AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1996
REGISTRATION NO. 333-09337
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------
CROMPTON & KNOWLES CORPORATION
(Exact name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 2860 04-1218720
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
ONE STATION PLACE, METRO CENTER
STAMFORD, CONNECTICUT 06902
(203) 353-5400
</TABLE>
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-------------------
VINCENT A. CALARCO
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
CROMPTON & KNOWLES CORPORATION
ONE STATION PLACE, METRO CENTER
STAMFORD, CONNECTICUT 06902
(203) 353-5400
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
-------------------
WITH COPY TO:
EDWARD D. HERLIHY, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NY 10019-6150
(212) 403-1000
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / / _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $0.10 par
value(1)................... 1,000,000 shares $14.63 $14,630,000 $5,045
</TABLE>
(1) Includes one attached Preferred Share Purchase Right per share. Rights
initially will trade together with the Common Stock. The value attributable
to the Rights, if any, is reflected in the market price of the Common Stock.
(2) Pursuant to Rule 457(c) promulgated under the Securities Act of 1933, as
amended, and estimated solely for purposes of calculating the registration
fee, the proposed maximum aggregate offering price is $14,630,000, which
equals the product of (x) $14.63, the average of the high and low prices of
the common stock, $0.10 par value, of Crompton & Knowles Corporation
(together with the attached Preferred Share Purchase Rights of Crompton &
Knowles Corporation, "Crompton Common Stock") as reported on the New York
Stock Exchange Composite Tape on July 25, 1996, and (y) 1,000,000, the total
number of shares of Crompton Common Stock to be offered hereunder. The
proposed maximum offering price per share is equal to the proposed maximum
aggregate offering price determined in the manner described in the preceding
sentence divided by 1,000,000, the total number of shares of Crompton Common
Stock to be offered hereunder.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROMPTON & KNOWLES CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE><CAPTION>
FORM S-1 ITEM NO. PROSPECTUS HEADING
- ------------------------------------------------- -------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page; Cross Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Available Information; Table of Contents
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors; Market
Price and Dividend Data; The Company;
Historical and Unaudited Pro Forma Combined
Capitalization; Unaudited Pro Forma
Combined Financial Information
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Plan of Distribution
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Oustide Front Cover Page; Plan of
Distribution
9. Description of Securities to be
Registered................................. Description of Crompton Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information With Respect to the
Registrant................................. Prospectus Summary; Risk Factors; Market
Price and Dividend Data; The Company;
Recent Developments; Selected Historical
Financial Data of Crompton; Management's
Discussion and Analysis of Financial
Condition and Results of Operations of
Crompton; Historical and Unaudited Pro
Forma Combined Capitalization; Unaudited
Pro Forma Combined Financial Information;
Index to Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities............................ Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 12, 1996
PROSPECTUS
1,000,000 SHARES [LOGO]
CROMPTON & KNOWLES CORPORATION
COMMON STOCK
($0.10 PAR VALUE)
All of the 1,000,000 shares of common stock, $0.10 par value per share (together
with the attached preferred share purchase rights, the "Common Stock" or
"Crompton Common Stock"), of Crompton & Knowles Corporation ("Crompton" or the
"Company") offered hereby are being offered by Crompton (the "Offering").
Crompton Common Stock is quoted on the New York Stock Exchange ("NYSE") under
the trading symbol "CNK." On August 8, 1996, the closing price of Crompton
Common Stock as reported on the NYSE Composite Tape was $14.375.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN RISK AND OTHER FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE><CAPTION>
PRICE TO PLACEMENT FEE PROCEEDS TO
PUBLIC OR DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share(3)...................... $ $ $
Total............................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Placement Agent against certain
liabilities in connection with the Offering, including liabilities under the
Securities Act of 1933, as amended.
(2) Before deducting estimated expenses of $ .
(3) Each share will have attached one Preferred Share Purchase Right which will
initially trade together with the share.
SALOMON BROTHERS INC
Placement Agent
The date of this Prospectus is August , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
Crompton is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (together with the rules and regulations
promulgated thereunder, the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by Crompton with the Commission can be inspected and copied at
the public reference facilities maintained by the Commission at its principal
office at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
following Regional Offices of the Commission: New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048, and Chicago Regional Office,
Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies
of such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates, or through the World Wide Web (http://www.sec.gov). Crompton Common Stock
is listed on the NYSE, and such reports, proxy statements and other information
concerning Crompton are available for inspection and copying at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
Crompton has filed with the Commission a Registration Statement on Form S-1
under the Securities Act of 1933, as amended (together with the rules and
regulations promulgated thereunder, the "Securities Act"), with respect to the
shares of Crompton Common Stock to be offered hereby (the "Registration
Statement"). This Prospectus does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Reference is hereby made to
the Registration Statement and related exhibits for further information with
respect to Crompton and the securities offered hereby. Statements contained
herein concerning the provisions of any document are necessarily summaries of
such documents and not complete, and in each instance, reference is made to the
copy of such document attached hereto or filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
ii
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. This summary is not intended to be complete and is qualified in
its entirety by the more detailed information and financial statements appearing
elsewhere in this Prospectus. Prospective investors are urged to read and
consider carefully all of the information contained in this Prospectus. As used
herein, the terms "Crompton" and "the Company" refer to Crompton & Knowles
Corporation and its consolidated subsidiaries, unless the context otherwise
requires.
