Credit Agreement

CREDIT AGREEMENT


DATED AS OF MAY 10, 2002


BY AND AMONG


ACETO CORPORATION, ACETO AGRICULTURAL CHEMICALS CORPORATION,
CDC PRODUCTS CORPORATION, MAGNUM RESEARCH CORP.,
ACCI REALTY CORP., LARLABS CORP.,
ARSYNCO INC., ROEHR CHEMICALS, INC. AND
ACETO INDUSTRIAL CHEMICAL CORP.


AND


JPMORGAN CHASE BANK


TABLE OF CONTENTS


ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.....................................2
SECTION 1.01................................................DEFINITIONS 2
SECTION 1.02............................................TERMS GENERALLY 13


ARTICLE II LOANS..............................................................13
SECTION 2.01.....................................REVOLVING CREDIT LOANS 13
SECTION 2.02......................................REVOLVING CREDIT NOTE 14
SECTION 2.03.........................................LETTERS OF CREDIT. 15


ARTICLE III PROVISIONS RELATING TO ALL EXTENSIONS OF
CREDIT; FEES AND PAYMENTS............................................17
SECTION 3.01........INTEREST RATE; CONTINUATION AND CONVERSION OF LOANS 17
SECTION 3.02...........................................USE OF PROCEEDS. 19
SECTION 3.03................................................PREPAYMENTS 19
SECTION 3.04......................................................FEES. 19
SECTION 3.05......................INABILITY TO DETERMINE INTEREST RATE. 20
SECTION 3.06................................................ILLEGALITY. 20
SECTION 3.07............................................INCREASED COSTS 20
SECTION 3.08.................................................INDEMNITY. 22
SECTION 3.09...................................CHANGE OF LENDING OFFICE 22
SECTION 3.10......................................................TAXES 22
SECTION 3.11...................................................PAYMENTS 23
SECTION 3.12......................................DISBURSEMENT OF LOANS 23


ARTICLE IV REPRESENTATIONS AND WARRANTIES.....................................23
SECTION 4.01......................................ORGANIZATION, POWERS. 23
SECTION 4.02........AUTHORIZATION OF BORROWING, ENFORCEABLE OBLIGATIONS 23
SECTION 4.03.......................................FINANCIAL CONDITION. 24
SECTION 4.04.....................................................TAXES. 25


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SECTION 4.05........................................TITLE TO PROPERTIES 25
SECTION 4.06.................................................LITIGATION 25
SECTION 4.07................................................AGREEMENTS. 25
SECTION 4.08.....................................COMPLIANCE WITH ERISA. 25
SECTION 4.09...............FEDERAL RESERVE REGULATIONS; USE OF PROCEEDS 26
SECTION 4.10...................................................APPROVAL 26
SECTION 4.11..............................................SUBSIDIARIES. 26
SECTION 4.12........................................HAZARDOUS MATERIALS 26
SECTION 4.13.....................................INVESTMENT COMPANY ACT 27
SECTION 4.14.........................................PLEDGE AGREEMENTS. 27
SECTION 4.15................................................NO DEFAULT. 27
SECTION 4.16........................................MATERIAL CONTRACTS. 27
SECTION 4.17......................................PERMITS AND LICENSES. 27
SECTION 4.18.......................................COMPLIANCE WITH LAW. 27
SECTION 4.19................................................DISCLOSURE. 27


ARTICLE V CONDITIONS OF LENDING...............................................27
SECTION 5.01..................CONDITIONS TO INITIAL EXTENSION OF CREDIT 27
SECTION 5.02.....................CONDITIONS TO ALL EXTENSIONS OF CREDIT 30


ARTICLE VI AFFIRMATIVE COVENANTS..............................................31
SECTION 6.01...........................EXISTENCE, PROPERTIES, INSURANCE 31
SECTION 6.02.........................PAYMENT OF INDEBTEDNESS AND TAXES. 31
SECTION 6.03........................FINANCIAL STATEMENTS, REPORTS, ETC. 32
SECTION 6.04......................BOOKS AND RECORDS; ACCESS TO PREMISES 33
SECTION 6.05...................................NOTICE OF ADVERSE CHANGE 33
SECTION 6.06..........................................NOTICE OF DEFAULT 33
SECTION 6.07.......................................NOTICE OF LITIGATION 33
SECTION 6.08.....................NOTICE OF DEFAULT IN OTHER AGREEMENTS. 34
SECTION 6.09......................................NOTICE OF ERISA EVENT 34
SECTION 6.10....................NOTICE OF ENVIRONMENTAL LAW VIOLATIONS. 34


