ 12.98
- -----------------------------------------------------------------------------------------------------------------------------
OTHER DATA
CAPITAL EXPENDITURES $ 28,969 $ 45,097 $ 44,784 $ 51,793
DEPRECIATION AND AMORTIZATION $ 43,727 $ 40,923 $ 36,655 $ 35,672
SHARES OUTSTANDING AT YEAR END (000) 24,220 24,350 24,340 24,308
AVERAGE SHARES OUTSTANDING (000) 24,364 24,345 24,325 24,220
MARKET PRICE PER SHARE - HIGH $ 26 7/8 $ 26 $ 28 7/8 $ 28 1/8
- LOW $ 20 3/8 $ 19 7/8 $ 20 3/8 $ 20 7/8
- CLOSE $ 23 5/8 $ 21 3/4 $ 23 1/2 $ 25 7/8
PRICE-EARNINGS RATIO RANGE* 16-12 17-13 21-15 18-13
NUMBER OF SHAREHOLDERS AT YEAR END 3,400 3,600 3,900 4,000
NUMBER OF EMPLOYEES AT YEAR END** 4,800 4,700 4,700 4,800
% PAYROLL AND BENEFITS TO SALES** 24% 25% 25% 25%
% RAW MATERIAL COSTS TO SALES** 44% 43% 41% 42%
* BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
ACCOUNTING PRINCIPLES.
** FROM CONTINUING OPERATIONS.
- -----------------------------------------------------------------------------------------------------------------------------
INFLATION ADJUSTED DATA
NET SALES* $ 1,190,360 $1,095,461 $ 1,022,968 $1,129,540
% INCREASE (DECREASE) 9% 7% (9%) (2%)
CASH DIVIDENDS DECLARED PER SHARE* $ .96 $ .99 $ 1.01 $ 1.04
MARKET PRICE PER SHARE AT YEAR END** $ 25 7/8 $ 24 1/2 $ 27 1/8 $ 30 5/8
</TABLE>
* STATED IN AVERAGE 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
** STATED IN YEAR-END 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEXTER CORPORATION
SUMMARY OF FINANCIAL DATA
IN THOUSANDS OF DOLLARS
(EXCEPT PER SHARE AMOUNTS)
1991 1990 1989
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS
NET SALES $ 937,734 $ 907,946 $ 848,724
% INCREASE (DECREASE) 3% 7% 3%
GROSS PROFIT 309,157 314,449 284,142
AS % OF SALES 33.0% 34.6% 33.5%
LIFO CHARGE (CREDIT)
INCLUDED IN COST OF SALES (173) 1,100 (4,063)
MARKETING AND ADMINISTRATIVE EXPENSES 198,334 191,656 168,935
AS % OF SALES 21.2% 21.1% 19.9%
RESEARCH AND DEVELOPMENT EXPENSES 42,056 39,880 37,359
AS % OF SALES 4.5% 4.4% 4.4%
INTEREST EXPENSE 16,800 17,484 10,926
INCOME BEFORE TAXES 11,192 77,407 77,643
AS % OF SALES 1.2% 8.5% 9.1%
TAX RATE 109.5% 37.0% 38.0%
INCOME (LOSS) BEFORE MINORITY INTERESTS (1,059) 48,766 48,139
AS % OF SALES (0.1%) 5.4% 5.7%
INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLE (7,119) 42,150 42,977
AS % OF SALES (0.8%) 4.6% 5.1%
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES
NET INCOME (LOSS) $ (7,119) $ 42,150 $ 42,977
AS % OF SALES (0.8%) 4.6% 5.1%
RETURN ON:
AVERAGE SHAREHOLDERS' EQUITY (2.2%) 12.6% 13.6%
AVERAGE TOTAL CAPITAL 0.7% 11.0% 11.6%
INCOME (LOSS) PER SHARE - DILUTED:
BEFORE CHANGE IN ACCOUNTING PRINCIPLES $ (.30) $ 1.71 $ 1.70
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES
NET INCOME (LOSS) - DILUTED $ (.30) $ 1.71 $ 1.70
CASH DIVIDENDS DECLARED PER SHARE $ .88 $ .88 $ .82
RATE OF DIVIDEND PAYOUT* - 51% 47%
* BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
ACCOUNTING PRINCIPLES.
- --------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
WORKING CAPITAL $ 193,873 $ 215,410 $ 189,006
PROPERTY, PLANT AND EQUIPMENT, NET 299,342 274,147 252,895
TOTAL ASSETS 784,471 762,383 694,490
LONG-TERM DEBT 188,702 160,478 130,834
SHAREHOLDERS' EQUITY $ 313,782 $ 343,698 $ 325,281
PERCENT LONG-TERM DEBT TO CAPITAL 37.6% 31.8% 28.7%
EQUITY PER SHARE AT YEAR END $ 12.99 $ 14.24 $ 13.14
- --------------------------------------------------------------------------------------------------------
OTHER DATA
CAPITAL EXPENDITURES $ 61,749 $ 43,910 $ 33,119
DEPRECIATION AND AMORTIZATION $ 34,095 $ 30,272 $ 26,243
SHARES OUTSTANDING AT YEAR END (000) 24,149 24,136 24,761
AVERAGE SHARES OUTSTANDING (000) 24,145 24,282 24,877
MARKET PRICE PER SHARE - HIGH $ 26 1/8 $ 24 1/2 $ 34 3/4
- LOW $ 18 1/2 $ 18 $ 20 1/8
- CLOSE $ 21 5/8 $ 21 $ 21 7/8
PRICE-EARNINGS RATIO RANGE* - 14-10 20-12
NUMBER OF SHAREHOLDERS AT YEAR END 4,300 4,400 4,500
NUMBER OF EMPLOYEES AT YEAR END** 5,600 5,500 5,400
% PAYROLL AND BENEFITS TO SALES** 25% 24% 23%
% RAW MATERIAL COSTS TO SALES** 41% 42% 46%
* BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
ACCOUNTING PRINCIPLES.
** FROM CONTINUING OPERATIONS.
- --------------------------------------------------------------------------------------------------------
INFLATION ADJUSTED DATA
NET SALES* $1,147,026 $1,157,639 $1,140,654
% INCREASE (DECREASE) (1%) 1% (2%)
CASH DIVIDENDS DECLARED PER SHARE* $ 1.08 $ 1.12 $ 1.10
MARKET PRICE PER SHARE AT YEAR END** $ 26 3/8 $ 26 3/8 $ 29 1/4
</TABLE>
* STATED IN AVERAGE 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
** STATED IN YEAR-END 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
- --------------------------------------------------------------------------------
17
<PAGE> 4
STATEMENT OF INCOME DEXTER CORPORATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
IN THOUSANDS OF DOLLARS ---------------------------------------------------
(EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
NET SALES $ 1,041,673 $ 1,168,037 $ 1,147,055
EQUITY IN NET INCOME OF AFFILIATES 405 3,319 4,461
OTHER INCOME 8,078 8,099 7,550
--------------------------------------------------
1,050,156 1,179,455 1,159,066
EXPENSES
COST OF SALES 635,824 741,288 735,367
MARKETING AND ADMINISTRATIVE 251,244 246,911 238,401
RESEARCH AND DEVELOPMENT 49,711 56,656 54,021
INTEREST 20,910 18,210 20,192
PROVISION FOR CONTRACT SETTLEMENT 3,870
CHARGE FOR RESTRUCTURING BUSINESSES 2,430
GAIN ON DIVESTITURE OF PRODUCT LINES (95,011)
TRANSACTION COSTS OF LIFE TECHNOLOGIES, INC. 5,335
ACQUIRED IN-PROCESS RESEARCH AND
DEVELOPMENT COSTS 24,508
--------------------------------------------------
INCOME BEFORE TAXES 181,178 86,547 111,085
INCOME TAXES 61,605 40,147 39,991
--------------------------------------------------
INCOME BEFORE MINORITY INTERESTS 119,573 46,400 71,094
MINORITY INTERESTS 12,074 14,696 14,667
--------------------------------------------------
NET INCOME $ 107,499 $ 31,704 $ 56,427
==================================================
NET INCOME PER SHARE - BASIC $ 4.71 $ 1.38 $ 2.45
NET INCOME PER SHARE - DILUTED $ 4.67 $ 1.35 $ 2.41
DIVIDENDS DECLARED PER SHARE $ 1.04 $ 1.02 $ .96
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying financial review.
18
<PAGE> 5
STATEMENT OF CASH FLOWS DEXTER CORPORATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------
IN THOUSANDS OF DOLLARS 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
NET INCOME $ 107,499 $ 31,704 $ 56,427
NONCASH ITEMS:
DEPRECIATION 36,212 38,696 37,453
AMORTIZATION 19,243 11,661 7,988
GAIN ON DIVESTITURE OF PRODUCT LINES (95,011)
CHARGE FOR RESTRUCTURING BUSINESSES 2,430
ACQUIRED IN-PROCESS RESEARCH & DEVELOPMENT COSTS 24,508
INCOME TAXES (PAID) NOT DUE (7,575) 4,926 (5,660)
MINORITY INTERESTS 12,074 14,696 14,667
LIFO INVENTORY CHARGE (CREDIT) 188 (1,411) (1,037)
EQUITY IN NET INCOME OF AFFILIATES (405) (3,319) (4,461)
OTHER (5,332) 3,299 (978)
OPERATING WORKING CAPITAL (INCREASE) DECREASE (34,440) (26,781) (19,778)
-----------------------------------------------
34,883 97,979 84,621
-----------------------------------------------
INVESTMENTS
PROPERTY, PLANT AND EQUIPMENT (56,844) (54,198) (62,989)
ACQUISITIONS (18,767) (217,963) (68,517)
DIVESTITURES 257,935 41,539
JOINT VENTURES 2,543 2,643
NOTES RECEIVABLE 750
PROCEEDS FROM SALE OF INVESTMENTS 1,482 677 838
PROCEEDS FROM EXERCISE OF LTI STOCK OPTIONS 3,258 27,051 4,052
OTHER (8,200) (3,539) 1,061
-----------------------------------------------
178,864 (245,429) (80,623)
-----------------------------------------------
FINANCING
NEW LONG-TERM DEBT 60,702 246,000 20,000
REPAYMENT OF LONG-TERM DEBT (231,553) (37,844) (47,185)
SHORT-TERM DEBT, NET (31,436) 4,234 30,611
DIVIDENDS PAID (23,820) (22,990) (21,728)
LTI DIVIDENDS PAID TO MINORITY INTEREST SHAREHOLDERS (1,346) (2,278) (1,859)
PURCHASE OF TREASURY STOCK (10,126) (20,517)
PROCEEDS FROM EXERCISE OF DEXTER STOCK OPTIONS 2,543 1,996 4,315
OTHER (514) (268) (359)
-----------------------------------------------
(235,550) 188,850 (36,722)
-----------------------------------------------
(DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES $ (21,803) $ 41,400 $ (32,724)
===============================================
CHANGES IN MAJOR ELEMENTS WHICH INCREASE
(DECREASE) OPERATING WORKING CAPITAL
ACCOUNTS RECEIVABLE, NET $ 26,382 $ 9,571 $ 13,713
INVENTORIES AT FIFO 11,393 11,764 14,857
PREPAID AND DEFERRED EXPENSES 802 458 2,908
ACCOUNTS PAYABLE (6,205) 3,663 (6,448)
ACCRUED LIABILITIES AND EXPENSES 2,068 1,325 (5,252)
-----------------------------------------------
$ 34,440 $ 26,781 $ 19,778
===============================================
RECONCILIATION OF (DECREASE) INCREASE IN
CASH AND SHORT-TERM SECURITIES
CASH AND SHORT-TERM SECURITIES AT BEGINNING OF YEAR $ 111,049 $ 68,306 $ 103,420
CASH AND SHORT-TERM SECURITIES AT END OF YEAR 86,850 111,049 68,306
-----------------------------------------------
(DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES PER
STATEMENT OF FINANCIAL POSITION (24,199) 42,743 (35,114)
CURRENCY TRANSLATION EFFECTS 2,396 (1,343) 2,390
-----------------------------------------------
$ (21,803) $ 41,400 $ (32,724)
===============================================
INTEREST PAID $ 20,716 $ 18,284 $ 20,407
TAXES PAID $ 69,180 $ 35,221 $ 45,651
</TABLE>
Investment in property, plant and equipment for the year ended December 31, 1998
includes $4.6 million related to the exercise of an option to purchase land
under a capital lease by LTI.
- -------------------------------------------------------------------------------
See accompanying financial review.
19
<PAGE> 6
DEXTER CORPORATION
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------
IN THOUSANDS OF DOLLARS 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
CASH $ 9,043 $ 8,566 $ 11,273
SHORT-TERM SECURITIES 77,807 102,483 57,033
ACCOUNTS RECEIVABLE, NET 181,726 203,872 185,257
INVENTORIES:
MATERIALS AND SUPPLIES 56,451 65,180 61,233
IN PROCESS AND FINISHED GOODS 122,551 129,175 117,467
LIFO RESERVE (15,507) (17,388) (18,799)
---------------------------------------------------
163,495 176,967 159,901
CURRENT DEFERRED TAX ASSETS 23,176 14,874 17,107
PREPAID AND DEFERRED EXPENSES 9,307 10,768 9,881
---------------------------------------------------
464,554 517,530 440,452
PROPERTY, PLANT AND EQUIPMENT:
LAND 27,594 30,879 28,501
BUILDINGS AND IMPROVEMENTS 175,551 193,594 184,388
MACHINERY AND EQUIPMENT 457,314 509,406 474,079
CONSTRUCTION IN PROGRESS 25,260 22,302 25,157
---------------------------------------------------
685,719 756,181 712,125
LESS ACCUMULATED DEPRECIATION (357,573) (395,725) (363,953)
---------------------------------------------------
328,146 360,456 348,172
INVESTMENTS OF WHOLLY OWNED CAPTIVE
INSURANCE COMPANIES 5,972 8,248 9,056
INVESTMENT IN UNCONSOLIDATED AFFILIATES 286 9,861 8,704
PATENTS, TECHNOLOGY, TRADEMARKS AND COVENANTS 113,800 118,152 29,489
EXCESS OF COST OVER NET ASSETS OF
BUSINESSES ACQUIRED 112,191 156,989 97,507
OTHER ASSETS 49,179 37,132 28,396
---------------------------------------------------
$ 1,074,128 $ 1,208,368 $ 961,776
===================================================
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying financial review.
20
<PAGE> 7
STATEMENT OF FINANCIAL POSITION DEXTER CORPORATION
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------
IN THOUSANDS OF DOLLARS 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
SHORT-TERM DEBT $ 8,578 $ 39,810 $ 35,361
ACCOUNTS PAYABLE 68,494 91,718 91,155
DIVIDENDS PAYABLE 5,929 5,989 5,505
ACCRUED AND DEFERRED INCOME TAXES 29,496 18,590 21,153
ACCRUED LIABILITIES AND EXPENSES 76,500 76,837 70,022
CURRENT INSTALLMENTS OF LONG-TERM DEBT 10,670 17,230 13,340
---------------------------------------------------
199,667 250,174 236,536
LONG-TERM DEBT 218,132 382,163 180,030
DEFERRED ITEMS 42,095 36,160 31,913
LONG-TERM DEFERRED INCOME TAXES 47,413 53,481 22,284
LONG-TERM ENVIRONMENTAL LIABILITIES 11,668 13,501 13,726
MINORITY INTERESTS - PRINCIPALLY
LIFE TECHNOLOGIES, INC. 92,517 84,340 104,426
SHAREHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $1 PER SHARE
(AUTHORIZED 100,000,000 SHARES; ISSUED
24,983,907 SHARES IN 1999, 1998 AND 1997) 24,984 24,984 24,984
ADDITIONAL PAID-IN CAPITAL 18,613 17,689 17,482
TREASURY STOCK, AT COST
(1,943,068 SHARES IN 1999, 1,702,704 SHARES
IN 1998 AND 1,814,035 SHARES IN 1997) (59,385) (51,512) (52,216)
UNEARNED COMPENSATION (2,424) (2,418) (4,308)
RETAINED EARNINGS 501,813 418,074 409,844
ACCUMULATED OTHER COMPREHENSIVE INCOME:
CURRENCY TRANSLATION EFFECTS (20,971) (17,857) (22,475)
UNREALIZED GAINS (LOSSES) ON INVESTMENTS 17 (390) (426)
MINIMUM PENSION LIABILITY (11) (21) (24)
---------------------------------------------------
(20,965) (18,268) (22,925)
---------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 462,636 388,549 372,861
---------------------------------------------------
$ 1,074,128 $ 1,208,368 $ 961,776
===================================================
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying financial review.