THE COMPANY
Crompton is engaged in the manufacture and sale of specialty chemicals and
specialty process equipment and controls which are marketed throughout the
world. Crompton's line of specialty value-added chemicals includes textile and
industrial dyes and auxiliary chemicals, reaction flavors, specialty sweeteners,
food colors and inactive pharmaceutical additives and coatings. Crompton's
specialty process equipment and controls business consists primarily of the
manufacture and sale of plastics and rubber extrusion equipment and integrated
extrusion systems, industrial blow molding equipment and electronic controls.
The principal executive offices of Crompton are located at One Station Place,
Metro Center, Stamford, Connecticut 06902, and its telephone number is (203)
353-5400. See "The Company."
RECENT DEVELOPMENTS
Pursuant to an Agreement and Plan of Merger, dated as of April 30, 1996 (the
"Merger Agreement"), Crompton has agreed to the merger (the "Merger") of Tiger
Merger Corp., a Delaware corporation and a wholly owned subsidiary of Crompton
("Subcorp"), with and into Uniroyal Chemical Corporation, a Delaware corporation
("Uniroyal"), subject to the approval of the transaction by the stockholders of
each of Uniroyal and Crompton at special meetings thereof currently scheduled to
be held on August 21, 1996. The Board of Directors of Crompton has fixed the
close of business on July 9, 1996, as the record date for determination of
holders of Crompton Common Stock entitled to notice of and to vote at such
meeting of Crompton stockholders. Accordingly, purchasers of the shares of
Crompton Common Stock offered hereby will not be entitled to vote such shares at
such special meeting.
The Merger will be consummated on the terms and subject to the conditions
set forth in the Merger Agreement (which was filed by Crompton with the
Commission as an exhibit to Crompton's Quarterly Report on Form 10-Q for the
quarter ended March 30, 1996), pursuant to which, among other things, (i)
Subcorp will be merged with and into Uniroyal as a result of which Uniroyal will
become a wholly owned subsidiary of Crompton, (ii) each issued and outstanding
share (other than shares, if any, held in the treasury of Uniroyal or held by
Crompton or any of its subsidiaries, which will be cancelled) of common stock,
$0.01 par value per share (together with the attached preferred stock purchase
rights, "Uniroyal Common Stock"), of Uniroyal will be converted into 0.9577
shares of Crompton Common Stock (with cash in lieu of fractional shares), and
(iii) each issued and outstanding share (other than shares, if any, held in the
treasury of Uniroyal or held by Crompton or any of its subsidiaries, which will
be cancelled, and other than shares as to which dissenters' appraisal rights
have been perfected) of Series A Cumulative Redeemable Preferred Stock, par
value $0.01 per share ("Series A Preferred Stock"), of Uniroyal and of Series B
Preferred Stock, par value $0.01 per share ("Series B Preferred Stock," and
together with the Series A Preferred Stock, "Uniroyal Preferred Stock"), of
Uniroyal will be converted into 6.3850 shares of Crompton Common Stock (with
cash in lieu of fractional shares). It is currently anticipated that the Merger
will be consummated shortly after the special meetings of Crompton and Uniroyal
stockholders, assuming the Merger Agreement and the Merger are approved at such
meetings and all other conditions to the Merger have been satisfied or waived.
Uniroyal, through its subsidiaries, is a major multinational manufacturer of
a wide variety of specialty chemical products, including specialty elastomers,
rubber chemicals, crop protection chemicals and additives for the plastics and
lubricants industries. Uniroyal produces high value added products which are
currently marketed in approximately 120 countries. Crompton does not currently
1
<PAGE>
intend to make any material changes to the general operating activities of
Uniroyal following consummation of the Merger. The principal executive offices
of Uniroyal are located at Benson Road, Middlebury, Connecticut 06749, and its
telephone number is (203) 573-2000. Uniroyal is subject to the informational
requirements of the Exchange Act, and in accordance therewith files reports,
proxy statements and other information with the Commission. Prospective
investors are urged to read and consider carefully such reports, proxy
statements and other information. Uniroyal Common Stock is quoted on the Nasdaq
National Market (the "NASDAQ/NM").