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SECTION 6.11.......................NOTICE REGARDING MATERIAL CONTRACTS. 34
SECTION 6.12............................COMPLIANCE WITH APPLICABLE LAWS 35
SECTION 6.13...............................................SUBSIDIARIES 35
SECTION 6.14........................................ENVIRONMENTAL LAWS. 35


ARTICLE VII NEGATIVE COVENANTS................................................36
SECTION 7.01......................................................LIENS 36
SECTION 7.02...............................................INDEBTEDNESS 37
SECTION 7.03.................................................GUARANTIES 38
SECTION 7.04.............................................SALE OF ASSETS 38
SECTION 7.05......................................SALES OF RECEIVABLES. 39
SECTION 7.06.....................................LOANS AND INVESTMENTS. 39
SECTION 7.07........................................NATURE OF BUSINESS. 39
SECTION 7.08........................................SALE AND LEASEBACK. 39
SECTION 7.09................................FEDERAL RESERVE REGULATIONS 39
SECTION 7.10.........................ACCOUNTING POLICIES AND PROCEDURES 40
SECTION 7.11........................................HAZARDOUS MATERIALS 40
SECTION 7.12.........................LIMITATIONS ON FUNDAMENTAL CHANGES 40
SECTION 7.13.............................FINANCIAL CONDITION COVENANTS. 40
SECTION 7.14.................................................DIVIDENDS. 40
SECTION 7.15...............................TRANSACTIONS WITH AFFILIATES 41
SECTION 7.16...........................IMPAIRMENT OF SECURITY INTEREST. 41


ARTICLE VIII EVENTS OF DEFAULT................................................41
SECTION 8.01..........................................EVENTS OF DEFAULT 41


ARTICLE IX MISCELLANEOUS......................................................44
SECTION 9.01....................................................NOTICES 44
SECTION 9.02....................................EFFECTIVENESS; SURVIVAL 45
SECTION 9.03...................................................EXPENSES 45
SECTION 9.04.....................SUCCESSORS AND ASSIGNS; PARTICIPATIONS 45
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SECTION 9.05.............................NO WAIVER; CUMULATIVE REMEDIES 46
SECTION 9.06.............................................APPLICABLE LAW 46
SECTION 9.07.................................SUBMISSION TO JURISDICTION 46
SECTION 9.08...............................................SEVERABILITY 47
SECTION 9.09............................................RIGHT OF SETOFF 47
SECTION 9.10............................................CONFIDENTIALITY 47
SECTION 9.11...................................................HEADINGS 48
SECTION 9.12...............................................CONSTRUCTION 48
SECTION 9.13.............................JOINT AND SEVERAL OBLIGATIONS. 48
SECTION 9.14...............................................COUNTERPARTS 50


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SCHEDULES


Schedule I - Subsidiaries Schedule II - Existing Liens Schedule III - Existing Indebtedness Schedule IV - Existing Guarantees Schedule V - Material Contracts Schedule VI - Environmental Matters Schedule VII - Foreign Subsidiary Restructuring Schedule VIII - Litigation


EXHIBITS Exhibit A - Form of Revolving Credit Note Exhibit B - Form of Pledge Agreement Exhibit C - Form of Opinion of Counsel


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CREDIT AGREEMENT dated as of May 10, 2002, by and among ACETO CORPORATION, a New York corporation, ACETO AGRICULTURAL CHEMICALS CORPORATION, a New York corporation, CDC PRODUCTS CORPORATION, a New York corporation, MAGNUM RESEARCH CORP., a New York corporation, ACCI REALTY CORP., a New York corporation, LARLABS CORP., a New York corporation, ARSYNCO INC., a New Jersey corporation, ROEHR CHEMICALS, INC., a New York corporation, and ACETO INDUSTRIAL CHEMICAL CORP., a New York corporation, jointly and severally, (each a "Company" and, collectively, the "Companies"), and JPMORGAN CHASE BANK, a New York banking corporation, (the "Lender").