21
<PAGE> 8
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY DEXTER CORPORATION
<TABLE>
<CAPTION>
ACCUMULATED
OTHER ADDITIONAL UNEARNED
IN THOUSANDS OF DOLLARS COMPREHENSIVE COMPREHENSIVE RETAINED PAID-IN COMPEN- COMMON
(EXCEPT PER SHARE AMOUNTS) INCOME INCOME EARNINGS CAPITAL SATION STOCK
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 $(2,565) $375,480 $14,669 $(2,780) $24,984
COMPREHENSIVE INCOME
NET INCOME $ 56,427 56,427
OTHER COMPREHENSIVE
INCOME (LOSS), NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (20,288)
UNREALIZED LOSS ON INVESTMENTS (252)
MINIMUM PENSION LIABILITY ADJUSTMENT 180
-------
OTHER COMPREHENSIVE INCOME (LOSS) (20,360) (20,360)
-------
COMPREHENSIVE INCOME $ 36,067
========
DIVIDENDS - $.96 PER SHARE (22,063)
STOCK PURCHASES
STOCK OPTIONS 892
RESTRICTED STOCK 1,920 (1,528)
POOLING TAX BENEFITS 1
--------------------------------------------------------
DECEMBER 31, 1997 (22,925) 409,844 17,482 (4,308) 24,984
COMPREHENSIVE INCOME
NET INCOME $ 31,704 31,704
OTHER COMPREHENSIVE INCOME, NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 4,618
UNREALIZED GAIN ON INVESTMENTS 36
MINIMUM PENSION LIABILITY ADJUSTMENT 3
---------
OTHER COMPREHENSIVE INCOME 4,657 4,657
--------
COMPREHENSIVE INCOME $ 36,361
========
DIVIDENDS - $1.02 PER SHARE (23,474)
STOCK OPTIONS 464
RESTRICTED STOCK (259) 1,890
POOLING TAX BENEFITS 2
--------------------------------------------------------
DECEMBER 31, 1998 (18,268) 418,074 17,689 (2,418) 24,984
COMPREHENSIVE INCOME
NET INCOME $107,499 107,499
OTHER COMPREHENSIVE
INCOME (LOSS), NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS,
NET OF RECLASSIFICATION ADJUSTMENTS (A) (3,114)
UNREALIZED GAIN ON INVESTMENTS,
NET OF RECLASSIFICATION ADJUSTMENTS (B) 407
MINIMUM PENSION LIABILITY ADJUSTMENT 10
--------
OTHER COMPREHENSIVE INCOME (LOSS) (2,697) (2,697)
--------
COMPREHENSIVE INCOME $104,802
========
DIVIDENDS - $1.04 PER SHARE (23,760)
STOCK PURCHASES
STOCK OPTIONS 525
RESTRICTED STOCK 398 (6)
POOLING TAX BENEFITS 1
-
---------------------------------------------------------
DECEMBER 31, 1999 $(20,965) $501,813 $18,613 $(2,424) $24,984
=========================================================
DISCLOSURE OF RECLASSIFICATION AMOUNTS
(A) CURRENCY TRANSLATION EFFECTS $(11,688)
PLUS: RECLASSIFICATION ADJUSTMENTS FOR
LOSSES INCLUDED IN NET INCOME DUE TO
DIVESTITURES 8,574
--------
NET CURRENCY TRANSLATION EFFECTS $ (3,114)
========
(B) UNREALIZED LOSSES ON INVESTMENTS $ (441)
PLUS: RECLASSIFICATION ADJUSTMENTS FOR
LOSSES INCLUDED IN NET INCOME 848
--------
NET UNREALIZED GAIN ON INVESTMENT $ 407
========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
SHARE-
IN THOUSANDS OF DOLLARS TREASURY HOLDERS'
(EXCEPT PER SHARE AMOUNTS) STOCK EQUITY
- -----------------------------------------------------------------
<S> <C> <C>
DECEMBER 31, 1996 $(35,673) $ 374,115
COMPREHENSIVE INCOME
NET INCOME 56,427
OTHER COMPREHENSIVE
INCOME (LOSS), NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (20,288)
UNREALIZED LOSS ON INVESTMENTS (252)
MINIMUM PENSION LIABILITY ADJUSTMENT 180
OTHER COMPREHENSIVE INCOME (LOSS)
COMPREHENSIVE INCOME
DIVIDENDS - $.96 PER SHARE (22,063)
STOCK PURCHASES (20,517) (20,517)
STOCK OPTIONS 2,490 3,382
RESTRICTED STOCK 1,484 1,876
POOLING TAX BENEFITS 1
---------------------
DECEMBER 31, 1997 (52,216) 372,861
COMPREHENSIVE INCOME
NET INCOME 31,704
OTHER COMPREHENSIVE INCOME, NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 4,618
UNREALIZED GAIN ON INVESTMENTS 36
MINIMUM PENSION LIABILITY ADJUSTMENT 3
OTHER COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
DIVIDENDS - $1.02 PER SHARE (23,474)
STOCK OPTIONS 1,403 1,867
RESTRICTED STOCK (699) 932
POOLING TAX BENEFITS 2
---------------------
DECEMBER 31, 1998 (51,512) 388,549
COMPREHENSIVE INCOME
NET INCOME 107,499
OTHER COMPREHENSIVE
INCOME (LOSS), NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS,
NET OF RECLASSIFICATION ADJUSTMENTS (A) (3,114)
UNREALIZED GAIN ON INVESTMENTS,
NET OF RECLASSIFICATION ADJUSTMENTS (B) 407
MINIMUM PENSION LIABILITY ADJUSTMENT 10
OTHER COMPREHENSIVE INCOME (LOSS)
COMPREHENSIVE INCOME
DIVIDENDS - $1.04 PER SHARE (23,760)
STOCK PURCHASES (10,126) (10,126)
STOCK OPTIONS 1,728 2,253
RESTRICTED STOCK 525 917
POOLING TAX BENEFITS 1
---------------------
DECEMBER 31, 1999 $(59,385) $ 462,636
=====================
- -------------------------------------------------------------------
</TABLE>
See accompanying financial review.
22
<PAGE> 9
QUARTERLY FINANCIAL INFORMATION (UNAUDITED) DEXTER CORPORATION
<TABLE>
<CAPTION>
IN MILLIONS OF DOLLARS MARKET PRICE
-------------------------------------- -------------------------
NET INCOME NET INCOME
NET (LOSS) PER (LOSS) PER
NET COST INCOME SHARE - SHARE - DIVIDENDS
QUARTER SALES OF SALES (LOSS) BASIC DILUTED PER SHARE HIGH LOW
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
FIRST $ 272.3 $175.3 $ 12.9 $ .55 $ .54 $ .24 $32 1/8 $28 3/4
SECOND 293.2 187.2 16.0 .70 .69 .24 33 1/2 29 1/8
THIRD 286.9 182.8 14.2 .62 .61 .24 40 3/16 31 1/2
FOURTH 294.7 190.1 13.3 .58 .57 .24 43 15/16 38 15/16
--------------------------------------------------------------------------------
YEAR $1,147.1 $735.4 $ 56.4 $ 2.45 $ 2.41 $ .96 CLOSE $43 3/16
===============================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
1998*
FIRST $ 289.9 $184.6 $ 14.2 $ .62 $ .61 $ .24 $43 3/8 $37 1/2
SECOND 302.6 191.8 16.4 .71 .70 .26 42 15/16 31 9/16
THIRD 283.4 179.2 14.2 .62 .61 .26 33 5/16 23 7/8
FOURTH 292.1 185.7 (13.1) (.57) (.57) .26 32 7/8 23 1/2
--------------------------------------------------------------------------------
YEAR $1,168.0 $741.3 $ 31.7 $ 1.38 $ 1.35 $ 1.02 CLOSE $31 7/16
===============================================================================================================
</TABLE>
*The third and fourth quarters' pretax income included charges incurred by LTI
of $0.3 million and $5 million, respectively, for transaction costs related to
Dexter's increased ownership. Additionally, the fourth quarter pretax income
included a charge of $24.5 million for the write-off of acquired in-process
research and development costs.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999**
FIRST $ 279.9 $176.1 $ 68.8 $ 2.99 $ 2.98 $ .26 $32 5/16 $26 11/16
SECOND 256.1 153.8 13.8 .60 .60 .26 41 5/8 31 7/8
THIRD 250.3 151.0 11.0 .48 .48 .26 41 3/8 35 15/16
FOURTH 255.4 154.9 13.9 .61 .61 .26 41 13/16 32 9/16
---------------------------------------- ------------------
YEAR $1,041.7 $635.8 $107.5 $ 4.71 $ 4.67 $ 1.04 CLOSE $39 3/4
===============================================================================================================
**The first quarter pretax income included a $91.4 million gain primarily due to
the divestiture of the company's Packaging Coatings business. The third quarter
pretax income included a $2.4 million charge for restructuring businesses. The
fourth quarter pretax income included a $3.7 million gain resulting from the
sale of the company's printed wiring board product line.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 10
ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of all majority owned subsidiaries. All consolidated subsidiaries are
wholly owned except Life Technologies, Inc. (hereinafter referred to as "LTI")
and a few other subsidiaries, primarily outside the United States, in which
aggregate minority interests are not significant. Intercompany accounts,
transactions and profits have been eliminated in the consolidated financial
statements. Companies owned 20% to 50% are accounted for by the equity method.
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 periods. Actual results could differ from those estimates. Certain
amounts for prior years have been reclassified to conform to and be consistent
with the 1999 presentation.
FORWARD-LOOKING STATEMENTS Matters discussed in this 1999 Annual Report that are
not historical facts are forward-looking statements, as that term is defined
under Federal Securities Laws and are subject to risks and uncertainties and
other factors which could cause actual results to differ materially from those
stated in such statements. These forward-looking statements include, but are not
limited to, statements about (i) future growth in the company's revenues and
earnings and (ii) improvements in the markets served by the company. Actual
results could differ materially from such forward-looking statements because of,
among other things, the following factors: unit volume growth substantially
different from the company's targeted range; the impact of competitive products
and pricing; changes in the prices of raw materials; fluctuations in foreign
currency rates; changes in laws and regulations; the possibility of adverse
rulings by, or adverse developments in negotiations with, the government, and
other risks identified below in the section entitled "Events, Trends and
Vulnerabilities."
EVENTS, TRENDS AND VULNERABILITIES Dexter is subject to a multitude of events
and trends that influence its business prospects, profitability, and liquidity.
Many of these events and trends are outside the control of the company. However,
the consequent effects need to be managed as part of the ongoing business
environment.
During 1999, selling prices and raw material costs were relatively stable with
each decreasing approximately 1%. Although efforts to raise prices and gain full
value for our product offerings continued in 1999, excess worldwide capacity
made it increasingly difficult to maintain selling prices at their previous
levels especially in the nonwovens segment. Overall decreases in raw material
costs did not fully offset the impact of lower selling prices. We expect overall
raw material costs to remain relatively stable in the short term. However, any
substantial increases in future demand for the materials the company purchases,
provided no additional production capacity is built, will likely result in
higher levels of cost to Dexter. This type of pressure may impact the Nonwoven
Materials business in the year 2000 as it relates to woodpulp. LTI is subject to
volatility in the cost of fetal bovine serum, which stems from a fundamental
limit of supply. Further, for less critical applications, additional competition
can be expected consequent to the development of substitute products for cell
culture, which do not depend on traditional raw materials.
Unit volume growth of sales of 5% and divestiture of lower gross margin
businesses supported gross margin expansion in 1999. To the extent that the unit
volume growth rate decreases in the future as a result of some weakness in
domestic or international economies, revenue and earnings growth may be
negatively impacted. The recovery of the Asian economy in 1999 had a favorable
impact on the sales and margins of the Electronic Materials business and LTI. It
is expected that the Asian economic environment will continue to improve in
2000. However, further volatility in demand for the company's products or the
inability of customers to remain viable in the region may impact the growth
potential in this area. The consequences of domestic interest rate changes and
tax policy may also influence total demand in our served markets.
Since approximately 50% of Dexter's profits are derived from products sold
outside the United States, any weakening of international currencies against the
U.S. dollar could have a negative effect on the company's results. Additionally,
the volatility of several Asian and Latin American currencies could create
exposures and losses for the company. Geographical expansion will continue to
provide opportunities and challenges as the company endeavors to create
profitable growth in developing countries.
There will continue to be costs incurred by the need to respond to heightened
regulatory pressures. Such costs may be significant in areas of environmental,
health, social and administrative regulation. Heightened worldwide environmental
concerns have led to greater capital requirements and increased operating
expenses. While the company, based on known facts and circumstances, has
provided substantial environmental reserves as shown at year end in the
Statement of Financial Position, the ultimate cost of compliance and remediation
cannot be ascertained and, therefore, there is no assurance that such reserves
will prove to be adequate over time.
In 2000, the company will continue to be required to spend substantial amounts
for outside resources in connection with an unsolicited merger proposal. These
costs are incremental to those required for the routine operation of the
businesses and, therefore, have had and will continue to have a negative impact
on the operating results of the company. In February 2000, the Board of
Directors authorized the company's management to explore all strategic
alternatives that may be available to Dexter to maximize shareholder value in
the short term.
National and local deficits, as well as ongoing economic issues in several parts
of the world, may dictate the need for greater tax receipts or significant
reductions in government spending. Future increases in taxes by countries,
states, and localities in which we operate may be the ultimate outcome of this
imbalance. Lower government spending may adversely affect LTI by reducing the
overall availability of government funding for life science research.
Other areas which will have an important impact on the future of the company
will be the increasing rate of technological change, a continued universal move
toward higher quality products, shortened product life cycles and further
globalization of our customers and competitors. Technology is the lifeblood of
the corporation. In order to remain competitive we must, successfully and
rapidly, introduce new products that not only replace our current products but
also those of our competitors; otherwise, we are potentially exposed to reduced
margins and loss of business.
The general aging of the U.S. population creates challenges with respect to the
availability of employees as well as amplifying trends in increased health care
costs. Dexter's ability to hire and retain a qualified workforce around the
world will be fundamental to our growth and success. Increased training and
developmental needs will require additional resources to maintain and improve
our overall competencies.
24
<PAGE> 11
The company has not experienced any significant system failures or other
negative impacts related to the Year 2000 transition. The company will continue
to monitor its systems, equipment, and business processes for Year 2000 related
issues. However, there can be no assurance that the company or its customers and
suppliers will not experience Year 2000 problems in the future that could affect
the company's business. See Item 7, Management's Discussion and Analysis and
Financial Condition and Results of Operations, in the 1999 Form 10-K for further
information regarding the Year 2000 date change.
The complexities of ever-changing worldwide events and trends including the
international political environment, the global marketplace, proliferation of
E-business, and the advancement of technology generate numerous vulnerabilities
and challenges. The company believes that it will successfully face these
challenges with continued innovation and increased productivity.
ACQUISITIONS AND DIVESTITURES On November 2, 1998, Dexter commenced a tender
offer for LTI common stock it did not own and on December 22, 1998, Dexter
completed its tender offer. Approximately 5.5 million shares representing
approximately 22% of all issued and outstanding LTI shares were tendered and
purchased by Dexter for a total of $222.1 million including transaction costs.
As a result of the acquisition of these shares and open market purchases during
1999, Dexter owned approximately 71.5% of the total number of issued and
outstanding shares of LTI as of December 31, 1999. Since year-end 1999, Dexter
purchased additional shares of LTI, increasing Dexter's ownership of LTI to
approximately 75%.
The acquisition was accounted for as a purchase, and accordingly, the purchase
price has been allocated to the identified tangible and intangible assets based
upon Dexter's proportionate interest in the estimated fair market value of those
assets.
The following unaudited pro forma information presents the results of operations
of the company as if the 1998 acquisition had taken place on January 1, 1998,
and January 1, 1997, respectively.
<TABLE>
<CAPTION>
Years ended December 31
In thousands of dollars -----------------------
(except per share amounts) 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Net Sales $1,168,037 $1,147,055
Net Income $ 23,460 $ 21,276
Net Income per share-diluted $ 1.00 $ .89
- --------------------------------------------------------------
</TABLE>
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as, the charges for acquired
in-process research and development and transaction costs, additional
amortization expense, and increased interest expense on acquisition debt. They
do not purport to be indicative of the results of operations which actually
would have resulted had the acquisition occurred on the date indicated, or which
may result in the future.
In January 1999, Dexter divested its 40% interest in Akzo Dexter Aerospace
Finishes VoF, a joint venture between Dexter Corporation and Akzo Nobel NV to
Akzo Nobel NV for approximately book value. As a result of this divestiture,
Dexter announced its intention to expand its existing network as a worldwide
supplier of aerospace coatings technologies, continuing to operate from its
OEM-approved manufacturing facilities in Bassano, Italy and Waukegan, Illinois.