Crompton is effecting the Offering in order for the Merger to qualify as a
pooling-of-interests for accounting and financial reporting purposes. See
"Recent Developments."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by Crompton............. 1,000,000 shares
Common Stock to be outstanding immediately
after the Offering........................... 49,039,309 shares(1)
NYSE Symbol.................................. CNK
Use of Proceeds.............................. The net proceeds to Crompton from the
Offering will be used to partially offset
the estimated merger costs discussed
elsewhere herein. See "Use of Proceeds."
Risk Factors................................. See "Risk Factors."
</TABLE>
- ------------
(1) Calculated based on 48,039,309 shares of Common Stock outstanding on July
30, 1996, and not giving effect to the up to approximately 26,089,206 shares
of Common Stock expected to be issued in connection with the Merger.
2
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
Selected Historical Financial Data
The selected financial data presented below for Crompton as of December 31,
1994 and December 30, 1995 and for the years ended December 25, 1993, December
31, 1994 and December 30, 1995, and Uniroyal as of October 2, 1994 and October
1, 1995 and for the three years ended September 30, 1993, October 2, 1994 and
October 1, 1995, have been derived from and are qualified in their entirety by,
and should be read in conjunction with, the respective audited financial
statements and notes thereto contained herein. See "Index to Financial
Statements."
Crompton's statement of operations data for the years ended December 28,
1991 and December 26, 1992 and the balance sheet data as of December 28, 1991,
December 26, 1992 and December 25, 1993 are derived from audited Crompton
consolidated financial statements that are neither included nor incorporated by
reference herein. Uniroyal's statement of operations data for the fiscal years
ended September 30, 1991 and 1992 and the balance sheet data as of September 30,
1991, 1992 and 1993 are derived from audited Uniroyal financial statements which
are neither included nor incorporated by reference herein.
The unaudited financial data presented below for the interim periods ended
July 1, 1995 and June 29, 1996, and July 2, 1995 and June 30, 1996, are derived
from the unaudited consolidated financial statements of Crompton and Uniroyal,
respectively, that are contained herein. In the opinion of Crompton, such
unaudited financial data have been prepared on the same basis as the audited
financial statements contained herein or otherwise filed with the Commission and
include all adjustments (consisting only of normal recurring adjustments)
necessary to fairly state the information set forth herein. Operating results
for the interim periods ended June 29, 1996 and June 30, 1996 are not
necessarily indicative of the results that may be expected for the year or for
any other interim period.
<TABLE><CAPTION>
YEARS ENDED SIX MONTHS ENDED
------------------------------------------------------------------------ -------------------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1991 1992 1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Crompton & Knowles
Corporation
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................. $450,228 517,718 558,348 589,757 665,513 343,810 332,410
Income before extraordinary
charges and cumulative
effect of accounting
changes.................... $ 35,941 43,265 51,958 50,916 40,493 25,254 19,180
Net income................. $ 35,941 34,465 51,958 50,916 40,493 25,254 19,180
Income per common share
before extraordinary
charges and cumulative
effect of accounting
changes.................... $ 0.73 0.87 1.00 1.00 0.84 0.52 0.40
Net income per common
share...................... $ 0.73 0.69 1.00 1.00 0.84 0.52 0.40
Weighted average number of
shares outstanding......... 49,317 49,967 52,176 51,152 48,448 48,569 48,499
CONSOLIDATED BALANCE SHEET
DATA:
Total assets............... $308,562 350,715 363,246 432,328 484,138 537,369
Long-term debt............. $ 76,118 24,000 14,000 54,000 64,000 79,000
Cash dividends declared per
common share............... $ 0.25 0.31 0.38 0.46 0.525 0.255 0.27
</TABLE>
3
<PAGE>
<TABLE><CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------------------------------------------- ---------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 2, OCTOBER 1, JULY 2, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
------------- ------------- ------------- ---------- ---------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Uniroyal Chemical
Corporation
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Net sales............ $ 832,302 856,591 907,862 946,454 1,079,321 784,567 829,171
Income (loss) before
extraordinary
charges and
cumulative effect of
accounting changes... $ (23,648) (27,790) (24,792) (213,843)(3) 99,429(4) 95,694(4) 17,982
Net income (loss).... $ (23,648) (27,790) (236,733) (213,843)(3) 91,150(4) 87,415(4) 17,541
Income (loss) per
common share before
extraordinary
charges and
cumulative effect of
accounting changes
(1)(2)............... $ (2.15) (2.54) (2.31) (20.31)(3) 5.37(4) 5.80(4) 0.72
Net income (loss) per
common share (1)(2).. $ (2.15) (2.54) (21.85) (20.31)(3) 4.92(4) 5.30(4) 0.70
Weighted average
number of shares
outstanding(2)....... 11,167 11,038 10,847 10,543 18,461 16,436 24,582
CONSOLIDATED BALANCE
SHEET DATA (5):
Total assets......... $ 1,253,370 1,228,569 1,225,438 1,056,017 1,171,707 1,161,047
Long-term debt....... $ 854,619 880,343 1,034,799 1,048,225 910,156 888,856
</TABLE>
- ------------
(1) Calculated based on income (loss) available to common shareholders after
preferred dividends earned of $375, $262, $267, $292, $395, $298 and $313
for the years ended September 30, 1991, 1992 and 1993, October 2, 1994, and
October 1, 1995, and the nine-month periods ended July 2, 1995 and June 30,
1996, respectively.