RECITALS


The Companies have requested the Lender to extend credit from time to time and the Lender is willing to extend such credit to the Companies, subject to the terms and conditions hereinafter set forth.


Accordingly, the parties hereto agree as follows:


ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS


SECTION 1.01. DEFINITIONS. As used herein, the following words and terms shall have the following meanings:


"Aceto" shall mean Aceto Corporation, a New York corporation.


"Affiliate" shall mean with respect to a specified Person, another Person which, directly or indirectly, controls or is controlled by or is under common control with such specified Person. For the purpose of this definition, "control" of a Person shall mean the power, direct or indirect, to direct or cause the direction of the management or policies of such Person whether through the ownership of voting securities, by contract or otherwise; provided that, in any event, any Person who owns directly or indirectly 20% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 20% or more of the partnership or other ownership interest of any Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person.


"Aggregate Letters of Credit Outstandings" shall mean, at a particular time, the sum of (a) the aggregate maximum stated amount at such time which is available or available in the future to be drawn under all outstanding Letters of Credit and (b) the aggregate amount of all payments made by the Lender under any Letter of Credit that has not been reimbursed by any Company at such time.


"Aggregate Outstandings" shall mean, at a particular time, the sum of (a) the Aggregate Letters of Credit Outstandings at such time and (b) the aggregate outstanding principal amount of all Revolving Credit Loans at such time.


"Agreement" shall mean this Credit Agreement dated as of May 10, 2002, as it may hereafter be amended, restated, supplemented or otherwise modified from time to time.


"Borrowing Date" shall mean, with respect to any Loan, the date on which such Loan is disbursed to the Companies.


"Business Day" shall mean (a) any day not a Saturday, Sunday or legal holiday, on which banks in New York City are open for business and (b) as it relates to any payment, determination, funding or notice to be made or given in connection with any LIBOR Rate Loan, any day specified in clause (a) on which trading is carried on by and between banks in Dollar deposits in the London interbank eurodollar market.


"Capital Expenditures" shall mean additions to property and equipment of Aceto and its Subsidiaries which, in conformity with Generally Accepted Accounting Principles, are included as "additions to property, plant or equipment" or similar items which would be reflected in the consolidated statement of cash flow of Aceto and its Subsidiaries, including without limitation, property and equipment which are the subject of Capital Leases.


"Capital Lease" shall mean any lease the obligations of which are required to be capitalized on the balance sheet of a Person in accordance with Generally Accepted Accounting Principles.


"Carlstadt Real Property" shall mean the real property of Arsynco, Inc. located at 13th Street, Carlstadt, New Jersey 07072.


"Cash Collateral" shall mean the pledge and deposit by the Companies with the Lender , as collateral for the Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Lender.


"Change of Control" shall mean any event which results in (i) any Person, or two or more Persons acting in concert, acquiring beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of securities of Aceto (or other securities convertible into such securities) representing 30% or more of the combined voting power of all securities of Aceto entitled to vote in the election of directors; or (ii) during any period of up to 12 consecutive months, individuals who at the beginning of such 12-month period were directors of Aceto, ceasing for any reason to constitute a majority of the Board of Directors of Aceto; or (iii) any Person, or two or more Persons acting in concert, acquiring by contract or otherwise, or entering into a contract or arrangement which upon consummation will results in its or their acquisition of, or control over,


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securities of Aceto (or securities convertible into such securities) representing 30% or more of the combined voting power of all securities of Aceto entitled to vote in the election of directors.


"Chief Financial Officer" shall mean the Chief Financial Officer of Aceto.


"Closing Date" shall mean May 10, 2002.


"Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.


"Commitment" shall mean the Revolving Credit Commitment.


"Company" shall have the meaning set forth in the preamble hereto.