In February 1999, Dexter completed the sale of its Packaging Coatings business,
including Dexter SAS, its French industrial coatings subsidiary for total
proceeds of $225 million. The sale of this business resulted in a pretax gain of
$91.1 million, or $2.53 per share diluted for the company in the first quarter
of 1999.
In May 1999, LTI acquired the process chromatography and research products
businesses of BioSepra Inc. in an all cash transaction for $11.6 million.
In November 1999, Dexter divested its printed wiring board product line that was
part of the Electronic Materials business. The effect of this divestiture
resulted in a pretax gain of $3.7 million, or $.08 per share diluted for the
company in the fourth quarter of 1999.
LIQUIDITY The company's liquidity is strong and ample lines of credit are
available to the company and its subsidiaries. The current ratio (current assets
divided by current liabilities) is 2.3 to 1, and the quick ratio (cash,
short-term securities and accounts receivable divided by current liabilities) is
1.3 to 1. As shown in the Statement of Cash Flows, cash provided from operations
of $34.9 million and investing activities of $178.9 million were exceeded by
cash needed for financing activities of $235.6 million, thereby decreasing
year-end cash and short-term securities by $21.8 million.
Net income, after adjustments for the pretax gain on the divestiture of product
lines, in addition to depreciation, amortization, and minority interests, were
the principal source of cash from operations in 1999 totaling $80 million.
Working capital increases of $34.4 million was the principal use of cash from
operations. Investment activity in 1999 included cash received from divestitures
of $257.9 million. Also included in investment activity for 1999 were capital
expenditures of $56.8 million and cash expenditures for acquisitions of $18.8
million, primarily related to LTI's acquisition of a process chromatography and
research products business. Financing activities in 1999 included cash outflows
principally used for the net repayment of long-term debt of $170.9 million,
which was primarily related to the borrowings in 1998 for the acquisition of an
additional 22% of LTI. Financing activities also included the repayment of $31.4
million of short-term debt, the purchase of 344,500 shares of the company's
outstanding common stock for $10.1 million and dividend payments of $23.8
million.
Excluding LTI, the current ratio is 1.7 to 1 and the quick ratio is 1 to 1.
Excluding LTI, cash provided from investments of $219 million were exceeded by
cash needed for financing activities of $232.6 million and operations of $7.4
million, resulting in a decrease in cash and short-term securities of $21
million in 1999.
The company plans to meet its future working capital and capital expenditure
needs with funds provided from operations, the reduction of short-term
securities and, as needed, short-term and long-term borrowings.
25
<PAGE> 12
ANALYSIS OF OPERATIONS
1999 COMPARED WITH 1998
REVENUES Net sales in 1999 were $1.04 billion, a decrease of $126.4 million, or
11%, compared with sales of $1.17 billion in 1998. Volume increases of 5% were
more than offset by a 15% decrease due to the net effect of divestitures and
acquisitions and price decreases averaging 1%.
Equity in net income of affiliates decreased $2.9 million to $0.4 million in
1999. This decrease was attributable to the divestiture of Dexter's 40% interest
in its aerospace coatings joint venture.
EXPENSES Cost of sales decreased as a percentage of sales in 1999, thereby
increasing consolidated gross margins by 2.5 percentage points to 39% of sales
in 1999 from 36.5% in 1998. Excluding charges incurred in 1999 relating to
Dexter's increased ownership in LTI, which unfavorably impacted gross margins by
0.7 percentage points, gross margins would have improved 3.2 percentage points.
These improvements were the result of increased volume, a favorable product mix
at LTI, and the divestiture of the company's lower gross margin Packaging
Coatings business.
Marketing and administrative expenses increased $4.3 million, or 2%, in 1999
compared with 1998 primarily due to increased costs at LTI and corporate
expenses, partially offset by reduced expense resulting from the divestiture of
the Packaging Coatings business. Research and development expenses decreased
$6.9 million, or 12%, principally due to the Packaging Coatings divestiture.
Interest expense increased $2.7 million, or 15%, in 1999 compared with 1998
primarily due to higher average borrowings in the first quarter of 1999
following the acquisition of an additional 22% ownership in LTI in December
1998. These borrowings were repaid in March 1999 with proceeds received from the
divestiture of the Packaging Coatings business. The company does not capitalize
interest on facilities under construction. If interest had been capitalized,
there would have been no impact on earnings per share in 1999 and 1998.
In 1999, pretax income included a charge of $3.9 million representing a
voluntary refund LTI offered to the Department of Veterans Affairs ("VA")
related to its supply schedule contract with the VA. Also included in 1999
pretax income was a gain on divestiture of product lines of $95 million. This
gain included $91.1 million due to the divestiture of the company's Packaging
Coatings business and $3.7 million due to the divestiture of the company's
printed wiring board product line. In addition, 1999 pretax income included a
$2.4 million charge for restructuring activities in its specialty polymers and
nonwovens segments for a plant closure and other business realignments, which
resulted in the elimination of approximately 60 full-time positions. In 1998,
pretax income included a charge of $24.5 million, which represented the
write-off of acquired in-process research and development costs arising from the
acquisition of an additional 22% of LTI in December 1998 and $5.3 million of
transaction costs incurred by LTI related to Dexter's increased ownership.
INCOME TAXES The effective tax rate was 34% in 1999 compared with 46.4% in 1998.
The higher tax rate in 1998 was the result of the nondeductability of acquired
in-process research and development costs and certain transaction costs at LTI.
Excluding these costs, the effective tax rate on earnings from operations for
1998 was 35%.
MINORITY INTEREST Income attributed to minority interest shareholders decreased
18% from 1998 due to Dexter increasing its ownership of LTI to 71.5% effective
in December 1998. This decrease was somewhat offset by the transaction costs
incurred by LTI which reduced 1998 minority interest expense.
NET INCOME Earnings from operations for the 1999 year, excluding gains on
divestiture of product lines and restructuring costs, were $48.8 million, or
$2.12 per share on a diluted basis compared with $58.4 million, or $2.50 per
share diluted for 1998. Included in 1999 earnings from operations is the
negative impact of $.40 per share due to noncash amortization charges resulting
from Dexter's increased ownership of LTI, and the net impact of divestitures and
acquisitions. Also included in 1999 are costs associated with an unsolicited
merger proposal, a one-time pretax charge of $3.9 million representing a
voluntary refund LTI has offered to the VA related to its supply schedule
contract with the VA and a $2.3 million favorable income tax settlement between
LTI and the Internal Revenue Service. The net effect of these items resulted in
a net unfavorable impact of $.02 per share on 1999 earnings from operations. Net
income for the 1999 year was $107.5 million, or $4.67 per share diluted.
Included in 1999 net income are gains from the divestiture of product lines of
$2.62 per share and a charge for restructuring activities of $.07 per share.
This compares with net income of $31.7 million, or $1.35 per share diluted for
1998 which included the net pretax costs of $29.8 million, or $1.15 per share,
due to the write-off of the acquired in-process research and development costs
and transaction costs incurred by LTI.
1998 COMPARED WITH 1997
REVENUES Net sales were $1.17 billion in 1998, an increase of $21 million, or
2%, over 1997 sales of $1.15 billion. The 2% increase in sales was due to unit
volume increases of 2% and a 2% increase due to the effect of acquisitions,
partially offset by selling price decreases averaging 1% and a 1% decrease due
to the effect of lower currency translation rates on international sales.
Equity in net income of affiliates decreased $1.1 million to $3.3 million in
1998. This decrease was primarily due to no 1998 equity earnings from D & S
Plastics International, which was divested effective April 1, 1997.
EXPENSES Cost of sales decreased as a percentage of sales in 1998, thereby
increasing consolidated gross margins by 0.6 percentage points to 36.5% of sales
from 35.9% in 1997. Gross margin, excluding LTI, increased 0.3 percentage
points, primarily due to productivity improvements and cost containment
activities. The remaining favorable impact in gross margin was primarily
attributable to increased sales volume at LTI.
Marketing and administrative expenses increased $8.5 million, or 4%, in 1998
compared with 1997 principally due to increased marketing and administrative
expenses at LTI. Research and development expenses increased $2.6 million, or
5%, primarily due to costs associated with acquired Dexter businesses in the
fourth quarter of 1997 and increased research and development expense in the
nonwovens segment and at LTI.
Interest expense decreased $2 million, or 10%, in 1998 compared with 1997
primarily due to lower average long-term borrowings in 1998. If interest had
been capitalized, there would have been no impact on earnings per share in 1998
and earnings per share would have increased by $.02 per share in 1997.
Pretax income included a charge of $24.5 million, which represents the write-off
of acquired in-process research and development costs arising from the
acquisition of an additional 22% of LTI in December 1998 and $5.3 million of
transaction costs incurred by LTI related to Dexter's increased ownership. There
were no such charges in 1997.
26
<PAGE> 13
INCOME TAXES In 1998, the effective tax rate was 35% from operations, excluding
one-time charges. Due to the nondeductibility of acquired in-process research
and development costs and certain transaction costs at LTI, the consolidated
effective tax rate in 1998 was 46.4% compared with 36% in 1997.
MINORITY INTEREST Income attributed to minority interest shareholders remained
largely unchanged in 1998 compared with 1997 as increases in LTI income from
operations were offset by $5.3 million of transaction costs.
NET INCOME Net income from operations, excluding one-time charges, for the year
1998 was $58.4 million, or $2.50 per share on a diluted basis. This represents a
4% increase in earnings and diluted earnings per share from operations compared
with results for 1997 of $56.4 million, or $2.41 per share diluted. Including
the acquired in-process research and development costs and transaction costs
which totaled $29.8 million, or $1.15 per share diluted, 1998 net income was
$31.7 million, or $1.35 per share diluted, compared with $2.41 per share diluted
in 1997.
1997 COMPARED WITH 1996
REVENUES Net sales were $1.15 billion in 1997, an increase of $46.9 million, or
4% over 1996 sales. The 4% increase in sales was due to unit volume increases of
7% partially offset by a 3% decrease due to the effect of lower translation
rates on international sales. Selling prices remained largely unchanged versus
1996. The net effect of acquisitions and divestitures in 1996 and 1997 accounted
for an increase in sales of $3.7 million in 1997.
Equity in net income of affiliates decreased $0.3 million to $4.5 million in
1997. This decrease was primarily due to lower equity earnings resulting from
the divestiture of D & S Plastics International, which was effective April 1,
1997.
EXPENSES Cost of sales decreased as a percentage of sales in 1997, thereby
increasing consolidated gross margins by 1.4 percentage points to 35.9% of sales
from 34.5% in 1996. Gross margin, excluding LTI, increased 1.2 percentage
points, primarily due to strong volume increases, favorable product mix and
productivity improvements. The remaining improvement was attributable to LTI.
Marketing and administrative expenses increased $14.6 million, or 7%, in 1997
compared with 1996, principally due to costs associated with acquired Dexter
businesses in 1997 and increased marketing and administrative expenses at LTI.
Research and development expenses increased $2.5 million, or 5%, primarily due
to increases at LTI.
Interest expense decreased $0.3 million, or 2%, in 1997 compared with 1996,
primarily due to lower average long-term borrowings throughout the year. If
interest had been capitalized, earnings per share would have increased by $.02
per share in 1997 and there would have been no impact on earnings per share in
1996.
In 1996, there was a gain on divestiture of product lines of $2.7 million. This
included $2.6 million due to the receipt of proceeds from a note related to the
sale of LTI's molecular diagnostic product line in 1990 and the net effect of
the sale of the company's acoustic materials business and a small powder
coatings business in 1996.
INCOME TAXES The effective tax rate was 36% in 1997 compared with 35.5% in 1996.
MINORITY INTEREST Income attributed to minority interest shareholders remained
largely unchanged in 1997 compared with 1996. Higher minority interest expense
attributed to increased profits at LTI in 1997 was principally offset by lower
minority interest expense resulting from other majority owned entities.
NET INCOME Net income for the year 1997 was $56.4 million, or $2.41 per share on
a diluted basis. This represents an 18% increase in net income and a 21%
increase in diluted earnings per share, compared with results for 1996 of $47.7
million, or $1.99 per share diluted, excluding the net gain from the 1996
disposal of product lines. Including the $.04 per share gain on divested product
lines, the 1996 earnings were $48.7 million, or $2.03 per share diluted.
Comparing the total amounts for 1996, the increases for 1997 in earnings and
diluted earnings per share were 16% and 19%, respectively.
- --------------------------------------------------------------------------------
TAXES The effective income tax rate was 34% in 1999, 46.4% in 1998, and 36% in
1997. The tax rate is currently expected to be in the range of 34% to 35% in
2000. The income tax rate differs from the statutory U.S. federal income tax
rate as shown below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------
<S> <C> <C> <C>
U.S. FEDERAL RATE 35.0% 35.0% 35.0%
STATE TAXES, NET OF FEDERAL BENEFIT 2.9 2.1 1.7
INTERNATIONAL TAXATION DIFFERENCES (3.6) (4.6) (3.1)
ACQUIRED IN-PROCESS RESEARCH AND
DEVELOPMENT COSTS 9.9
ACQUISITION BASIS DIFFERENCES 1.1 3.4 1.2
OTHER (1.4) .6 1.2
---------------------
EFFECTIVE INCOME TAX RATE 34.0% 46.4% 36.0%
=====================
</TABLE>
- --------------------------------------------------------------------------------
Pretax income from international operations, excluding gains on divestiture of
product lines, amounted to $43.1 million in 1999, $57.3 million in 1998, and
$54.6 million in 1997. Income taxes have not been provided on undistributed
earnings of $149.5 million from international subsidiaries since it is the
company's intention to permanently reinvest such earnings or to distribute them
only when it is tax efficient to do so. It is impracticable to estimate the
total tax liability, if any, which would be caused by the future distribution of
these earnings.
- -----------------------------------------------------------
<TABLE>
<CAPTION>
TAXES, OTHER THAN SALES TAXES
IN THOUSANDS OF DOLLARS 1999 1998 1997
- -----------------------------------------------------------
<S> <C> <C> <C>
INCOME TAXES
CURRENT:
U.S. FEDERAL $51,827 $22,055 $22,527
U.S. STATE 9,224 2,601 2,235
INTERNATIONAL 13,324 11,956 12,673
----------------------------
74,375 36,612 37,435
----------------------------
DEFERRED:
U.S. FEDERAL (11,118) 2,105 1,514
U.S. STATE (1,949) 209 206
INTERNATIONAL 297 1,221 836
-----------------------------
(12,770) 3,535 2,556
-----------------------------
TOTAL INCOME TAXES 61,605 40,147 39,991
PAYROLL TAXES 18,340 20,982 20,420
PROPERTY TAXES 4,064 4,333 4,313
OTHER TAXES 1,028 704 662
-----------------------------
TOTAL $85,037 $66,166 $65,386
=============================
</TABLE>
- -----------------------------------------------------------
27
<PAGE> 14
DEFERRED INCOME TAXES The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
EXPENSES NOT CURRENTLY
DEDUCTIBLE $ 13,241 $ 7,931 $ 8,229
PENSION BENEFITS 7,650 7,342 5,683
POSTRETIREMENT HEALTH BENEFITS 7,398 8,698 8,852
RESERVES FOR INSURANCE 6,655 6,448 6,028
ENVIRONMENTAL RESERVES 6,192 5,004 4,865
INVENTORY, PRINCIPALLY
VALUATION RESERVES 6,087 5,111 5,450
LOSS CARRYFORWARDS 5,398 3,610 4,944
NONCOMPETITION AGREEMENTS 4,115 782 818
OTHER 6,953 7,993 8,373
------------------------------------------
GROSS DEFERRED TAX ASSETS $ 63,689 $ 52,919 $ 53,242
------------------------------------------
DEFERRED TAX LIABILITIES:
FIXED ASSETS, PRINCIPALLY
DEPRECIATION $(39,507) $(44,879) $(46,274)
TECHNOLOGY AND TRADEMARKS (30,964) (32,032)
OTHER (5,616) (11,519) (7,557)
------------------------------------------
GROSS DEFERRED TAX
LIABILITIES $(76,087) $(88,430) $(53,831)
------------------------------------------
NET DEFERRED TAX LIABILITY
BEFORE VALUATION
ALLOWANCE $(12,398) $(35,511) $ (589)
VALUATION ALLOWANCE (2,560) (1,316) (2,277)
------------------------------------------
NET DEFERRED TAX LIABILITY
AFTER VALUATION
ALLOWANCE $(14,958) $(36,827) $ (2,866)
==========================================
- ----------------------------------------------------------------------------------
</TABLE>
Valuation allowances of $2.6 million at December 31, 1999, $1.3 million at
December 31, 1998, and $2.3 million at December 31, 1997, reduced the deferred
tax asset attributable to foreign loss carryforwards to an amount that, based
upon all available information, is more likely than not to be realized. Reversal
of the valuation allowance is contingent upon the recognition of future taxable
income and capital gains in specific foreign countries or changes in
circumstances which cause the recognition of the benefits of the loss
carryforwards to become more likely than not. The increase of $1.3 million in
the valuation allowance during 1999 was due principally to the acquired net
operating loss carryforward of BioSepra SA, a subsidiary of LTI.