(2) During the second quarter of fiscal 1995, Uniroyal completed an initial
public offering. Upon consummation of the offering, certain redeemable
common stock owned by Uniroyal management was converted into a single class
of common stock. Weighted average number of shares outstanding reflects the
conversion on a retroactive basis for all periods presented.
(3) Includes an after-tax write-off of $163 million for impairment of certain
intangible assets.
(4) Includes a gain of $78.9 million related to a deferred tax asset reserve.
(See note 10 under "Unaudited Pro Forma Combined Financial
Information--Notes To Unaudited Pro Forma Combined Financial Information.")
(5) Uniroyal has not declared any dividends on its common stock during the
periods indicated above.
4
<PAGE>
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
The unaudited selected pro forma combined financial data shown below gives
effect to the Merger using the pooling-of-interests basis of accounting. The pro
forma statement of operations data reflects the combination of statement of
operations data of Crompton for each of the years ended December 25, 1993,
December 31, 1994 and December 30, 1995, and the six-month periods ended July 1,
1995 and June 29, 1996, with statement of operations data of Uniroyal for each
of the years ended September 30, 1993, October 2, 1994 and October 1, 1995, and
the six-month periods ended July 2, 1995 and June 30, 1996. The pro forma
balance sheet data reflects the combination of balance sheet data of Crompton as
of December 25, 1993, December 31, 1994, December 30, 1995 and June 29, 1996
with balance sheet data of Uniroyal as of September 30, 1993, October 2, 1994,
October 1, 1995 and June 30, 1996. The selected pro forma combined financial
data should be read in conjunction with the unaudited pro forma combined
financial information and notes thereto, which are included elsewhere in this
Prospectus. These pro forma data do not purport to be indicative of the results
that would have actually been obtained if the Merger had been in effect for the
above-mentioned periods and on the dates indicated or that may be obtained in
the future.
<TABLE><CAPTION>
SIX MONTHS
YEARS ENDED ENDED
--------------------------------------------- ---------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1993 AND 1994 AND 1995 AND 1995 AND 1996 AND
SEPTEMBER 30, OCTOBER 2, OCTOBER 1, JULY 2, JUNE 30,
1993 1994 1995 1995 1996(4)
------------- ------------ ------------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF
OPERATIONS DATA: (2)
Net sales................ $ 1,466,210 1,536,211 1,744,834 916,736 930,101
Operating profit........ $ 187,372 1,417(5) 218,122 139,986 131,756
Income (loss) before
extraordinary charges
and cumulative effect
of accounting
changes.................. $ 27,166 (162,927)(5) 139,922(6) 131,484(6) 45,530
Income (loss) per common
share before
extraordinary charges
and cumulative effect
of accounting changes
(1)...................... $ 0.43 (2.65)(5) 2.11(6) 1.96(6) 0.63(7)
Weighted average number
of shares outstanding
(1)...................... 63,689 61,515 66,394 67,109 72,405
PRO FORMA BALANCE SHEET
DATA:
Total assets............. $ 1,588,684 1,488,345 1,655,845 1,698,416
Long-term debt........... $ 1,048,799 1,102,225 974,156 1,007,906(3)
Cash dividends declared
per common share (8)..... $ 0.38 0.46 0.525 0.255 0.27
</TABLE>
- ------------
(1) Common and common equivalent shares outstanding were calculated assuming a
conversion rate of 0.9577 shares of Crompton Common Stock for each share of
Uniroyal Common Stock, and 6.3850 shares of Crompton Common Stock for each
share of Uniroyal Preferred Stock as provided for in the Merger Agreement.
(2) The Pro Forma Statement of Operations Data does not include an estimated $55
million of after tax costs associated with the Merger, as such costs are
non-recurring and will be reflected in the statement of operations of the
combined company in its first reporting period.