"Consolidated Debt Service Coverage Ratio" shall mean, for any period, the ratio of (a) Consolidated Net Income, plus (i) to the extent deducted in determining Consolidated Net Income, the sum of (A) Consolidated Interest Expense, and (B) all depreciation and amortization expenses or charges, minus (ii) the sum of (A) Unfunded Capital Expenditures and (B) dividends and/or distributions for the applicable period, to (b) the sum of (i) Consolidated Interest Expense plus (ii) the scheduled installments of principal on all Indebtedness (including Capital Leases) having a final maturity of one year or more from the date of incurrence thereof. All the foregoing categories shall be determined on a consolidated basis for Aceto and its Subsidiaries in accordance with Generally Accepted Accounting Principles applied on a consistent basis and shall be calculated (without duplication) over the four fiscal quarters then most recently ended with the exception of the scheduled installments of principal on all Indebtedness of Aceto and its Subsidiaries with an original maturity of one year or more, which shall each be calculated based upon the next succeeding four fiscal quarters.


"Consolidated EBITDA" shall mean for Aceto and its Subsidiaries for any period, Consolidated Net Income (or consolidated net loss) for such period, plus the sum, without duplication, of (a) Consolidated Interest Expense, (b) depreciation and amortization expenses or charges, and (c) all income taxes to any government or governmental instrumentality expensed on Aceto's or any of its Subsidiaries' books (whether paid or accrued), in each case, determined on a consolidated basis for Aceto and its Subsidiaries in accordance with Generally Accepted Accounting Principles applied on a consistent basis. All of the foregoing categories shall be calculated (without duplication) over the four fiscal quarters then most recently ended.


"Consolidated Funded Debt" shall mean the sum of all Indebtedness of Aceto and its Subsidiaries for borrowed money having an original maturity of one year or more (including, without limitation, the outstanding Revolving Credit Loans and the outstanding principal balance of the loans owing by any of Aceto's Subsidiaries to Deutsche Bank or any of Aceto's Subsidiaries to ING Bank), in each case determined on a consolidated basis for Aceto and its Subsidiaries in accordance with Generally Accepted Accounting Principles applied on a consistent basis.


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"Consolidated Interest Expense" shall mean the consolidated gross interest expense of Aceto and its Subsidiaries determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis and calculated over the four fiscal quarters then most recently ended.


"Consolidated Net Income" shall mean, for any period, the net income (or net loss) of Aceto and its Subsidiaries on a consolidated basis for such period determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.


"Consolidated Tangible Net Worth" shall mean (a) total consolidated assets of Aceto and its Subsidiaries calculated exclusive of all intangible assets less (b) total consolidated liabilities of Aceto and its Subsidiaries, in each case, determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.


"Default" shall mean any condition or event which upon notice, lapse of time or both would constitute an Event of Default.


"Dollar" and the symbol "$" shall mean lawful money of the United States of America.


"Domestic Subsidiary" shall mean any Subsidiary of Aceto organized under the laws of any state of the United States of America.


"Eligible Investments" shall mean (a) direct obligations of the United States of America or any governmental agency thereof which are fully guaranteed by the United States of America, provided that such obligations mature within one year from the date of acquisition thereof; or (b) dollar denominated certificates of time deposit maturing within one year issued by any bank organized and existing under the laws of the United States or any state thereof and having aggregate capital and surplus in excess of $1,000,000,000; or (c) money market mutual funds having assets in excess of $2,500,000,000; or (d) commercial paper rated not less than P-1 or A-1 or their equivalent by Moody's Investor Service, Inc. or Standard & Poor's Ratings Group, respectively; or (e) tax exempt securities of a U.S. issuer rated A or better by Standard and Poor's Ratings Group or Moody's Investor Service, Inc.


"Environmental Law" shall mean any law, ordinance, rule, regulation, or policy having the force of law of any Governmental Authority relating to pollution or protection of the environment or to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.) the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.) and the rules and regulations promulgated pursuant thereto.


"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.


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"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with any Company or any Affiliate of any Company would be deemed to be a member of the same "controlled group" within the meaning of Section 414(b), (c), (m) or (o) of the Code.


"Eurocurrency Reserve Requirement" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate (without duplication) of the rates (expressed as a decimal) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves, under any regulations of the Board of Governors of the Federal Reserve System or any other governmental authority having jurisdiction with respect thereto) as from time to time in effect, dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "eurocurrency liabilities" in Regulation D) maintained by the Lender. For purposes hereof each LIBOR Rate Loan shall be deemed to constitute a "eurocurrency liability" as defined in Regulation D, and subject to the reserve requirements of "Regulation D," without benefit of credit or proration, exemptions or offsets which might otherwise be available to the Lender from time to time under Regulation D.