The components of deferred taxes at December 31, 1999, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT DEFERRED TAX ASSETS $ 23,176 $ 14,874 $ 17,107
LONG-TERM DEFERRED TAX ASSETS 9,834 4,343 3,856
(INCLUDED IN OTHER ASSETS)
CURRENT DEFERRED TAX LIABILITIES (555) (2,563) (1,545)
(INCLUDED IN ACCRUED
AND DEFERRED INCOME TAXES)
LONG-TERM DEFERRED TAX
LIABILITIES (47,413) (53,481) (22,284)
------------------------------------------
NET DEFERRED TAX LIABILITY $(14,958) $(36,827) $ (2,866)
==========================================
- ----------------------------------------------------------------------------------------
</TABLE>
EARNINGS PER SHARE Earnings in 1999 were $4.67 per share diluted which includes
gains from the divestiture of product lines of $2.62 per share and a charge of
$.07 per share for restructuring activities. This compares with earnings in 1998
of $1.35 per share diluted which included the net loss of $1.15 per share due to
the write-off of acquired in-process research and development costs and
transaction costs incurred by LTI.
Earnings from operations in 1999, excluding gains on divestiture of product
lines and restructuring costs, were $2.12 per share diluted compared with $2.50
per share diluted in 1998. Dexter's increased ownership of LTI created noncash
amortization charges, which together with the net impact of divestitures and
acquisitions, reduced earnings in 1999 by $.40 per share. Included in 1999 are
costs associated with an unsolicited merger proposal and two nonrecurring events
at LTI that resulted in a net unfavorable impact of $.02 per share on 1999
earnings from operations.
Basic earnings per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding during the year. The
reconciliation between basic earnings per share and diluted earnings per share
is presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
AMOUNTS IN THOUSANDS ---------------------------------------------
(EXCEPT PER SHARE DATA) 1999 1998 1997
- ------------------------------------------------------------------------------------
EARNINGS PER SHARE - BASIC:
<S> <C> <C> <C>
NET INCOME $ 107,499 $ 31,704 $ 56,427
WEIGHTED AVERAGE SHARES
OUTSTANDING 22,842 23,007 23,010
EARNINGS PER SHARE - BASIC $ 4.71 $ 1.38 $ 2.45
EARNINGS PER SHARE - DILUTED:
NET INCOME $ 107,499 $ 31,704 $ 56,427
EFFECT OF SUBSIDIARY DILUTIVE
OPTIONS ON NET INCOME (94) (337) (546)
---------------------------------------------
$ 107,405 $ 31,367 $ 55,881
=============================================
WEIGHTED AVERAGE SHARES
OUTSTANDING 22,842 23,007 23,010
WEIGHTED AVERAGE EFFECT OF
COMMON STOCK EQUIVALENTS 160 179 217
---------------------------------------------
23,002 23,186 23,227
=============================================
EARNINGS PER SHARE - DILUTED $ 4.67 $ 1.35 $ 2.41
</TABLE>
At December 31, 1999, 489,499 options were outstanding at a weighted average
exercise price of $39.68 that were not included in the computation of diluted
earnings per share because the exercise price of the options was greater than
the average market price of the company's common stock for the year. At December
31, 1998, 279,950 options were outstanding at a weighted average exercise price
of $41.42, and at December 31, 1997, 10,000 options were outstanding at an
exercise price of $41.22 that were not included in the computation of diluted
earnings per share.
- -------------------------------------------------------------------------------
LIFE TECHNOLOGIES, INC.
On September 1, 1983, Dexter's GIBCO subsidiary merged with Bethesda Research
Laboratories, Inc. The resulting freestanding company was renamed Life
Technologies, Inc. ("LTI") and at December 31, 1999 was owned 71.5% by Dexter,
with the remainder owned by the public. LTI's common stock is currently
available for quotation on the OTC Bulletin Board.
LTI is reported in the life sciences segment, although LTI, as a publicly owned
company, issues its own annual report including audited financial statements.
These statements follow in condensed form.
Net sales of LTI increased $45.5 million, or 13%, in 1999. Net sales increased
$40.7 million, or 13%, from sales of products other than fetal bovine serum
("FBS"), $4.3 million from a business acquired in 1999, and $2.3 million from
FBS sales. Currency translation rates unfavorably impacted net sales by $1.8
million.
Gross margin for 1999 was 54.2% of net sales compared with 53.6% in 1998. Gross
margin improved mainly due to increased volume, lower unit costs and a favorable
product mix.
28
<PAGE> 15
Marketing and administrative expenses increased 17% to $138.8 million, or 34.1%
of net sales in 1999, compared with $118.6 million, or 32.8% of net sales in
1998. The increase in expenses was principally due to an acquisition, legal
expenses, new business initiatives and strategy assessment. Research and
development expenses increased 9% to $23.8 million, or 5.9% of net sales in
1999, compared with $21.9 million, or 6% of net sales in 1998.
In 1999, LTI expensed $3.9 million representing a voluntary refund offered to
the Department of Veterans Affairs ("VA") related to a federal supply schedule
contract with the VA. In 1998, LTI reported $5.3 million of expenses related to
Dexter's acquisition of additional shares of LTI.
The effective tax rate was 30.9% in 1999 compared with 37.5% in 1998. The 1999
effective tax rate reflected the impact of a favorable income tax settlement.
The 1998 effective tax rate reflected limited income tax benefits for certain
one-time charges. Excluding these items, the effective tax rate was 35% in 1999
and 34.5% in 1998.
Net income was $38.3 million in 1999 and $31.3 million in 1998. Excluding
one-time items, net income increased 6% in 1999 compared with 1998. LTI declared
quarterly dividends totaling $.10 per share in 1999 and $.20 per share in 1998.
LTI discontinued its regular quarterly dividends in July 1999.
After the deduction of minority interests, LTI contributed $27.3 million to
Dexter's net income, or $1.18 per share on a diluted basis, in 1999, compared
with $16.3 million, or $.69 per share in 1998. Excluding one-time items, in
1999, LTI contributed $27.5 million to Dexter's net income, or $1.19 per share
on a diluted basis, compared with $18.8 million, or $.80 per share in 1998.
LTI's net contribution in 1999 excludes pretax charges of $20 million, or $.60
per share, for amortization costs and interest expense related to Dexter's
increased ownership in LTI. Dexter's portion of LTI shareholders' equity, per
share of Dexter, increased to $9.72 at December 31, 1999, from $8.56 at year-end
1998.
At year-end 1999, LTI had $51.5 million in cash and short-term securities,
$188.1 million in other current assets and $67.9 million of current liabilities.
In 1999, LTI spent $30.7 million on capital expenditures and was self-funding.
Capital expenditures in 2000 are expected to range between $30 and $35 million.
It is expected that LTI will continue to be self-funding in 2000.
- -----------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
IN THOUSANDS OF DOLLARS 1999 1998
- -----------------------------------------------------------------
<S> <C> <C>
REVENUES
NET SALES $407,199 $361,726
NET ROYALTIES 2,410 2,480
------------------------
409,609 364,206
------------------------
EXPENSES
COST OF SALES 186,667 167,862
MARKETING AND ADMINISTRATIVE 138,795 118,620
RESEARCH AND DEVELOPMENT 23,836 21,880
PROVISION FOR CONTRACT SETTLEMENT 3,870
TRANSACTION COSTS 5,335
------------------------
353,168 313,697
------------------------
OTHER INCOME, NET 493 606
------------------------
INCOME BEFORE INCOME TAXES 56,934 51,115
INCOME TAXES 17,583 19,168
------------------------
INCOME BEFORE MINORITY INTERESTS 39,351 31,947
MINORITY INTERESTS 1,074 644
------------------------
NET INCOME $ 38,277 $ 31,303
========================
</TABLE>
- -----------------------------------------------------------------
CONTRIBUTION OF LTI TO DEXTER NET INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
IN THOUSANDS OF DOLLARS ----------------------------
(EXCEPT PER SHARE AMOUNTS) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME OF LTI $ 38,277 $ 31,303
PORTION ATTRIBUTABLE TO
MINORITY INTERESTS 10,934 14,998
------------------------
DEXTER'S PORTION OF NET INCOME OF LTI $ 27,343 $ 16,305
========================
NET INCOME PER SHARE - BASIC
OF DEXTER* $ 1.20 $ .71
NET INCOME PER SHARE - DILUTED
OF DEXTER* $ 1.18 $ .69
</TABLE>
* 1999 excludes amortization costs and interest expense of $.60 per share
related to Dexter's increased ownership in LTI.
- ------------------------------------------------------------------------------
CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
IN THOUSANDS OF DOLLARS 1999 1998
- --------------------------------------------------------------------
ASSETS
<S> <C> <C>
CASH AND SHORT-TERM SECURITIES $ 51,489 $ 56,047
TRADE ACCOUNTS RECEIVABLE, NET 79,301 67,797
INVENTORIES 82,946 74,319
OTHER CURRENT ASSETS 25,875 21,992
PROPERTY, PLANT AND EQUIPMENT, NET 128,827 107,374
INVESTMENTS AND OTHER ASSETS 22,973 15,392
EXCESS OF COST OVER NET ASSETS OF
BUSINESSES ACQUIRED 11,560 10,666
------------------------
TOTAL ASSETS $402,971 $353,587
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES $ 67,851 $ 59,752
OTHER LIABILITIES 25,025 17,727
SHAREHOLDERS' EQUITY 310,095 276,108
------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $402,971 $353,587
========================
</TABLE>
- --------------------------------------------------------------------
CONTRIBUTION OF LTI TO DEXTER BOOK VALUE
<TABLE>
<CAPTION>
DECEMBER 31
IN THOUSANDS OF DOLLARS ----------------------
(EXCEPT PER SHARE AMOUNTS) 1999 1998
- -------------------------------------------------------
<S> <C> <C>
LTI SHAREHOLDERS' EQUITY $310,095 $276,108
PORTION ATTRIBUTABLE TO
MINORITY INTERESTS 88,386 78,880
------------------------
DEXTER'S PORTION OF LTI
SHAREHOLDERS' EQUITY $221,709 $197,228
========================
BOOK VALUE PER SHARE OF
DEXTER STOCK $ 9.72 $ 8.56
</TABLE>
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31
--------------------------
IN THOUSANDS OF DOLLARS 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
NET INCOME $ 38,277 $ 31,303
NONCASH ITEMS:
DEPRECIATION AND AMORTIZATION 15,650 14,330
OTHER 1,926 9,020
OPERATING WORKING CAPITAL
INCREASE (13,615) (12,541)
------------------------
42,238 42,112
------------------------
INVESTMENTS
PROPERTY, PLANT AND EQUIPMENT (30,667) (25,359)
ACQUISITIONS AND JOINT VENTURES (12,682) (1,047)
OTHER (5) 585
------------------------
(43,354) (25,821)
------------------------
FINANCING
DIVIDENDS PAID (3,740) (4,711)
EXERCISE OF STOCK OPTIONS 3,258 27,051
SHORT-TERM BORROWINGS (1,943) (971)
LONG-TERM LOAN BORROWINGS (REPAYMENTS) 381 (23)
------------------------
(2,044) 21,346
------------------------
EFFECT OF TRANSLATION RATE CHANGES
ON CASH AND SHORT-TERM SECURITIES (1,398) (666)
------------------------
TOTAL (DECREASE) INCREASE IN CASH
AND SHORT-TERM SECURITIES $ (4,558) $ 36,971
=========================
</TABLE>
- -----------------------------------------------------------------------
29
<PAGE> 16
SEGMENT DATA
In 1998, the company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which changed the way the company reports
information about its operating segments. Dexter is a global specialty materials
supplier with three operating segments: life sciences, nonwovens, and specialty
polymers. The specialty polymers segment includes businesses whose product
offerings are based on polymer technologies serving the aerospace, electronics,
and industrial assembly markets.
1999 COMPARED WITH 1998
Sales in the life sciences segment increased $45.5 million, or 13%, in 1999. The
effect of acquired businesses increased net sales by $4.3 million, or 1%. Net of
acquired businesses, sales increased 12% due to unit volume increases. Operating
income was $48.4 million in 1999 compared with $26 million in 1998. Operating
income in 1999 included noncash amortization charges of $8.1 million recorded by
Dexter related to Dexter's increased ownership of LTI and a $3.9 million charge
for a voluntary refund LTI offered to the Department of Veterans Affairs ("VA")
related to its supply schedule contract with the VA. Included in 1998 operating
income were one-time charges for the write-off of acquired in-process research
and development costs of $24.5 million recorded by Dexter and transaction costs
of $5.3 million recorded by LTI related to Dexter's increased ownership in LTI.
Excluding these charges, operating income in 1999 increased $4.5 million, or 8%,
due to favorable product mix and higher sales volume partially offset by
increased marketing and administrative expenses.
Sales in the nonwovens segment increased $5.3 million, or 2%, in 1999. A 5%
increase in unit volume was partially offset by price decreases averaging 3%.
Sales of wet wipes and other specialty products were stronger in 1999 compared
with 1998, while sales of food packaging products were weaker due to lower
pricing in 1999. Operating income decreased $6.7 million, or 16%, in 1999
primarily due to lower gross margins resulting from price decreases, an
unfavorable product mix, increased marketing expenses, and a charge for
restructuring activities of $0.8 million. These decreases in operating income
were partially offset by lower raw material costs.
Sales in the specialty polymers segment decreased $177.2 million, or 34%, in
1999. The net effect of divested businesses decreased sales by $183.3 million,
or 35%. Sales of ongoing businesses in the specialty polymers segment increased
$11.1 million, or 4%, in 1999 compared with 1998. Operating income was $131.2
million in 1999 and $46.4 million in 1998. The net effect of divested businesses
decreased operating income by $11.3 million. Operating income in 1999 included
gains from the divestiture of product lines of $95 million, including a gain of
$91.1 million due to the divestiture of the company's Packaging Coatings
business and a gain of $3.7 million due to the divestiture of the company's
printed wiring board product line. Also included in 1999 operating income was a
charge for restructuring activities of $1.6 million for a plant closure and
other business realignments. Operating income from ongoing businesses increased
$3.2 million, or 9%, due to higher operating income in the Electronic Materials
business resulting from increased sales volume.
1998 compared with 1997
Sales in the life sciences segment increased $30.8 million, or 9%, in 1998. A
12% increase in unit volume was somewhat offset by a 2% unfavorable effect of
currency translation rates and selling price decreases averaging 1%. Operating
income decreased $24.9 million, or 49%, in 1998 due to one-time charges for the
write-off of acquired in-process research and development costs of $24.5 million
recorded by Dexter and transaction costs of $5.3 million recorded by LTI related
to Dexter's increased ownership in LTI. Excluding these charges, operating
income increased $4.9 million due to the favorable impact on margins of the
higher sales volume.
Sales in the nonwovens segment decreased $2.2 million, or 1%, in 1998. A 1%
increase in unit volume was more than offset by price decreases averaging 1% and
a 1% unfavorable currency translation effect. Sales of medical products and wet
wipes were stronger in 1998 compared with 1997, while sales of food packaging
products and other specialty products were weaker. Operating income decreased
$3.3 million, or 8%, in 1998 primarily due to lower gross margins resulting from
an unfavorable product mix, as well as, increased marketing and administrative
expenses, and increased research and development expenses.
Sales in the specialty polymers segment decreased $7.5 million, or 1%, in 1998.
The effect of acquired businesses increased 1998 net sales by $19.8 million, or
4%. Net of acquired businesses, sales decreased 5% due to a 3% decrease in unit
volume, unfavorable currency translation effects of 1%, and selling price
decreases averaging 1%. Lower volume in the Electronic Materials business
related to the slowdown in the electronics market, especially in the Asian
sector, and lower sales of beer and beverage can coatings were partially offset
by higher sales in both the aerospace market and food and specialty can coatings
serving international markets. Operating income decreased $4.1 million, or 8%,
in 1998 primarily due to lower gross margins in the Electronic Materials
business resulting from sales volume decreases. This negative effect was
partially offset by higher operating income in the Adhesive & Coating Systems
business resulting from increased sales volume and continued productivity
improvements.