5
<PAGE>
(3) Long-term debt includes the financing of the estimated costs of the Merger
(see notes 1, 2 and 6 under "Historical and Unaudited Pro Forma Combined
Capitalization--Notes to Historical and Unaudited Pro Forma Combined
Capitalization"), net of proceeds from the issuance from treasury stock of
1,000,000 shares of Crompton Common Stock to be issued in an offering to
take place prior to the consummation of the Merger.
(4) After the consummation of the Merger, Uniroyal will change its fiscal
year-end to conform with that of Crompton. Results of operations for
Uniroyal's quarter ended December 31, 1995 were a net loss of $8.4 million
which will be reflected as a one-time adjustment to stockholders' equity in
the combined company's 1996 financial statements.
(5) Includes an after-tax write-off of $163 million for impairment of certain
intangible assets.
(6) Includes a gain of $78.9 million related to a deferred tax asset reserve.
(See note 10 under "Unaudited Pro Forma Combined Financial
Information--Notes To Unaudited Pro Forma Combined Financial Information.")
(7) The calculation of pro forma income (loss) per common share before
extraordinary charges and cumulative effect of accounting changes does not
reflect as outstanding 1,000,000 shares of Crompton Common Stock to be
issued in an offering prior to the consummation of the Merger, as such
amounts are not reflective of historical trends for the combined company.
Assuming the issuance of 1,000,000 shares of treasury stock (see note 3
above) had taken place at the beginning of the year, income per common share
before extraordinary charges and cumulative effect of accounting changes for
the six months ended 1996 would have been $0.62.
(8) Represents Crompton's historical dividends per share. Uniroyal has not
declared any dividends on its common stock during the periods presented.
6
<PAGE>
RISK FACTORS
Purchasers of shares of Common Stock should carefully consider and evaluate
all of the information set forth in this Prospectus, including the risk factors
listed below. See "The Company," "Recent Developments" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Crompton" for a discussion of other factors generally affecting Compton's
business.
ENVIRONMENTAL CONSIDERATIONS
Crompton's operations are subject to numerous laws and regulations relating
to the protection of human health and the environment in the U.S. and abroad.
Chemical companies are subject to extensive environmental laws and
regulations concerning, among other things, emissions to the air, discharges to
land, surface, subsurface strata, and water and the generation, handling,
storage, transportation, treatment and disposal of waste and other materials and
are also subject to federal, state and local laws and regulations regarding
health and safety matters.
The ongoing operations of chemical manufacturing plants entail risks in
these areas, and there can be no assurance that material costs or liabilities
will not be incurred. In addition, future developments, such as increasingly
strict requirements of environmental and health and safety laws and regulations
and enforcement policies thereunder, could bring into question the handling,
manufacture, use, emission or disposal of substances or pollutants at facilities
owned, used or controlled by Crompton or the manufacture, use, emission or
disposal of certain products or wastes by Crompton and could involve potentially
material expenditures for Crompton. To meet changing permitting and regulatory
standards, Crompton may be required to make significant site or operational
modifications, potentially involving substantial expenditures and reductions or
suspensions of certain operations.
Crompton is involved in claims, litigation, administrative proceedings and
investigations of various types in a number of jurisdictions. Several of such
matters involve claims for a material amount of damages and relate to or allege
environmental liabilities, including clean-up costs associated with hazardous
waste disposal sites, natural resource damages, property damage and personal
injury. Crompton and an inactive subsidiary have been identified by the United
States Environmental Protection Agency (the "EPA"), state or local governmental
agencies, and other potentially responsible parties (each a "PRP"), as PRPs for
costs associated with waste disposal sites at various locations in the United
States. Because these regulations have been construed to authorize joint and
several liability, the EPA could seek to recover all costs involving a waste
disposal site from any one of the PRPs for such site, including Crompton or its
subsidiary, despite the involvement of other PRPs. In each such case, Crompton
or its subsidiary is one of a large number of PRPs so identified. In certain
instances, a number of other financially responsible PRPs are also involved, and
Crompton expects that any ultimate liability resulting from such matters will be
apportioned between Crompton or its subsidiary and such other parties.
While Crompton believes it is unlikely, the resolution of these matters
could have a material adverse effect on Crompton's consolidated results of
operations if a significant number of these matters is resolved unfavorably. See
"The Company -- Environmental Matters," "-- Environmental Matters Following the
Merger," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Crompton."
VOLATILITY OF STOCK PRICE
The trading price of the Common Stock after the Offering could be subject to
significant fluctuations in response to variations in quarterly operating
results, the gain or loss of significant contracts, changes in management or new
products or services by Crompton or its competitors, general trends in the
industry and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations which have affected the market
price for many companies in similar
7
<PAGE>
industries and which have often been unrelated to the operating performance of
these companies. These broad market fluctuations may adversely affect the market
price of Crompton Common Stock.
