Promissory Note Dated February 6, 2006

EXHIBIT 10.3



PROMISSORY NOTE





Albany, New York February 6, 2006
$10,000,000.00




BALCHEM CORPORATION, a Maryland corporation having an address of P. O. Box 600, 52 Sunrise Park Road, New Hampton, New York 10958 (herein called the "Company" ), hereby promises to pay to the order of BANK OF AMERICA, N.A. (successor by merger to Fleet National Bank) a national banking association having an office at 69 State Street, Albany, New York 12201 (the "Bank" or the "Holder"), or its successors or assigns, the principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), with interest thereon as set forth below.



SECTION 1. DEFINITION OF TERMS. The following words and terms as used in this Note shall have the following meanings unless the context or use indicates another or different meaning or intent:



"Adjusted Libor Rate" - Means a rate per annum subject to adjustment approximately each one month, two months, three months or six months, as applicable equal to the Libor Rate plus one percent (1.00%).



"Business Day" - In respect of any date that is specified in this Note to be subject to adjustment in accordance with applicable Following Business Day Convention, a day which commercial banks settle payment in London if the payment obligation is calculated by reference to any Libor Rate.



"Default Rate" - A per annum rate to two percent (2%) above the rate of interest otherwise applicable to the Note.



"Election Notice" - The Libor Interest Rate Period notice to be delivered by the Company to the Bank from time to time in the form of Exhibit "A" attached hereto, in which the Company shall irrevocably indicate a Libor Interest Rate Period.



"Event of Default" - Any of those events defined as an Event of Default under the Loan Agreement.



"Following Business Day Convention" - The convention for adjusting any relevant date if it would otherwise fall on a day that is not a Business Day. The term " Business Day" when used in conjunction with the term "Following Business Day Convention" and a date, shall mean that an adjustment will be made if that date would otherwise fall on a day that is not a Business Day so that the date will be the first following day that is a Business Day.



"Libor Interest Rate Period" - The one month, two month or three month, as applicable, (or slightly longer or shorter) period during which the Adjusted Libor Rate is in effect provided, however, that in no event shall any Interest Rate Election Period extend beyond the Maturity Date of this Loan.



"Libor Rate" - Means, the interest rate determined by the following formula (all amounts in the calculation will be determined by the Bank as of the first day of the Libor Interest Rate Period):





Libor Rate= London Inter-Bank Offered Rate
(1.00-Reserve Percentage)






"Loan" - - The loan of $10,000,000.00 by the Lender to the Company that is the subject of this Note.



"Loan Agreement" - Means the amended and restated loan agreement dated the date hereof by and between the Company and the Bank, as such may be further amended or supplemented from time to time.



"London Inter-Bank Offered Rate" Means, for any applicable Libor Interest Rate Period, the rate per annum equal to the British Bankers Association LIBOR Rate ("BBA LIBOR"), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as selected by the Bank from time to time) at approximately 11:00 a.m. London time two (2) London Banking Days before the commencement of the applicable Libor Rate Interest Period, for U.S. Dollar deposits (for delivery on the first day of such interest period) with a term equivalent to such Libor Rate Interest Period. If such rate is not available at such time for any reason, then the rate for that Libor Rate Interest Period will be determined by such alternate method as reasonably selected by the Bank. A "London Banking Day" is a day on which banks in London are open for business and dealing in offshore dollars.



"Maturity Date" - March 1, 2009.



"Prime Rate" - Means the rate of interest publicly announced from time to time by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on various factors, including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank's Prime Rate.



"Reserve Percentage" - Means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in the Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special and other reserve percentages.



All other capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Loan Agreement (as hereinafter defined).



SECTION 2. INTEREST; PAYMENTS. (A) Subject to the provisions of Section 6 of this Note, commencing on the Closing Date and continuing thereafter up to and including the Maturity Date, interest (calculated on the Principal Balance hereof and based upon the actual number of days elapsed over a 360 day year) shall accrue at a rate per annum equal to the Adjusted Libor Rate and shall be payable monthly as set forth in Section 2(B) hereof. In the event the Principal Balance remains outstanding after the Maturity Date, interest (calculated on the Principal Balance hereof and based upon the actual number of days elapsed over a 360-day year) shall accrue at a rate per annum equal to the Default Rate.



(B) Commencing April 1, 2006 and continuing on the first calendar day of each calendar month thereafter during the term hereof up to but not including the Maturity Date, monthly payments of accrued interest hereunder together with equal monthly payments of principal in an amount equal to $250,000.00 shall be due and owing.



(C) In the event that any portion of any payment due hereunder is not made within ten (10) days of the date such payment became due, the Company shall pay to the Holder on demand a late payment charge equal to five percent (5%) of the portion of any such payment not paid within such ten (10) day





2



period provided, however, that such late payment charge shall not exceed $10,000.00 in the aggregate per incident and shall not exceed $10,000 in the aggregate upon the maturity or acceleration of the Principal Balance.



(D) Notwithstanding anything to the contrary herein contained, on the Maturity Date, the entire outstanding principal amount hereof and all accumulated, accrued and unpaid interest thereon shall be due and payable.



(E) All payments received pursuant to this Note shall be applied first to the payment of all fees, expenses, and other amounts due to the Holder (excluding principal and interest), then to accrued, accumulated and unpaid interest, and the balance in reduction of the Principal Balance hereof, provided that should an Event of Default have occurred and be continuing, payments received hereunder shall be applied at the discretion of the Holder.



(F) All payments of interest and principal are to be made for the account of Bank of America, N.A., Peter D, Kiernan Plaza, Albany, New York 12207 or at such other place as the Holder may direct the Company by written notice. All payments shall be in lawful money of the United States in immediately available funds and are subject to the Following Business Day Convention with respect to date of payment.



SECTION 3. PREPAYMENT, MANDATORY REDEMPTION. (A) The Company may upon at least three (3) prior Business Days' notice to the Holder (which notice shall be irrevocable) prepay the Principal Balance, and any such prepayment shall occur only on the last day of the Libor Interest Rate Period. Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid and a prepayment fee as described below. A "prepayment" is a payment of an amount on a date earlier than the scheduled payment date for such amounts as required by this Note. The prepayment fee will be the sum of fees calculated separately for each Prepaid Installment, as follows:



(i) The Bank will first determine the amount of in ...