30
<PAGE> 17
SEGMENT DATA
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
LIFE SCIENCES $ 407,199 $ 361,726 $ 330,967
NONWOVENS 285,265 279,951 282,180
SPECIALTY POLYMERS 349,209 526,360 533,908
-----------------------------------------------
CONSOLIDATED $1,041,673 $1,168,037 $1,147,055
===============================================
- --------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATING INCOME
LIFE SCIENCES* $ 48,382 $ 26,001 $ 50,938
NONWOVENS 34,069 40,735 44,061
SPECIALTY POLYMERS 131,152 46,391 50,526
-----------------------------------------------
CONSOLIDATED OPERATING INCOME 213,603 113,127 145,525
OTHER INCOME, NET 7,874 7,696 6,014
INTEREST EXPENSE (20,910) (18,210) (20,192)
GENERAL CORPORATE EXPENSE (19,389) (16,066) (20,262)
-----------------------------------------------
CONSOLIDATED INCOME BEFORE TAXES $ 181,178 $ 86,547 $ 111,085
===============================================
</TABLE>
* Life Sciences 1999 operating income includes $8.1 million of amortization
charges associated with Dexter's increased ownership of LTI.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CREDIT (CHARGE) INCLUDED IN OPERATING INCOME
LIFE SCIENCES:
WRITE-OFF OF ACQUIRED IN-PROCESS
RESEARCH AND DEVELOPMENT COSTS $ (24,508)
TRANSACTION COSTS (5,335)
PROVISION FOR CONTRACT SETTLEMENT $ (3,870)
-----------------------------------------------
TOTAL LIFE SCIENCES $ (3,870) $ (29,843)
NONWOVENS:
CHARGE FOR RESTRUCTURING BUSINESSES $ (800)
SPECIALTY POLYMERS:
CHARGE FOR RESTRUCTURING BUSINESSES $ (1,630)
GAIN ON DIVESTITURE OF PRODUCT LINES 95,011
-----------------------------------------------
TOTAL SPECIALTY POLYMERS $ 93,381
-----------------------------------------------
CONSOLIDATED $ 88,711 $ (29,843)
===============================================
- --------------------------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
LIFE SCIENCES $ 23,762 $ 14,330 $ 12,508
NONWOVENS 16,485 15,462 14,987
SPECIALTY POLYMERS 14,608 20,320 17,434
GENERAL CORPORATE 600 245 512
-----------------------------------------------
CONSOLIDATED $ 55,455 $ 50,357 $ 45,441
===============================================
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS AT YEAR END
LIFE SCIENCES $ 351,481 $ 297,540 $ 261,198
NONWOVENS 224,115 218,473 210,084
SPECIALTY POLYMERS 236,045 417,985 412,920
-----------------------------------------------
CONSOLIDATED OPERATING ASSETS 811,641 933,998 884,202
GENERAL CORPORATE* 262,487 274,370 77,574
-----------------------------------------------
CONSOLIDATED $1,074,128 $1,208,368 $ 961,776
===============================================
</TABLE>
* Corporate assets consist primarily of cash, securities and investments, and,
in addition, corporate assets of LTI.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL EXPENDITURES
LIFE SCIENCES $ 28,895 $ 17,210 $ 23,257
NONWOVENS 15,971 15,924 17,430
SPECIALTY POLYMERS 8,033 15,202 18,351
GENERAL CORPORATE 63 98 49
-----------------------------------------------
CONSOLIDATED $ 52,962 $ 48,434 $ 59,087
===============================================
- --------------------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC INFORMATION
NET SALES
UNITED STATES $ 613,687 $ 629,129 $ 615,746
UNITED KINGDOM 121,158 135,206 141,220
OTHER COUNTRIES 306,828 403,702 390,089
-----------------------------------------------
CONSOLIDATED $1,041,673 $1,168,037 $1,147,055
===============================================
LONG-LIVED ASSETS
UNITED STATES $ 478,099 $ 495,097 $ 357,882
UNITED KINGDOM 62,734 60,550 40,757
OTHER COUNTRIES 58,908 130,848 118,829
-----------------------------------------------
CONSOLIDATED $ 599,741 $ 686,495 $ 517,468
===============================================
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 18
ANALYSIS OF FINANCIAL POSITION
WORKING CAPITAL Total working capital, including cash and short-term securities,
decreased $2.5 million from 1998. Operating working capital decreased $15.4
million to $225 million at year-end 1999. The sum of cash, short-term
securities, and accounts receivable exceeded total current liabilities at
December 31, 1999. The following is a summary of the changes in operating and
total working capital during 1999:
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN OPERATING WORKING CAPITAL AND TOTAL WORKING CAPITAL IN 1999
<CAPTION>
BUSINESS CHANGE IN
ACQUISITIONS AND CURRENCY CONSOLIDATED
CASH ACCOUNTING DIVESTED TRANSLATION ACCOUNT
IN THOUSANDS OF DOLLARS CHANGES ACCRUALS BUSINESSES EFFECTS BALANCES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE, NET $26,382 $ 7,975 $(51,558) $(4,945) $(22,146)
INVENTORIES AT FIFO 11,393 542 (24,470) (2,818) (15,353)
PREPAID AND DEFERRED EXPENSES 802 196 (2,339) (120) (1,461)
ACCOUNTS PAYABLE (6,205) 1,472 26,017 1,940 23,224
ACCRUED LIABILITIES AND EXPENSES 2,068 1,002 (3,103) 370 337
--------------------------------------------------------------------------
OPERATING WORKING CAPITAL 34,440 11,187 (55,453) (5,573) (15,399)
--------------------------------------------------------------------------
CASH 7,340 72 (6,885) (50) 477
SHORT-TERM SECURITIES (22,330) (2,346) (24,676)
LIFO RESERVE (188) 2,069 1,881
CURRENT DEFERRED TAX ASSETS 8,302 8,302
SHORT-TERM DEBT 31,436 (156) 65 (113) 31,232
OTHER CURRENT LIABILITIES AND TAXES (5,390) (487) 1,773 (182) (4,286)
--------------------------------------------------------------------------
WORKING CAPITAL $45,308 $18,918 $(58,431) $(8,264) $ (2,469)
==========================================================================
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
CASH AND SHORT-TERM SECURITIES Cash principally comprises in-transit funds in
the United States and amounts in operating bank accounts in other countries.
Short-term securities have maturities of less than 90 days when purchased and
represent cash awaiting use in the business, funds available for future
investment, and partial offsets of net nonlocal currency exposures relating to
current accounts payable and accounts receivable. Short-term securities are held
in interest-bearing overnight instruments, time deposits, prime commercial paper
and other fixed income investments. The carrying value of short-term securities
approximates fair value because of the short maturity of these instruments. At
December 31, 1999, there were $77.8 million in short-term securities, of which
$29.8 million were directly available to Dexter and $48 million were maintained
separately by LTI due to its different shareholder constituency. Of these
amounts, $6.5 million for Dexter and $10.4 million for LTI were held outside the
United States. Of the $29.8 million for Dexter, $23.3 million was held by
Dexter's captive insurance companies.
ACCOUNTS RECEIVABLE Gross accounts receivable was $189.3 million at December 31,
1999, $213.6 million at December 31, 1998 and $195.7 million at December 31,
1997. Gross receivables were reduced by allowances of $7.6 million, $9.7 million
and $10.4 million at December 31, 1999, 1998 and 1997, respectively. Included in
accounts receivable are non-trade accounts receivable of $25.3 million, $18.3
million and $11 million at December 31, 1999, 1998 and 1997, respectively. These
amounts principally comprise tax receivables. Net accounts receivable decreased
in 1999 primarily due to the divestiture of product lines. Currency translation
effects also decreased net accounts receivable by $4.9 million in 1999. The
collection period for accounts receivable was approximately 54 days at December
31, 1999, 58 days at December 31, 1998 and 53 days at December 31, 1997.
INVENTORIES Inventories are valued at the lower of cost or market. Inventories
located in the United States represented 55% of total inventories. The LIFO
(last-in, first-out) method was used for determining the cost of 59% of U.S.
inventories in 1999 and 1998 and 58% in 1997. The FIFO (first-in, first-out)
method was used for determining the cost of the remaining 41% of inventories in
the United States and the 45% of total inventories which were located outside
the United States. The reduction in levels of LIFO valued inventories (LIFO
liquidation) was not significant in 1999, 1998 or 1997. Inventories at December
31 were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS 1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
MATERIALS AND SUPPLIES $ 56,451 $ 65,180 $ 61,233
WORK-IN-PROCESS 20,821 19,101 17,664
FINISHED GOODS 101,730 110,074 99,803
---------------------------------
TOTAL FIFO COST 179,002 194,355 178,700
LIFO RESERVE (15,507) (17,388) (18,799)
---------------------------------
$163,495 $176,967 $159,901
=================================
- --------------------------------------------------------------
</TABLE>
FIFO inventories decreased $15.4 million in 1999 to $179 million, primarily due
to the divestiture of product lines in 1999. This decrease was partially offset
by higher inventories at LTI to support increased sales levels.
32
<PAGE> 19
PROPERTY, PLANT AND EQUIPMENT Capital expenditures on the accrual basis were $53
million in 1999, $48.4 million in 1998 and $59.1 million in 1997. Capital
expenditures in 2000 are currently estimated to range between $55 million and
$65 million.
For financial reporting purposes, the company records property, plant and
equipment at cost on the date of acquisition and uses the straight-line method
of computing depreciation on plant and equipment. This method charges the cost
to income evenly over the useful lives of the assets, principally 20 to 50 years
for buildings, 16 years for nonwovens related machinery and equipment, and 3 to
15 years for all other machinery and equipment. For tax purposes, the company
uses shorter lives and accelerated depreciation methods. Capital investment
incentive grants are recorded as a reduction of the cost of assets, which
spreads the benefits over the lives of the related assets through reduced
depreciation. Management evaluates, on an ongoing basis, the carrying value of
property, plant and equipment and makes a specific provision against an asset
when impairment is identified. Property, plant and equipment is written down
when the asset has become redundant or the remaining book value exceeds its
anticipated future productive asset value.
Maintenance and repairs are charged to operations as incurred and amounted to
$17 million in 1999, $18.9 million in 1998 and $18.3 million in 1997.
Betterments and major renewals are capitalized. The cost of assets sold or
retired and the related amounts of accumulated depreciation are eliminated from
the accounts and the resulting gains or losses are included in net income.
The cost and accumulated depreciation of property, plant and equipment at
December 31, were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS 1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
LAND $ 27,594 $ 30,879 $ 28,501
BUILDINGS AND IMPROVEMENTS 175,551 193,594 184,388
MACHINERY AND EQUIPMENT 457,314 509,406 474,079
CONSTRUCTION IN PROGRESS 25,260 22,302 25,157
-------------------------------------
TOTAL COST 685,719 756,181 712,125
LESS ACCUMULATED DEPRECIATION (357,573) (395,725) (363,953)
-------------------------------------
PROPERTY, PLANT AND
EQUIPMENT, NET $ 328,146 $ 360,456 $ 348,172
=====================================
- ----------------------------------------------------------------------
</TABLE>
Changes in property, plant and equipment for the past three years were as
follows:
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
JANUARY 1 $ 360,456 $ 348,172 $ 334,266
CAPITAL EXPENDITURES 52,962 48,434 59,087
ASSETS OF BUSINESSES ACQUIRED 4,303 282 4,271
ASSETS OF BUSINESSES DIVESTED (47,582) (893)
WRITE-DOWN OF ASSET VALUES (1,189) (470)
DEPRECIATION (36,212) (38,696) (37,453)
CURRENCY EFFECTS (4,592) 2,264 (10,636)
--------------------------------------
DECEMBER 31 $ 328,146 $ 360,456 $ 348,172
======================================
- --------------------------------------------------------------------------------
</TABLE>
PATENTS, TECHNOLOGY, TRADEMARKS AND COVENANTS Patents, technology, trademarks
and covenants not to compete are stated at cost less accumulated amortization of
$24.7 million, $22.6 million and $19.9 million at December 31, 1999, 1998 and
1997, respectively. Such items that have been acquired by purchase or merger are
capitalized and amortized on a straight-line basis over periods ranging from 5
to 30 years. Patents, technology, trademarks and covenants decreased in 1999
primarily due to $5.3 million of amortization costs. This decrease was partially
offset by $0.8 million related to the net impact of businesses acquired and
divested. During 1998, the company acquired approximately $91.5 million of such
items as a result of the acquisition of an additional 22% of LTI. Research and
development costs and any costs associated with internally developed patents or
other proprietary technology are expensed in the year incurred.
EXCESS ACQUISITION COST Excess acquisition cost was $112.2 million at year-end
1999, $157 million at year-end 1998 and $97.5 million at year-end 1997. Excess
acquisition cost decreased in 1999 primarily due to $37.3 million related to the
net impact of businesses divested and acquired and $7.6 million of amortization
cost. Excess acquisition cost increased in 1998 primarily due to $63.4 million
resulting from the increase in ownership of LTI and $1.9 million due to currency
translation effects. This increase was partially offset by $6.9 million of
amortization costs. The excess of cost over the net asset value of businesses
acquired prior to 1991 is amortized on a straight-line basis over 25 to 40
years. Excess acquisition cost of businesses acquired after 1990 is amortized
over periods ranging from 5 to 30 years. Accumulated amortization amounted to
$26.7 million, $31.2 million and $23.8 million at December 31, 1999, 1998 and
1997, respectively. Management evaluates, on an ongoing basis, the carrying
value of excess acquisition cost and makes a specific provision against the
asset when impairment is identified. When a loss is expected from the proposed
sale of a business or product line, a diminution in the value of the excess of
cost over the net asset value of the business acquired is identified. In the
instance of an ongoing business, such a diminution is recognized when there has
been a history of the business' inability to generate operating income after the
amortization of goodwill and, in management's judgment, the business will not
recover from this position in the future. There were no impairment charges in
1999, 1998 or 1997.
SHORT-TERM DEBT Short-term borrowings were denominated principally in U.S.
dollars and Japanese yen and had maturities of three months or less. The company
uses short-term borrowings of less than three-month maturity to partially offset
net nonlocal currency exposures relating to current accounts receivable and
accounts payable. It can be expected that short-term borrowings will continue to
be utilized for this purpose. The $8.6 million short-term borrowings outstanding
at year-end 1999 included $0.4 million of short-term debt of LTI. The weighted
average interest rate on short-term borrowings outstanding was 7.2% at December
31, 1999, 6% at December 31, 1998, and 6.1% at December 31, 1997.
In December 1998, the company entered into a $300 million, 364-day revolving
credit agreement with a syndicate of U.S. and international banks. In February
1999, the company reduced the aggregate commitment under this revolving credit
agreement from $300 million to $100 million. In September 1999, the company
extended the 364-day revolving credit agreement for another year. This revolving
credit agreement carries a facility fee that is based on the credit ratings of
the company. At December 31, 1999, the facility fee on the revolving credit
agreement was 0.06% per annum. A utilization fee of up to 0.10% per annum will
also be charged if the utilization of the revolving credit agreement exceeds
certain contractual levels. This revolving credit agreement has a minimum
consolidated net worth provision and a maximum leverage ratio. At December 31,
1999, the company was in compliance with these provisions. There were no
borrowings under the 364-day revolving credit agreement as of December 31, 1999.
The company has available additional short-term lines of credit of approximately
$85 million at December 31, 1999.
The company had outstanding letters of credit at December 31, 1999 totaling
$11.8 million for liabilities already reflected in the Statement of Financial
Position. In addition to its 364-day revolving credit facility, the company has
authorized the borrowing of up to $100 million under short-term lines of credit
and commercial paper. There was no commercial paper issued during 1999.
33
<PAGE> 20
ACCRUED LIABILITIES AND EXPENSES Accrued liabilities and expenses at December 31
were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS 1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
SALARIES, WAGES AND BENEFITS $16,021 $18,130 $17,381
PROVISIONS FOR CLAIMS, WARRANTIES
AND CONTRACT SETTLEMENT 13,142 3,759 5,789
PENSION AND PROFIT SHARING 9,670 12,826 13,265
ROYALTIES 4,785 6,120 3,482
TAXES, OTHER THAN INCOME TAXES 4,230 3,774 3,529
DEFERRED INCOME 3,156 1,192 855
PROFESSIONAL SERVICES 2,723 2,894 4,351
LTI TRANSACTION COSTS 2,300 7,349
DEFERRED PURCHASE AND
CONSTRUCTION PAYMENTS 1,429 1,252 1,580
ENVIRONMENTAL LIABILITIES 1,327 1,815 2,099
INTEREST 1,282 1,088 1,162
RESTRUCTURING RESERVES 1,231 471 34
CUSTOMER REBATES AND VOLUME
DISCOUNTS 1,164 2,083 2,482
COMMISSIONS 990 1,242 1,455
OTHER, PRINCIPALLY ACCRUALS
FOR UNBILLED OBLIGATIONS 13,050 12,842 12,558
-----------------------------
$76,500 $76,837 $70,022
=============================
- ------------------------------------------------------------------
</TABLE>
LEASES The company leases facilities, vehicles, computers, and other equipment
under long-term operating leases with varying terms and expiration dates. Some
leases contain renewal provisions, purchase options, and escalation clauses.