EFFECT OF CERTAIN ANTITAKEOVER PROVISIONS
The Crompton Articles of Organization (the "Crompton Articles") and Crompton
By-Laws contain certain provisions that would likely have an effect of delaying
or deterring a change in control of Crompton. Such provisions require, among
other things, (i) a classified Board of Directors, with each class containing as
nearly as possible one-third of the whole number of members of the Board of
Directors and the members of each class serving for three-year terms, (ii) a
vote of at least 80% of the holders of Crompton's voting securities to approve
certain business combination transactions with a stockholder who is the
beneficial owner of 10% or more of Crompton's outstanding voting securities,
(iii) a vote of a least 80% of Crompton's voting securities to amend certain of
the Crompton Articles and Crompton By-Laws, (iv) advance notice procedures with
respect to nominations of directors other than by or at the direction of the
Board of Directors, and (v) a vote of two-thirds ( 2/3) of Crompton's
outstanding voting securities to approve certain merger and consolidation
agreements involving Crompton. The preferred share purchase rights of Crompton
that trade with the Crompton Common Stock would likely have a similar delaying
or deterring effect. In addition, Crompton's Board of Directors has the
authority to issue up to 250,000 shares of Preferred Stock, without par value,
in one or more series and to fix the voting powers, designations, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof without stockholder
approval. See "Description of Crompton Capital Stock."
OPERATING HAZARDS
Crompton's revenues are dependent on the continued operation of its various
manufacturing facilities. The operation of chemical manufacturing plants
involves many risks, including the breakdown, failure or substandard performance
of equipment, natural disasters and the need to comply with directives of
government agencies. The occurrence of material operational problems, including
but not limited to the above events, may have a material adverse effect on the
productivity and profitability of a particular manufacturing facility, or with
respect to certain facilities, Crompton as a whole, during the period of such
operational difficulties.
Crompton's operations are also subject to various hazards incident to the
production of industrial chemicals, including the use, handling, processing,
storage and transportation of certain hazardous materials. These hazards can
cause personal injury and loss of life, severe damage to and destruction of
property and equipment, environmental damage and suspension of operations.
Claims arising from any future catastrophic occurrence may result in Crompton
being named as a defendant in lawsuits asserting potentially large claims.
GENERAL LITIGATION EXPENSE
In addition to the matters discussed above, because the production of
certain chemicals involves the use, handling, processing, storage and
transportation of hazardous materials, and because certain of Crompton's
products constitute or contain hazardous materials, Crompton has been subject to
claims of injury from direct exposure to such materials and from indirect
exposure when such materials are incorporated into other companies' products.
There can be no assurance that as a result of past or future operations, there
will not be additional claims of injury by employees or members of the public
due to exposure, or alleged exposure, to such materials. Furthermore, Crompton
also has exposure to present and future claims with respect to workplace
exposure, workers' compensation and other matters, arising from events both
prior to and after the Offering. There can be no assurance as to the actual
amount of these liabilities or the timing thereof. See "The Company -- Legal
Proceedings."
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<PAGE>
DEPENDENCE UPON KEY PERSONNEL
Crompton is dependent upon the efforts of its executive officers and
scientific staff. The loss of certain of these key employees could materially
and adversely affect Crompton's business. Crompton's success will depend on its
ability to retain key employees, and, if any depart, to replace them with
personnel of comparable scientific and management capability.
NEED FOR ADDITIONAL CAPITAL
Crompton presently expects that the net proceeds of this Offering, together
with existing working capital, anticipated cash flows from operations, and funds
available from existing bank lines of credit and commitments will be sufficient
to meet its capital and liquidity needs through at least 1997. However,
Crompton's capital needs may increase depending upon several factors, including
future acquisitions, changes to planned research and development activities,
expanded manufacturing and commercialization programs, additional technological,
regulatory and competitive developments and timing of regulatory approvals for
new products. As a result, Crompton may need to raise additional funds. There
can be no assurance that additional financing would be available and, if
available, that the terms would be acceptable to Crompton.
LEVERAGE OF UNIROYAL
Uniroyal and its subsidiaries had approximately $888.9 million of long-term
debt at June 30, 1996. Following the Merger, the ability of Uniroyal and its
subsidiaries to meet their respective debt service obligations and to reduce
their respective total debt will be dependent upon the future performance of
Crompton and Uniroyal and its subsidiaries, which, in turn, will be subject to
general economic conditions and to financial, business and other factors,
including factors beyond their control.