"Event of Default" shall have the meaning set forth in Article VIII.


"Executive Officer" shall mean any of the President, the Chief Executive Officer, Chief Financial Officer or the Secretary of Aceto or any of its Subsidiaries, as applicable, and their respective successors, if any, designated by the board of directors thereof.


"Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal fund brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Lender from three Federal fund brokers of recognized standing selected by the Lender.


"First-Tier Foreign Subsidiary" shall mean, with respect to Aceto or any Domestic Subsidiary, a Foreign Subsidiary that is directly owned by Aceto and/or such Domestic Subsidiary.


"Fixed Rate Loans" shall mean, collectively, LIBOR Rate Loans and Quoted Rate Loans.


"Foreign Subsidiary" shall mean any Subsidiary of any Company which is not a Domestic Subsidiary.


"Foreign Subsidiary Restructuring" shall mean the restructuring of Aceto's Foreign Subsidiaries as described on Schedule VII attached hereto.


"Generally Accepted Accounting Principles" shall mean those generally accepted accounting principles in the United States of America, as in effect from time to time.


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"Governmental Authority" shall mean any nation or government, any state, province, city or municipal entity or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board or similar body, whether federal, state, provincial, territorial, local or foreign.


"Hazardous Materials" shall mean any explosives, radioactive materials, or other materials, wastes, substances, or chemicals regulated as toxic hazardous or as a pollutant, contaminant or waste under any applicable Environmental Law.


"Hedging Agreement" shall mean any interest rate swap, collar, cap, floor or forward rate agreement or other agreement regarding the hedging of interest rate risk exposure executed in connection with hedging the interest rate exposure of Aceto or any of its Subsidiaries and any confirming letter executed pursuant to such agreement, all as amended, supplemented, restated or otherwise modified from time to time.


"Indebtedness" shall mean, without duplication, as to any Person or Persons (a) indebtedness for borrowed money; (b) indebtedness for the deferred purchase price of property or services; (c) indebtedness evidenced by bonds, debentures, notes or other similar instruments; (d) obligations and liabilities secured by a Lien upon property owned by such Person, whether or not owing by such Person and even though such Person has not assumed or become liable for the payment thereof; (e) obligations and liabilities directly or indirectly guaranteed by such Person; (f) obligations or liabilities created or arising under any conditional sales contract or other title retention agreement with respect to property used and/or acquired by such Person; (g) obligations of such Person as lessee under Capital Leases; (h) net liabilities of such Person under Hedging Agreements and foreign currency exchange agreements, as calculated on a basis satisfactory to the Lender and in accordance with accepted practice; (i) all obligations of such Person in respect of bankers' acceptance; and (j) all obligations, contingent or otherwise of such Person as an account party or applicant in respect of letters of credit.


"Interest Payment Date" shall mean (a) as to any Prime Rate Loan, the first day of each calendar month during the term hereof; (b) as to any Fixed Rate Loan, the last day of the Interest Period for such Fixed Rate Loan; and (c) as to any Loan, the date such Loan is paid in full or in part.


"Interest Period" shall mean with respect to any Fixed Rate Loan:


(a) initially, the period commencing on the date such Fixed Rate Loan is made and ending one, two, three or six months thereafter, as selected by the Companies in its Notice of Borrowing or in its notice of conversion from another Type of loan to a Fixed Rate Loan provided, in each case, in accordance with the terms of Articles II and III hereof; and


(b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Fixed Rate Loan and ending one, two, three or six months thereafter, as


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selected by the Companies by irrevocable written notice to the Lender not later than 11:00 a.m. New York, New York time (I) three Business Days, with respect to LIBOR Rate Loans or (II) one Business Day with respect to a Quoted Rate Loan, prior to the last day of the then current Interest Period with respect to such Fixed Rate Loan; provided, however, that all of the foregoing provisions relating to Interest Periods are subject to the following:


(i) if any Interest Period would otherwise end on a day which
is not a Business Day, such Interest Period shall be extended to the
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