At December 31, 1999, LTI had a capital lease in the amount of $2.9 million
resulting from its acquisition in 1999. Obligations under capital leases were
not significant at December 31, 1998. At December 31, 1997, LTI had a capital
lease in the amount of $4.7 million for a parcel of land on which they
constructed a new corporate R&D center and other administrative offices,
including their headquarters. In 1998, LTI exercised their option to purchase
this parcel of land.
Aggregate future minimum lease payments under noncancelable operating leases as
of December 31, 1999, were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS OPERATING LEASES
- -------------------------------------------------------------
<S> <C>
FOR THE YEARS ENDING:
2000 $13,338
2001 9,475
2002 5,969
2003 3,391
2004 2,452
Later years 18,410
-------
Total minimum lease payments $53,035
=======
- -------------------------------------------------------------
</TABLE>
Total rent expense incurred under noncancelable leases, net of minor sublease
rentals, amounted to $15.1 million in 1999, $15.5 million in 1998 and $11.5
million in 1997. The company has no contingent rentals.
MINORITY INTERESTS Minority interests increased by $8.2 million in 1999 to $92.5
million. The increase in 1999 was principally due to $10.9 million of net income
attributable to the minority interest shareholders of LTI and $1.2 million due
to the exercise of stock options at LTI. Somewhat offsetting these increases
were cash dividends paid by LTI to minority interest shareholders of $1.3
million, $1.2 million due to the divestiture of the Packaging Coatings business,
currency translation effects of $1 million, and $0.7 million from purchases of
additional LTI shares. At year-end 1998, minority interests were $84.3 million,
a decrease of $20.1 million from 1997 minority interests of $104.4 million. The
decrease in 1998 was due principally to the company's increased ownership of
LTI. In December of 1998, the company acquired approximately 22% of all the
issued and outstanding LTI shares. As a result, Dexter's ownership in LTI
increased to approximately 71.5% and the corresponding minority interest
ownership decreased to 28.5%. This resultant decrease of approximately $61.7
million was partially offset by $15 million of net income attributable to the
minority interest shareholders of LTI, $27.2 million due to the exercise of
stock options at LTI and currency translation effects of $1.6 million. Somewhat
offsetting these increases were quarterly cash dividends paid by LTI to minority
interest shareholders totaling $2.3 million. Minority interest in LTI's equity
represented $88.4 million and $78.9 million at December 31, 1999 and 1998,
respectively.
CONTINGENCIES The company and its subsidiaries are subject to potential
liability under government regulations, contractual and other matters and
various claims and legal actions which are pending or may be asserted. These
matters arise in the ordinary course and conduct of the business of the company
and its subsidiaries and some are expected to be covered, at least in part, by
insurance. At December 31, 1999, $0.3 million of current and $4.9 million of
long-term receivables from third-party insurance companies are included as
assets of the company. Equal and offsetting payables to third parties are
included as liabilities of the company. Estimated amounts for claims that are
probable and are not covered by third-party insurance are properly reflected as
liabilities of the company.
In September 1999, LTI submitted a report in connection with a voluntary
disclosure to the Department of Veteran Affairs ("VA") regarding matters
involving the management of LTI's federal supply schedule contract with the VA
that has been in effect since April 1992. As part of the disclosure LTI offered
to provide a refund to the government in the amount of $3.9 million. LTI
recorded this amount in September 1999. There can be no assurance that the
government will agree with LTI's assessment of this matter or accept LTI's
offered refund amount. Consequently, it is possible the final resolution of this
matter could materially differ from LTI's offer and could have a material
adverse effect on the company's financial position, operating results or cash
flows when resolved in a future reporting period.
While the outcome of all of the pending and potential claims and legal actions
against the company and its subsidiaries cannot be forecast with certainty,
management believes that, with the possible exception of the potential liability
of LTI described above, such matters should not result in any liability which
would have a material adverse effect on the company's financial position,
results of operations, or cash flows.
34
<PAGE> 21
ENVIRONMENTAL LIABILITIES Environmental expenditures attributed to ongoing
operations of the company are expensed or capitalized as appropriate.
Environmental expenditures attributed to previously owned properties and third
party off-site facilities are expensed. Environmental liabilities are recorded
and expensed when incurrence of the liability is probable and the expenses can
be reasonably estimated. Generally, the incurrence of such liability is deemed
probable when an environmental condition for which the company is likely to be
legally responsible is determined to exist. Probable expenses are estimated, on
an ongoing basis, as facts become available that indicate the scope of the
condition to be addressed and the likely response measures for addressing it.
Due to such factors as the wide discretion of regulatory authorities regarding
cleanup levels and uncertain allocation of liability at multiple party sites,
estimates made prior to approval of a formal plan of action represent
management's best judgment as to estimates of reasonably foreseeable expenses
based upon comparison to similar activities at other sites. Based upon the
information available at this time, the company believes that it has properly
provided for its best estimate of the liabilities and that the outcome of these
matters will not have a material adverse effect upon its financial condition,
results of operations or cash flows in the future.
Environmental reserves at December 31, 1999, with respect to 19 matters, were
$13 million, including current reserves of $1.3 million, which are expected to
be spent in 2000, and long-term reserves of $11.7 million. Environmental
reserves at December 31, 1998 were $15.3 million and at year-end 1997 were $15.8
million. Such reserves, which are not discounted, included, at year-end, the
following estimated amounts for claims accepted and payable by third-party
insurers: $2.5 million in 1999, $2.8 million in 1998 and $2.7 million in 1997.
The related receivables from insurance companies of $2.5 million, $2.8 million
and $2.7 million were included as assets of the company at year-end 1999, 1998
and 1997, respectively. The reserves were decreased during 1999 by expenditures
of $1.3 million.
Dexter Environmental Assurance, Ltd. ("DEAL"), a wholly owned Bermuda company,
was established in 1993. DEAL provides coverage to all wholly owned operations
of Dexter against environmental liabilities arising from occurrences prior to
December 31, 1999.
CURRENCY EXCHANGE EFFECTS Assets and liabilities of those operations whose
functional currency is other than the U.S. dollar are translated at end of
period currency exchange rates and fluctuations due to changes in exchange rates
are accounted for as a component of shareholders' equity, "Currency Translation
Effects." Results of operations are translated at average monthly currency
exchange rates during the period.
Currency translation effects decreased shareholders' equity in 1999 by $3.1
million, including $2.6 million of translation effects and a $0.5 million
related tax effect. This decrease was the result of a net strengthening of the
U.S. dollar against currencies of countries in which the company operates.
Currency translation effects increased shareholders' equity by $4.6 million in
1998, including $3.6 million of translation effects and a $1 million related tax
effect.
Many of the company's operations conduct a portion of their business in nonlocal
currencies. These transactions give rise to nonlocal currency receivables or
payables. Changes in the exchange rates between the functional currency and the
nonlocal currency in which the transaction is denominated result in currency
transaction gains and losses that are included in the results of operations. In
1999, currency exchange losses were $2 million. Currency gains and losses
realized on nonlocal currency transactions were not significant in 1998 and
1997.
The company utilizes forward exchange contracts to hedge nonlocal currency
transactions and commitments. Gains and losses on forward exchange contracts
that hedge specific commitments are deferred and recognized in income in the
same period as the hedged transaction. Such deferred unrealized gains and losses
at December 31, 1999, 1998 and 1997 were not significant. Gains and losses on
forward contracts that do not hedge an identifiable commitment are included in
income as the gain or loss arises. Forward exchange contracts outstanding at
year-end 1999 were short-term in nature and related to nonlocal currency
transactions of the company's U.S., European and Asian operations. Excluding
LTI, the equivalent U.S. dollar purchase amounts of forward contracts
outstanding were $5.9 million, $1.3 million, and $0.8 million as of December 31,
1999, 1998 and 1997, respectively. The equivalent U.S. dollar sale amounts of
forward contracts outstanding were $14.1 million, $13.8 million, and $9.6
million as of December 31, 1999, 1998 and 1997, respectively. For LTI, the
equivalent U.S. dollar purchase amounts of forward contracts outstanding were
$4.2 million, $3 million, and $2.9 million as of December 31, 1999, 1998 and
1997, respectively. The equivalent U.S. dollar sale amount of forward contracts
outstanding was $18.5 million as of December 31, 1999. There were no sale
amounts outstanding as of December 31, 1998 and 1997 for LTI.
The market risk associated with forward exchange contracts is caused by
fluctuations in exchange rates subsequent to entering into the forward exchange
contracts. Credit risk associated with forward exchange contracts is caused by
nonperformance by the counterparties to these financial instruments. The company
does not believe there is significant risk of nonperformance by the
counterparties to these financial instruments.
The company had short-term borrowings at December 31, 1999 of $8.6 million of
which $1.6 million related to nonlocal currency transaction exposure management.
35
<PAGE> 22
POSTRETIREMENT BENEFITS Effective December 31, 1998, the company adopted SFAS
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits. The provisions of SFAS No. 132 standardize the disclosure requirements
for pensions and other postretirement benefits and do not change the measurement
or accounting of these plans.
The company has pension (defined benefit) or deferred profit sharing (defined
contribution) plans for substantially all U.S. employees. Retirement benefits
for most employees of international operations are provided by
government-sponsored or insured programs and, in certain countries, by defined
benefit plans.
The components of net periodic pension cost for the years ended December 31,
1999, 1998 and 1997 were:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL
IN THOUSANDS OF DOLLARS PLANS PLANS PLANS PLANS PLANS PLANS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SERVICE COST $ 5,694 $ 1,808 $ 5,588 $ 1,761 $ 4,811 $ 1,066
INTEREST COST 6,797 2,402 6,485 2,643 5,756 1,963
EXPECTED RETURN ON PLAN ASSETS (8,522) (2,263) (7,639) (2,438) (6,457) (1,943)
AMORTIZATION OF:
TRANSITION OBLIGATION (ASSET) 24 (61) 24 (64) 24 (63)
PRIOR SERVICE COST 632 70 493 73 444 81
ACTUARIAL (GAIN) LOSS (736) 484 (329) 658 (132) 74
------------------------------------------------------------------------------------------------
NET PERIODIC PENSION COST $ 3,889 $ 2,440 $ 4,622 $ 2,633 $ 4,446 $ 1,178
================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table provides a summary of the projected benefit obligation, plan
assets and funded status of the company's pension plans:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
DOMESTIC INTERNATIONAL DOMESTICS INTERNATIONAL DOMESTICS INTERNATIONAL
IN THOUSANDS OF DOLLARS PLANS PLANS PLANS PLAN PLANS PLANS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN PROJECTED BENEFIT
OBLIGATION
PROJECTED BENEFIT OBLIGATION
AT JANUARY 1 $ 110,170 $ 40,744 $ 93,284 $ 37,247 $ 85,275 $ 27,656
SERVICE COST 5,694 1,808 5,588 1,761 4,811 1,066
INTEREST COST 6,797 2,402 6,485 2,643 5,756 1,963
PLAN PARTICIPANTS' CONTRIBUTIONS 792 735 645
AMENDMENTS 1,567 565 (70)
ACTUARIAL (GAIN) LOSS (22,606) 832 7,598 (1,731) 754 8,210
DIVESTITURE (1,358)
CURTAILMENT GAIN (4,131) (670)
SETTLEMENT (462)
BENEFITS PAID (7,998) (1,143) (4,223) (552) (3,466) (926)
EXPENSES PAID (108) (129) (411)
FOREIGN CURRENCY EXCHANGE RATE
CHANGES (1,008) 641 (1,297)
-----------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION
AT DECEMBER 31 $ 87,818 $ 41,937 $ 110,170 $ 40,744 $ 93,284 $ 37,247
=========================================================================================
CHANGE IN PLAN ASSETS
FAIR VALUE OF PLAN ASSETS
AT JANUARY 1 $ 95,966 $ 30,822 $ 86,489 $ 27,646 $ 73,164 $ 23,270
ACTUAL RETURN ON PLAN ASSETS 18,053 5,176 13,051 389 15,175 3,950
DIVESTITURE (2,039)
EMPLOYER CONTRIBUTION 592 1,977 778 2,162 2,027 1,717
PLAN PARTICIPANTS' CONTRIBUTIONS 792 735 645
BENEFITS PAID (7,998) (1,143) (4,223) (552) (3,466) (926)
EXPENSES PAID (108) (129) (411)
FOREIGN CURRENCY EXCHANGE RATE
CHANGES (721) 442 (1,010)
------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT
DECEMBER 31 $ 106,505 $ 34,864 $ 95,966 $ 30,822 $ 86,489 $ 27,646
==========================================================================================
FUNDED STATUS $ 18,687 $ (7,073) $ (14,204) $ (9,922) $ (6,795) $ (9,601)
UNRECOGNIZED ACTUARIAL
(GAIN) LOSS (37,287) 7,396 (5,868) 9,987 (8,382) 10,179
UNRECOGNIZED PORTION OF
NET OBLIGATION AT TRANSITION 47 (304) 70 (388) 94 (454)
UNRECOGNIZED PRIOR SERVICE COST 4,171 739 4,809 840 3,734 895
------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED $ (14,382) $ 758 $ (15,193) $ 517 $ (11,349) $ 1,019
==========================================================================================
AMOUNTS RECOGNIZED
IN THE STATEMENT OF
FINANCIAL POSITION CONSIST OF:
PREPAID PENSION COST $ 897 $ 1,576 $ 1,856
ACCRUED PENSION LIABILITY $ (15,354) (349) $ (17,816) (1,233) $ (13,115) (994)
INTANGIBLE ASSETS 961 210 2,602 174 1,742 157
INCLUDED IN ACCUMULATED OTHER
COMPREHENSIVE INCOME 11 21 24
------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED $ (14,382) $ 758 $ (15,193) $ 517 $ (11,349) $ 1,019
==========================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 23
For pension plans where the accumulated benefit obligation exceeded the plan's
assets, the projected benefit obligations, accumulated benefit obligations, and
fair value of plan assets were $12 million, $10.2 million, and $1.4 million,
respectively, as of December 31, 1999; $13.5 million, $11.3 million, and $1
million, respectively, as of December 31, 1998; and $11.4 million, $9.2 million,
and $0.8 million, respectively, as of December 31, 1997.
The assets in the plans included stock of Dexter Corporation in the amount of
$6.6 million, $5.3 million, and $7.2 million at December 31, 1999, 1998 and
1997, respectively.
<TABLE>
<CAPTION>
1999* 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS
AS OF DECEMBER 31
DISCOUNT RATE
DOMESTIC 7.83% 6.58% 6.82%
INTERNATIONAL 6.24% 5.93% 7.01%
EXPECTED RETURN ON PLAN ASSETS
DOMESTIC 9.00% 9.00% 9.00%
INTERNATIONAL 7.29% 7.16% 8.55%
RATE OF COMPENSATION INCREASE
DOMESTIC 4.93% 4.95% 4.95%
INTERNATIONAL 4.45% 4.09% 5.50%
</TABLE>
* In February 1999, the company recognized a $2.7 million curtailment gain
resulting from the sale of its Packaging Coatings business. In November 1999,
the company recognized a $1.4 million curtailment gain resulting from the sale
of its printed wiring board product line and the Dexter Pension Plan was
remeasured using a 7.75% discount rate.
- --------------------------------------------------------------------------------
The company sponsors deferred profit sharing plans for substantially all
domestic employees not covered under pension plans. Contributions and cost are
determined based on a percentage of each covered employees' pay and totaled $7.4
million in 1999, $7.2 million in 1998 and $8.1 million in 1997.
In addition to providing pension benefits, Dexter's wholly owned domestic
businesses provide some healthcare and life insurance benefits for retired
employees. Dexter has funded trusts for future payment of such benefits. These
funds are expected to achieve long-term returns in excess of 10%.