If Crompton, through Uniroyal, is unable to generate sufficient cash flow
from operations in the future, Crompton may be required to refinance all or a
portion of Uniroyal's existing debt or to obtain additional financing. There can
be no assurance that any such refinancing would be possible or that any
additional financing could be obtained, particularly in view of Uniroyal's high
levels of debt, the fact that assets have been given as collateral to secure
indebtedness of Uniroyal, and the debt incurrence restrictions under existing
debt arrangements. If no such refinancing or additional financing were
available, Uniroyal or its subsidiaries could be forced to default on their
respective debt obligations and, as an ultimate remedy, seek protection under
the federal bankruptcy laws.
See "Historical and Unaudited Pro Forma Combined Capitalization" and
"Unaudited Pro Forma Combined Financial Information."
INTERNATIONAL OPERATIONS
Crompton operates on a worldwide basis and is therefore affected by foreign
currency exchange rate fluctuations. Crompton operates manufacturing facilities
in Europe which serve primarily the European market. Exchange rate disruptions
between the United States and European currencies, and among European
currencies, are not expected to have a material effect on year-to-year
comparisons of Crompton's earnings. Cash deposits, borrowings and forward
exchange contracts are used to hedge fluctuations between the U.S. and European
currencies, and among European currencies, if such fluctuations are earnings
related. Such hedging activities are not significant in total.
Political and economic uncertainties in certain of the countries in which
Crompton operates may expose it to risk of loss. Crompton does not believe that
there is currently any likelihood of material loss through political or economic
instability, seizure, nationalization or similar event. Crompton cannot predict,
however, whether events of this type in the future could have a material adverse
effect on its operations.
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<PAGE>
HOLDING COMPANY STRUCTURE
Crompton conducts a substantial portion of its operations through
subsidiaries, and is dependent on the cash flow of its subsidiaries in order to
pay dividends. Following the Merger, certain agreements governing indebtedness
of Uniroyal's subsidiaries and applicable state laws may restrict the payment of
distributions and the making of loans and advances by such subsidiaries to
Crompton.
CONSUMMATION OF THE MERGER
The Merger will be consummated on the terms and subject to the conditions
set forth in the Merger Agreement. It is currently anticipated that the Merger
will be consummated shortly after the special meetings of Crompton and Uniroyal
stockholders, assuming the Merger Agreement and the Merger are approved at such
meetings and all other conditions to the Merger have been satisfied or waived.
There can be no assurances that the Merger will be consummated, whether or not
approved by the Crompton and Uniroyal stockholders, or as to the effect of the
Merger on the results of operations and performance of Crompton on a going
forward basis. See "Recent Developments."
LITIGATION RELATING TO MERGER
Crompton, Uniroyal and the Directors of Uniroyal were named as defendants in
a purported class action lawsuit (the "Stockholder Action") filed in connection
with the proposed Merger in the Court of Chancery, County of New Castle, State
of Delaware. Fassbender v. Mazaika, C.A. No. 14980. The Stockholder Action
alleged, among other things, that defendant directors breached their fiduciary
duties by pursuing the Merger at an allegedly unfair and inadequate price; by
agreeing to the proposed Merger without having conducted an "auction process or
active market check" or a full and thorough investigation; and by agreeing to
the allegedly unfair terms of the Merger. The Stockholder Action was brought on
behalf of a purported class of persons consisting of the stockholders of
Uniroyal other than defendants.
Counsel for Uniroyal, Crompton and Subcorp and the counsel for plaintiff
entered into a memorandum of understanding (the "Memorandum of Understanding")
dated August 5, 1996 in connection with the settlement of the Stockholder
Action. Among other things, the Memorandum of Understanding provides that, in
full settlement of the claims asserted, (i) the Merger Agreement be amended so
as to reduce the fee payable to Crompton upon termination of the Merger
Agreement under certain circumstances from $50 million to $35 million, (ii)
Uniroyal promptly disseminate to Uniroyal stockholders its third quarter
results, (iii) the defendants publicly disclose the proposed settlement by a
filing with the Commission and (iv) the plaintiff withdraw his request for a
preliminary injunction enjoining consummation of the Merger. The Merger
Agreement was amended as of August 7, 1996 to reduce the termination fee as
contemplated in the Memorandum of Understanding.
The consummation of the proposed settlement is subject to (i) completion by
the plaintiff of discovery, (ii) execution of definitive settlement documents,
(iii) notice to members of the plaintiff class and (iv) approval by the Delaware
Court of Chancery. In connection with the proposed settlement, the defendants
have agreed that they will not oppose plaintiff's counsel's application for an
award of fees and expenses not to exceed $350,000 in the aggregate, to be paid
by Crompton and/or Uniroyal.
