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