The components of net periodic postretirement benefit income for the years ended
December 31, 1999, 1998 and 1997 were:
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE COST $ 1,333 $ 1,136 $ 828
INTEREST COST 1,922 1,801 1,596
EXPECTED RETURN ON PLAN ASSETS (4,537) (4,074) (3,328)
AMORTIZATION OF:
PRIOR SERVICE COST (286) (337) (470)
ACTUARIAL GAIN (418) (455) (237)
NET PERIODIC POSTRETIREMENT ------------------------------------
BENEFIT INCOME $(1,986) $(1,929) $(1,611)
====================================
</TABLE>
- --------------------------------------------------------------------------------
The following provides a reconciliation of accumulated benefit obligation, plan
assets and funded status of the company's postretirement health benefit plan:
<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CHANGE IN ACCUMULATED
BENEFIT OBLIGATION
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION
AT JANUARY 1 $ 30,203 $ 27,154 $ 23,192
SERVICE COST 1,333 1,136 828
INTEREST COST 1,922 1,801 1,596
PLAN PARTICIPANTS' CONTRIBUTIONS 240 217 242
AMENDMENTS 1,467
CURTAILMENT GAIN (3,550)
ACTUARIAL (GAIN) LOSS (4,780) 1,066 1,163
BENEFITS PAID (1,133) (1,171) (1,334)
------------------------------------
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION AT
DECEMBER 31 $ 24,235 $ 30,203 $ 27,154
====================================
CHANGE IN PLAN ASSETS
FAIR VALUE OF PLAN ASSETS AT
JANUARY 1 $ 45,015 $ 41,209 $ 33,709
ACTUAL RETURN ON PLAN ASSETS 9,195 4,617 8,413
EMPLOYER CONTRIBUTION 143 179
PLAN PARTICIPANTS' CONTRIBUTIONS 240 217 242
BENEFITS PAID (1,133) (1,171) (1,334)
-------------------------------------
FAIR VALUE OF PLAN ASSETS AT
DECEMBER 31 $ 53,317 $ 45,015 $ 41,209
=====================================
FUNDED STATUS $ 29,082 $ 14,812 $ 14,055
UNRECOGNIZED ACTUARIAL GAIN (15,786) (6,767) (7,746)
UNRECOGNIZED PRIOR SERVICE COST (830) (1,489) (1,826)
-------------------------------------
PREPAID POSTRETIREMENT
BENEFIT COST RECOGNIZED
IN THE STATEMENT OF
FINANCIAL POSITION $ 12,466 $ 6,556 $ 4,483
=====================================
</TABLE>
- --------------------------------------------------------------------------------
The discount rates used in determining the accumulated postretirement benefit
obligation were 7.75%, 6.5% and 6.75% at December 31, 1999, 1998 and 1997,
respectively. In February 1999, the company recognized a $1.4 million
curtailment gain resulting from the sale of its Packaging Coatings business. In
November 1999, the company recognized a $2.5 million curtailment gain resulting
from the sale of its printed wiring board product line and the accumulated
postretirement benefit obligation was remeasured using a 7.75% discount rate.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9% in 1999, declining gradually to 5% in
2007 and remaining level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the postretirement health benefit plan. A one-percentage point
change in assumed healthcare cost trend rates would have the following effects:
<TABLE>
<CAPTION>
ONE-PERCENTAGE ONE-PERCENTAGE
IN THOUSANDS OF DOLLARS POINT DECREASE POINT INCREASE
- --------------------------------------------------------------------------------
<S> <C> <C>
EFFECT ON TOTAL OF SERVICE
AND INTEREST COST
COMPONENTS $ (670) $ 150
EFFECT ON THE ACCUMULATED
POSTRETIREMENT
BENEFIT OBLIGATION $(3,800) $ 1,800
- --------------------------------------------------------------------------------
</TABLE>
As with pension benefits, the assumptions utilized in these calculations are
periodically reviewed and adjusted as deemed appropriate.
37
<PAGE> 24
LONG-TERM DEBT Long-term debt at December 31, 1999, consisted of promissory
notes, revolving credit borrowings, and a capitalized lease. In December 1999,
Dexter refinanced 500 million yen debt at an annual rate of 1.784%. The total
borrowing of 500 million yen (equivalent to approximately $4.9 million) is
scheduled to mature in the year 2002.
In May 1999, LTI acquired the process chromatography and research products
business of BioSepra Inc., resulting in the acquisition of a capital lease and
certain promissory notes. At December 31, 1999, the capital lease and promissory
notes had balances of French franc 18.8 million and French franc 5.3 million,
respectively.
In December 1998, the company entered into a $300 million, five-year revolving
credit agreement with a syndicate of U.S. and international banks. This
revolving credit agreement replaced the $100 million multi-currency revolving
credit agreement in effect during 1998 and 1997 and carries a facility fee that
is based on the credit ratings of the company. At December 31, 1999, the
facility fee on the revolving credit agreement was 0.08% per annum. A
utilization fee of up to 0.10% per annum will also be charged if the utilization
of the revolving credit agreement exceeds certain contractual levels. This
revolving credit agreement has a minimum consolidated net worth provision and a
maximum leverage ratio. At December 31, 1999, the company was in compliance with
these provisions. As of December 31, 1999, the company had borrowings under the
five-year revolving credit agreement of $60 million at an annual rate of 6.72%.
In March 1998, the company entered into a $10 million floating rate promissory
note due in the year 2001. The company also entered into an interest rate swap
agreement expiring in the year 2001 in order to limit the exposure to interest
rate volatility on the $10 million floating rate promissory note. The swap
agreement resulted in a fixed annual rate of 6.315%. At December 31, 1999, the
impact from the termination of the swap agreement would not be significant.
In March 1998, the company borrowed the Swiss franc denominated equivalent of
approximately $20 million under a floating rate promissory note due in the year
2003. The company also entered into an interest rate swap agreement expiring in
the year 2003 to limit exposure to interest rate volatility on the Swiss franc
floating rate promissory note. Upon the divestiture of certain Swiss franc net
assets in the first quarter of 1999, the company redenominated its Swiss franc
floating rate debt to Euro floating rate debt equivalent of approximately $18.8
million; there was no other change in terms and conditions from the original
Swiss franc debt. The company also cancelled the Swiss franc interest rate swap
agreement resulting in no gain or loss. Payments of 9.4 million Euro are due in
the years 2002 and 2003. The company entered into an interest rate swap
agreement expiring in the year 2003 to limit exposure to interest rate
volatility on the 18.7 million Euro floating rate promissory note. The swap
agreement resulted in a fixed annual rate of 4.395%. At December 31, 1999,
termination of the swap agreement would result in a gain of $0.3 million.
In 1996, LTI capitalized a lease for a parcel of land on which a new R&D center
and other administrative offices were constructed. In March 1998, LTI exercised
their option under the lease to purchase the land.
In November 1993, Dexter privately placed with The Prudential Insurance Company
of America, $35 million, 20-year senior unsecured notes at an annual rate of
6.21% due in the year 2013. Required prepayments began in 1994 and are scheduled
to continue with installments of $1.75 million per year through the year 2013.
In December 1993, Dexter privately placed with The Prudential Insurance Company
of America the equivalent of $15 million, 15-year senior unsecured notes
denominated in Swiss francs at an annual rate of 4.86% due in the year 2008.
Upon divestiture of certain Swiss franc net assets in the first quarter of 1999,
the company entered into a currency swap with The Prudential Insurance Company
of America, swapping the remaining 11.6 million Swiss franc debt to $7.8 million
at an annual rate of 8.69%. Required payments began in December 1999 and are
scheduled to continue with installments of approximately $1 million per year
through the year 2004, decreased to approximately $0.5 million per year through
the year 2008. At December 31, 1999, termination of the swap agreement would
result in a loss of $0.5 million.
In November 1991, Dexter privately placed with The Prudential Insurance Company
of America, $50 million, 20-year senior unsecured notes at an annual rate of
8.96% due in the year 2011. Required prepayments of $2.5 million per year began
in 1998 and will continue through the year 2000. The installments increase to
$3.5 million per year from 2001-2010, with a final lump sum payment of $7.5
million due at maturity.
In July 1990, Dexter privately placed with The Prudential Insurance Company of
America, $75 million, 20-year senior unsecured notes at a rate of 9.72% due in
the year 2010. Required prepayments began in 1996 and are scheduled to continue
with installments of $5 million per year through maturity.
In December 1986, the company sold publicly $50 million, 9.25% sinking fund
debentures due in 2016. The sinking fund payments commenced in 1997 and were
designed to retire 95% of the debt prior to maturity. During 1997, Dexter
redeemed $30 million of the 9.25% sinking fund debentures in advance of their
maturities at a redemption price of 104.625%. Also, in December 1997 and
December 1998, Dexter made optional sinking fund payments of $5 million on these
debentures in addition to the scheduled, mandatory sinking fund payments of $2.5
million. In December 1999, the company redeemed all remaining debentures with a
mandatory $2.5 million sinking fund payment and a $2.5 million optional sinking
fund payment. The redemption price of the optional and mandatory sinking fund
payments was 100%.
38
<PAGE> 25
'The company monitors the risk of default on swap agreements and does not
anticipate nonperformance by the counterparties. The company has $50 million of
authorized and unissued medium-term notes.
Long-term debt represented 32% of total capital at December 31, 1999. The
weighted average interest rate of long-term debt outstanding at December 31,
1999 was 7.56%.
Certain long-term debt agreements include provisions that restrict the amount of
future dividend increases if consolidated equity falls below $175 million. There
are also provisions placing limits on the amount of additional debt the company
may incur without amendment of the agreements. At December 31, 1999, the company
was in compliance with these provisions.
LTI has guaranteed approximately $0.3 million of bank loans to others.
At December 31, 1999, 1998 and 1997, the fair value of net long-term debt was
$223 million, $391 million, and $188 million, respectively, compared with the
carrying value of $218 million, $382 million, and $180 million, respectively.
The fair value of long-term debt is based on quoted market prices for similar
issues or on the current rates offered to the company for debt of the same
remaining maturities. In 1999, the fair value of long-term debt exceeded the
carrying value by $5 million due to the net reduction in interest rates
subsequent to the issuance of the long-term debt and the consequent increase in
fair value. The company is only obligated to repay the amounts reflected in the
carrying value of this debt.
- --------------------------------------------------------
DEBT OUTSTANDING
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------
IN THOUSANDS OF DOLLARS 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PROMISSORY NOTES $ 165,918 $ 178,393 $ 155,792
REVOLVING CREDIT BORROWINGS 60,000 216,000 19,720
SINKING FUND DEBENTURES 5,000 12,500
CAPITALIZED LEASE 2,884 4,658
INDUSTRIAL DEVELOPMENT BONDS 700
---------------------------------------
228,802 399,393 193,370
LESS:
PAYMENTS DUE WITHIN ONE YEAR (10,670) (17,230) (13,340)
---------------------------------------
NET LONG-TERM DEBT $ 218,132 $ 382,163 $ 180,030
=======================================
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
DEBT MATURITIES BY CURRENCY AND TYPE
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
MULTI-CURRENCY PROMISSORY NOTES
--------------------------------------------------------------
CAPITALIZED
LEASE TOTAL TOTAL WEIGHTED
CAPITALIZED U.S. DOLLAR JAPANESE FRENCH U.S. DOLLAR U.S. DOLLAR AVERAGE
LEASE EQUIVALENT U.S. DOLLAR EURO YEN FRANC EQUIVALENT EQUIVALENT INTEREST RATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 FF 1,269 $ 195 $ 10,230 FF 1,596 $ 10,475 $ 10,670 8.77%
2001 1,336 205 21,230 923 21,372 21,577 7.70
2002 1,405 216 11,230 EUR 9,358 Y 500,000 844 25,679 25,895 5.88
2003 1,479 227 71,230 9,358 836 80,783 81,010 6.74
2004 1,556 239 11,230 803 11,354 11,593 8.72
2005 1,637 251 10,740 301 10,785 11,036 8.73
2006 1,723 264 10,740 10,740 11,004 8.76
2007 1,813 278 10,740 10,740 11,018 8.75
2008 1,908 293 10,740 10,740 11,033 8.75
2009 2,007 308 10,250 10,250 10,558 8.74
2010-2013 2,657 408 23,000 23,000 23,408 8.22
-------------------------------------------------------------------------------------------------------
TOTAL FF 18,790 $ 2,884 $201,360 EUR 18,716 Y 500,000 FF 5,303 $ 225,918 $ 228,802 7.56%
=======================================================================================================================
RATES OF
INTEREST 4.4% 6.21-9.72% 4.395% 1.784% 3.9-5.8%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 26
SHAREHOLDERS' EQUITY Shareholders' equity increased by $74.1 million in 1999 to
$462.6 million representing a book value of $20.29 per share. Net income
increased shareholders' equity by $107.5 million. The exercise of stock options
along with the impact of restricted stock awards added $3.2 million to
shareholders' equity in 1999. Offsetting these increases were reductions due to
dividends declared of $23.8 million, the repurchases of the company's common
stock of $10.1 million, and a $2.7 million reduction related to other
comprehensive income.
In 1996, the Board of Directors authorized the repurchase of up to 1,000,000
shares of the company's outstanding common stock and, in 1996, the company
purchased 160,400 shares of its outstanding common stock at an average cost of
$32.54 per share under this plan. In 1997, the company purchased 671,200 shares
of its outstanding common stock at an average cost of $30.57 per share under the
1996 plan. In 1999, the Board of Directors authorized the repurchase of an
additional 1,000,000 shares of the company's outstanding common stock. In 1999,
the company purchased the remaining 168,400 shares of its outstanding common
stock under the 1996 plan and 176,100 shares of its outstanding common stock
under the 1999 plan at an average cost of $29.39 per share. At the end of 1999,
there were 1,943,068 shares held in treasury compared with 1,702,704 shares at
the end of 1998 and 1,814,035 shares at the end of 1997.
In 1998, the company adopted SFAS No. 130, Reporting Comprehensive Income. This
statement establishes rules for the reporting of comprehensive income and its
components. Comprehensive income consists primarily of net income and foreign
currency translation adjustments and is presented in the Statement of Changes in
Shareholders' Equity. The adoption of SFAS No. 130 has no impact on total
shareholders' equity.
PREFERRED STOCK The company has the following classes of preferred stock,
without par value, as of December 31, 1999:
<TABLE>
<CAPTION>
CLASS AUTHORIZED AND UNISSUED
<S> <C>
PREFERRED STOCK 150,000 SHARES
PREFERRED STOCK, CLASS I 500,000 SHARES
PREFERRED STOCK, CLASS II 500,000 SHARES
PREFERRED STOCK, SERIES A 250,000 SHARES
</TABLE>
PREFERRED STOCK, SERIES A - PURCHASE RIGHTS In August 1996, the company
authorized and declared a dividend distribution of one right for each share of
common stock of the company outstanding at the close of business on November 17,
1996, and authorized the issuance of one right for each share of common stock of
the company issued between November 17, 1996 and the distribution date. Each
right entitles the holder to purchase one two-hundredth of a share of Series A
Preferred Stock of the company at a purchase price of $90 per right. The rights
will trade with the common stock and not be exercisable or transferable apart
from the common stock until 10 days following the acquisition of, or tender
offer for, 20% or more of the outstanding shares of the common stock.
In October 1999, the Board of Directors of the company amended the rights plan
to reduce the beneficial ownership percentage threshold to become an acquiring
person from 20% to 11%. The amendment to the rights plan excludes schedule 13G
reporting persons and certain related entities and plans from the definition of
an acquiring person if any such person beneficially owns less than 20% of the
company's common stock then outstanding.
In February 2000, the Board of Directors of the company amended the rights plan
pursuant to which the definitions of "Acquiring Person" and "Qualifying Offer"
were amended such that the rights will not be triggered by and the plan will
pose no obstacle for any offer to our stockholders for all shares which Dexter's
financial advisors opines is fair from a financial point of view, is supported
by liquid funds on hand or by fully committed financing, is substantially
unconditional and has been open to Dexter stockholders for at least 60 calendar
days.
The rights plan also provides that if the company merges with or into another
entity or sells or otherwise transfers more than 50% of the assets or earning
power of the company, the holder of each right shall have the right to receive,
upon exercise, shares of common stock having a value equal to two times the
exercise price.
The rights, which do not have voting privileges, are redeemable under certain
circumstances at a redemption price of $.01 per right and will expire, unless
earlier redeemed, on August 31, 2006. The company has authorized 250,000 shares
of Series A Preferred Stock for issuance upon exercise of the rights.
STOCK COMPENSATION PLANS The company applies APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock-based compensation plans described below. Accordingly, no compensation
cost has been recognized for its fixed stock option plans. Compensation expense
for its restricted stock plans has been adjusted on a quarterly basis to reflect
changes in the market price of the stock. The compensation cost that has been
charged against income for its restricted stock plans was $1.2 million in 1999,
$1.1 million in 1998 and $2.1 million in 1997. Had compensation cost for the
company's stock-based compensation plans been determined in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation, the company would have
expensed $2.1 million for its fixed stock option plans, offset by income of
approximately $0.1 million for its restricted stock plans in 1999. As a result,
1999 net income would have decreased by $1.3 million, or $.06 per share. In
1998, the net impact of SFAS No. 123 would have decreased the company's net
income by $1.1 million, or $.05 per share. The net impact of SFAS No. 123 on the
company's net income and earnings per share was not significant in 1997.
The SFAS No. 123 method of accounting has not been applied to options or
restricted stock granted prior to January 1, 1995. As a result, compensation
cost may not be representative of that to be expected in future years.
The weighted average fair value at date of grant for options granted during
1999, 1998 and 1997 was $9.98, $8.47 and $6.90 per option, respectively. The
fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
EXPECTED LIFE (YEARS) 5.9 6.5 5.9
INTEREST RATE 6.6% 4.7% 5.7%
VOLATILITY 21% 20% 18%
DIVIDEND YIELD 2.5% 2.9% 2.4%
- --------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 27
STOCK PLANS
Dexter has three stock compensation plans for certain key management of the
company. The 1988 Stock Option Plan provides for the awarding of up to 1,000,000
shares of the company's common stock for incentive and nonqualified stock
options. The 1994 Long-Term Incentive Plan provided for awarding up to 1,200,000
shares of the company's common stock for restricted stock and stock options
grants. The 1999 Long-Term Incentive Plan provides for the awarding up to
1,500,000 shares of the company's common stock for restricted stock and stock
option grants plus the number of shares available for new awards under the 1994
Long-Term Incentive Plan. Restricted stock grants and stock option grants have
been awarded under the 1994 and 1999 Plans. Under the 1994 and 1999 Plans there
were 1,900,907 shares available for future grant at December 31, 1999. At
December 31, 1998, there were 629,314 shares available for future grants under
the 1994 Plan.
RESTRICTED STOCK
Restricted stock awards are granted at no cost to the recipient. As of the grant
date, restricted stock participants have the rights of shareholders, including
the right to receive any cash dividends and the right to vote the shares.
Restricted stock awards are subject to forfeiture provisions including the lapse
of time and the achievement of certain performance targets and have restrictions
limiting the sale or transfer of shares during the restriction periods defined
in the Plans. The expense relating to restricted stock awarded under the Plans
is amortized over the restriction period. The weighted average fair value at
date of grant for restricted stock granted during 1999, 1998 and 1997 was
$37.77, $41.09 and $29.94, respectively, which in each case was equal to the
market value of the company's common stock at the date of grant. The shares
outstanding are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1998 1997
------------------------------------
NUMBER OF SHARES
------------------------------------
<S> <C> <C> <C>
OUTSTANDING AT BEGINNING OF YEAR 240,640 231,758 202,487
AWARDED 60,000 58,800 74,800
EARNED AND DISTRIBUTED (31,254) (32,158) (20,154)
CANCELLED (34,391) (17,760) (25,375)
------------------------------------
OUTSTANDING AT END OF YEAR 234,995 240,640 231,758
====================================
</TABLE>
STOCK OPTIONS
Options granted under the 1988 Plan have an exercise price not less than 100% of
the fair market value on the date of the grant for incentive options and not
less than 80% of the market value on the date of grant for nonqualified options.
There have been no nonqualified options issued under the 1988 Plan at less than
fair market value; therefore, no charges against income have been made. Options
granted under the 1994 and 1999 Plans have an exercise price not less than 100%
of the fair market value on the date of grant. Options generally become
exercisable at the rate of 33 1/3% of the shares each year starting one year
after the date of grant. Each option lapses ten years after the date it was
granted, or earlier, as outlined under the provisions of the Plans.
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
1988 PLAN SHARES PRICE SHARES PRICE SHARES PRICE
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING AT BEGINNING OF YEAR 481,506 $27.55 560,603 $26.60 492,241 $24.42
GRANTED 11,079 $42.03 202,700 $30.49
EXERCISED (101,001) $24.81 (86,155) $23.20 (125,265) $24.26
EXPIRED OR CANCELLED (10,637) $29.08 (4,021) $28.91 (9,073) $27.49
-------- ------- --------
OUTSTANDING AT END OF YEAR 369,868 $28.25 481,506 $27.55 560,603 $26.60
======== ======= ========
EXERCISABLE OPTIONS AT END OF YEAR 306,492 $27.49 323,970 $25.89 322,531 $24.25
SHARES AVAILABLE FOR FUTURE GRANT 12,938 2,301 9,359
</TABLE>
At December 31, 1999, there were 348,789 options outstanding with a range of
exercise prices of $24.13 - $29.94 and a weighted average remaining contractual
life of approximately 3 years. The remaining 21,079 options outstanding had a
range of exercise prices of $41.22 - $42.78 and a weighted average remaining
contractual life of approximately 5 years.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------
1999 1998
---------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
1994 AND 1999 PLANS SHARES PRICE SHARES PRICE
---------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING AT BEGINNING OF YEAR 275,871 $40.80
GRANTED 238,750 $37.75 276,921 $40.80
EXERCISED (1,490) $31.47
EXPIRED OR CANCELLED (35,952) $39.02 (1,050) $41.41
------- -------
OUTSTANDING AT END OF YEAR 477,179 $39.44 275,871 $40.80
======= =======
EXERCISABLE OPTIONS AT END OF YEAR 95,019 $41.17
</TABLE>
At December 31, 1999 the options outstanding under the 1994 and 1999 Plans have
a range of exercise prices of $31.47 - $41.41. The weighted average remaining
contractual life of options outstanding under the 1994 and 1999 Plans is 5
years.
- --------------------------------------------------------------------------------
41
<PAGE> 28
<TABLE>
<S> <C>
NOTICE OF ANNUAL MEETING DEXTER CORPORATION
You are cordially invited to attend Dexter Corporation Annual Meeting of One Elm Street
Shareholders beginning at 10:00 a.m., Thursday, April 27, 2000, at The Windsor Locks, CT 06096-2334
Hartford Club, 46 Prospect Street, Hartford, Connecticut. Tel: 860.292.7675
Fax: 860.292.7673
www.dexter.com
NOTICE OF FORM 10-K ANNUAL REPORT
STOCK EXCHANGE
The Form 10-K Annual Report of Dexter Corporation filed with the
Securities and Exchange Commission, as well as the Form 10-K Annual Listing: New York Stock Exchange
Report of Life Technologies, Inc., are available without charge after Stock Symbol: DEX
March 31 of each year to shareholders and prospective investors. Please
contact the Corporate Communications Department in Windsor Locks,
Connecticut, at 860.292.7615.
REGISTRAR
SHAREHOLDERS' STOCK SAVINGS PLAN/INQUIRIES ChaseMellon Shareholder Services, L.L.C.
Ridgefield Park, NJ
Dexter shareholders can reinvest their dividends automatically in additional
shares of Dexter common stock at the market price. Participants can also
invest up to an additional $3,000 in Dexter shares each quarter through this TRANSFER AGENT
service.
ChaseMellon Shareholder Services, L.L.C.
Also, if you have any questions concerning your account as a shareholder, Ridgefield Park, NJ, and New York, NY
such as name and address changes, inquiries regarding dividend checks,
stock certificates, or if you need tax information regarding your account,
please contact: INVESTOR RELATIONS
ChaseMellon Shareholder Services, L.L.C. Kathleen Burdett
Overpeck Centre Vice President and Chief Financial Officer
85 Challenger Road Tel: 860.292.7620
Ridgefield Park, NJ 07660 Fax: 860.292.7669
Tel: 800.288.9541
www.chasemellon.com John D. Thompson
Senior Vice President,
Strategic and Business Development
TDD SERVICE AVAILABLE Tel: 860.292.7640
Fax: 860.292.7669
Dexter shareholders with hearing or speech disabilities can get information
about their accounts through TDD services offered by ChaseMellon
Shareholder Services, L.L.C. at 800.231.5469. CORPORATE COMMUNICATIONS/
MEDIA CONTACT
Ellen M. Miles
Corporate Communications Manager
Tel: 860.292.7686
Fax: 860.292.7627
</TABLE>
42
<PAGE> 29
BUSINESS AND SUBSIDIARY HEADQUARTERS
<TABLE>
<S> <C> <C>
Dexter Dexter Dexter
Adhesive & Coating Systems Electronic Materials Nonwoven Materials
2850 Willow Pass Road 15051 East Don Julian Road Two Elm Street
Bay Point, CA 94565-3299 Industry, CA 91746-3398 Windsor Lock, CT 06096-2335
Tel: 925.458.8000 Tel: 626.968.6511 Tel: 860.654.8300
Jeffrey W. McClelland Ronald C. Benham A. Duncan Middleton
President President President
Life Technologies, Inc.
(majority-owned)
9800 Medical Center Drive
Rockville, MD 20850-6482
Tel: 301.610.8000
J. Stark Thompson, Ph.D.
President and Chief Executive Officer
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following table sets forth subsidiaries of Dexter Corporation which are
included in the consolidated financial statements as of December 31, 1999.
<TABLE>
<CAPTION>
PERCENTAGE OF JURISDICTION IN WHICH
NAME OWNERSHIP(A) INCORPORATED OR ORGANIZED
---- ---------------- -------------------------
<S> <C> <C>
Crown Metro Aerospace Coatings, Inc. .................... 100% South Carolina
Dexter ADAF Holdings, Inc. .............................. 100%(D) Delaware
Dexter Acquisition Delaware, Inc. ....................... 100% Delaware
Dexter Asia Pacific Limited.............................. 100%(C) Hong Kong
Dexter Electronic Materials (M) Sdn. Bhd. ............... 100% Malaysia
Dexter Environmental Assurance Ltd. ..................... 100% Bermuda
Dexter Europe B.V. ...................................... 100%(H) Netherlands
Dexter Europe S.A. ...................................... 100% Belgium
Dexter GmbH.............................................. 100%(C) Germany
Dexter Holdings.......................................... 100% England
Dexter Holdings B.V. .................................... 100% Netherlands
Dexter Hysol Aerospace, Inc. ............................ 100% Delaware
Dexter Hysol (Malaysia) Sdn. Bhd. ....................... 100%(E) Malaysia
Dexter International Corporation......................... 100% Connecticut
Dexter Limited........................................... 100% Japan
Dexter Magnetic Technologies, Inc. ...................... 100% New York
Dexter Nonwovens A.B. ................................... 100% Sweden
Dexter Overseas Limited.................................. 100%(C)(B) England
Dexter Pacific, Inc. .................................... 100% Japan
Dexter Philippines, Inc. ................................ 100% Philippines
Dexter Powders, Inc. .................................... 100%(B) Delaware
Dexter (RPI), Inc. ...................................... 100%(B) Delaware
Dexter SAS............................................... 100% France
Dexter S.p.A. ........................................... 100%(D) Italy
Dexter Speciality Chemicals Limited...................... 100%(C)(B) England
Dexter Speciality Materials Limited...................... 100%(C) Scotland
Dexter U.K. Limited...................................... 100%(F) England
</TABLE>
<PAGE> 2
EXHIBIT 21 -- CONTINUED
<TABLE>
<CAPTION>
PERCENTAGE OF JURISDICTION IN WHICH
NAME OWNERSHIP(A) INCORPORATED OR ORGANIZED
---- ---------------- -------------------------
<S> <C> <C>
Kettlebrook Insurance Company, Ltd. ..................... 100%(G) Bermuda
Life Technologies, Inc. ................................. 71%(I)* Delaware
Potter Paint Company of Texas, Inc. ..................... 100% Texas
QMI Asia Pte. Ltd. ...................................... 100% Singapore
Windsor Locks Canal Company.............................. 100% Connecticut
</TABLE>
- ---------------
(A) including directors' qualifying shares
(B) inactive
(C) owned by Dexter U.K. Limited
(D) owned by Crown Metro Aerospace Coatings, Inc.
(E) owned by Dexter Asia Pacific Limited
(F) owned by Dexter Holdings
(G) owned 67% by Dexter Corporation and 33% by Dexter U.K. Limited
(H) owned by Dexter Holdings B.V.
(I) owned 49% by Dexter Corporation and 22% by Dexter Acquisition Delaware,
Inc., as of December 31, 1999
* Since December 31, 1999, Dexter purchased additional shares of Life
Technologies, Inc., increasing Dexter's ownership of Life Technologies, Inc.
to approximately 75%.
The following unconsolidated companies owned in part by Dexter Corporation
are accounted for by the equity method. Financial statements of these companies
are not required because when considered in the aggregate as a single
subsidiary, they would not constitute a significant subsidiary.
<TABLE>
<CAPTION>
PERCENTAGE OF JURISDICTION IN WHICH
NAME OWNERSHIP INCORPORATED OR ORGANIZED
---- ---------------- -------------------------
<S> <C> <C>
Hysol Indael de Mexico S.A. ............................. 49%(A) Mexico
Midland-Dexter de Venezuela, S.A. ....................... 49%(B) Venezuela
</TABLE>
- ---------------
(A) owned by Dexter Corporation
(B) owned 13.9% by Dexter U.K. Ltd. and 35.1% by Dexter Corporation as of
December 31, 1999. Effective in February 2000, ownership was divested.
<PAGE> 3
EXHIBIT 21 -- CONTINUED
The following table sets forth subsidiaries of Life Technologies, Inc.
(owned 71% by Dexter Corporation at December 31, 1999) which are included in the
consolidated financial statements.
<TABLE>
<CAPTION>
PERCENTAGE OF JURISDICTION IN WHICH
NAME OWNERSHIP INCORPORATED OR ORGANIZED
---- ---------------- --------------------------
<S> <C> <C>
BioSepra S.A. ................................... 100% France
Canadian Life Technologies, Inc. ................ 100% Ontario
Custom Primers, Inc. ............................ 100% California
GIBCO BRL India Pvt. Ltd. ....................... 100%(A) India
Laboratory Services Ltd. ........................ 100% New Zealand
Life Technologies A.G. .......................... 100%(B) Switzerland
Life Technologies A.S. .......................... 100% Denmark
Life Technologies Asia Pacific, Inc. ............ 100% Delaware
Life Technologies B.V. .......................... 100%(B) Netherlands
Life Technologies do Brasil Ltda. ............... 100%(C) Brazil
Life Technologies Foreign Sales Corporation...... 100% Barbados
Life Technologies GIBCO BRL Co., Ltd. ........... 59% Republic of China (Taiwan)
Life Technologies Holdings, Unlimited............ 100% Scotland
Life Technologies Italia S.r.l. ................. 100% Italy
Life Technologies Ltd. .......................... 100%(D) Scotland
Life Technologies Limited........................ 100% New Zealand
Life Technologies Mauritius Ltd. ................ 100% Mauritius
Life Technologies Oriental K.K. ................. 80% Japan
Life Technologies Overseas GmbH.................. 100%(B) Germany
Life Technologies Overseas Ltd. ................. 100%(D) Scotland
Life Technologies (Pacific) Ltd. ................ 100% Hong Kong
Life Technologies Pty. Ltd. ..................... 100% Australia
Life Technologies S.A. .......................... 100% Spain
Life Technologies S.A.R.L. ...................... 100%(B) France
Life Technologies Sweden AB...................... 100% Sweden
Life Technologies Uruguay, S.A. ................. 100% Uruguay
N.V. Life Technologies S.A. ..................... 100%(B) Belgium
Serum Technologies Holdings, Inc. ............... 100% Delaware
Serum Technologies (unincorporated joint
venture)....................................... 40%(E) Maryland
</TABLE>
- ---------------
(A) owned by Life Technologies Mauritius Ltd.
(B) owned by Life Technologies Overseas Ltd.
(C) owned 90% by Life Technologies, Inc. and 10% by Life Technologies Mauritius
Ltd.
(D) owned by Life Technologies Holdings, Unlimited
(E) owned by Serum Technologies Holdings, Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-63959, 33-27597, 33-53307, 33-53309, 333-02985,
333-04081, 333-42663, and 333-76873) of Dexter Corporation of our report dated
February 28, 2000, relating to the financial statements and financial statement
schedule of Dexter Corporation as of December 31, 1999, 1998, and 1997, and for
the years then ended, appearing on page F-2 of Dexter Corporation's Annual
Report on Form 10-K for the year ended December 31, 1999.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
March 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Position and Statement of Income and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 86,850
<SECURITIES> 0
<RECEIVABLES> 163,970
<ALLOWANCES> 4,993
<INVENTORY> 163,495
<CURRENT-ASSETS> 464,554
<PP&E> 685,719
<DEPRECIATION> 357,573
<TOTAL-ASSETS> 1,074,128
<CURRENT-LIABILITIES> 199,667
<BONDS> 218,132
0
0
<COMMON> 24,984
<OTHER-SE> 437,652
<TOTAL-LIABILITY-AND-EQUITY> 1,074,128
<SALES> 1,041,673
<TOTAL-REVENUES> 1,050,156
<CGS> 635,824
<TOTAL-COSTS> 635,824
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,910
<INCOME-PRETAX> 181,178
<INCOME-TAX> 61,605
<INCOME-CONTINUING> 107,499
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,499
<EPS-BASIC> 4.71
<EPS-DILUTED> 4.67
</TABLE>