Uniroyal and its directors have denied, and continue to deny, that any of
them have committed any violations of law or breaches of duty to plaintiff or
any member of the plaintiff class, Uniroyal or its stockholders, or anyone else.
The defendants entered into the Memorandum of Understanding in order to
eliminate the distraction and expense of further litigation.
PATENTS AND PROPRIETARY RIGHTS
Crompton's success depends in large part on its ability to obtain patents,
maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. Crompton owns
10
<PAGE>
patents, trade names, and trademarks and uses know-how, trade secrets, formulae,
and manufacturing techniques which assist in maintaining the competitive
position of certain of its products. Patents, expiring in 1999 and thereafter,
formulae, and know-how are of particular importance in the manufacture of a
number of the dyes and flavor ingredients sold in Crompton's specialty chemicals
business, and patents and know-how are also significant in the manufacture of
certain wire insulating and plastics processing machinery product lines.
Crompton is also licensed to use certain patents and technology owned by foreign
companies to manufacture products complementary to its own products, for which
it pays royalties in amounts not considered material to the consolidated results
of the enterprise. Products to which Crompton has such rights include certain
dyes, plastics machinery and flavored ingredients.
There can be no assurance that any of Crompton's patent applications will be
approved, that Crompton will develop additional proprietary products that are
patentable, that any patents issued to Crompton will provide Crompton with
competitive advantages or will not be challenged by any third parties or that
the patents of others will not prevent the commercialization of products
incorporating Crompton's technology. Furthermore, there can be no assurance that
others will not independently develop similar products, duplicate any of
Crompton's products or, if patents are issued to Crompton, design around
Crompton's patents. Any of the foregoing results could have a material adverse
effect on Crompton.
The commercial success of Crompton also depends, in part, on its ability to
avoid infringing patents issued to others. If Crompton were determined to be
infringing any third-party patent, Crompton would be required to pay damages,
alter its products or processes, obtain licenses or cease certain activities. In
addition, if patents are issued to others which contain claims that compete or
conflict with those of Crompton and such competing or conflicting claims are
ultimately determined to be valid, Crompton may be required to pay damages, to
obtain licenses to these patents, to develop or obtain alternative technology or
to cease using such technology. If Crompton is required to obtain any licenses,
there can be no assurance that Crompton will be able to do so on commercially
favorable terms, if at all. Crompton's failure to obtain a license to any
technology that it may require to commercialize its products may have a material
adverse impact on Crompton.
Litigation, which could result in substantial costs to Crompton, may also be
necessary to enforce any patents issued or licensed to Crompton or to determine
the scope and validity of third-party proprietary rights. If competitors of
Crompton prepare and file patent applications in the United States that claim
technology also claimed by Crompton, Crompton may have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to
Crompton, even if the eventual outcome is favorable to Crompton. An adverse
outcome of any such litigation or interference proceeding could subject Crompton
to significant liabilities to third parties, require disputed rights to be
licensed from third parties or require Crompton to cease using such technology.
Crompton also relies on trade secrets, proprietary know-how and
technological advances which it seeks to protect, in part, by confidentiality
agreements with its collaborators, employees and consultants. There can be no
assurance that these agreements will not be breached, that Crompton would have
adequate remedies for any breach, or that Crompton's trade secrets and
proprietary know-how will not otherwise become known or be independently
discovered by others. See "The Company -- Patents and Licenses."
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<PAGE>
USE OF PROCEEDS
The net proceeds to Crompton from the Offering are estimated to be
approximately $15 million after deducting estimated costs, assuming a price to
the public of $15 1/8 per share. Such proceeds will be used to partially offset
the estimated merger costs discussed elsewhere herein. Crompton is effecting the
Offering in order for the Merger to qualify as a pooling-of-interests for
accounting and financial reporting purposes.
MARKET PRICE AND DIVIDEND DATA
The following table reflects the range of the reported high and low prices
of Crompton Common Stock on the NYSE Composite Tape and the per share dividends
paid thereon. The information in the table has been adjusted to reflect
retroactively all applicable stock splits.
<TABLE><CAPTION>
CROMPTON
COMMON STOCK
---------------
CALENDAR QUARTERS HIGH LOW DIVIDENDS
- ------------------------------------------------------ --------------- --------------- ---------
<S> <C> <C> <C>
1993:
First quarter..................................... $24 3/4 $21 3/8 $ 0.08
Second quarter.................................... 27 1/4 21 0.10
Third quarter..................................... 23 1/4 19 0.10
Fourth quarter.................................... 23 7/8 17 5/8 0.10
1994:
First quarter..................................... $24 1/8 $19 5/8 $ 0.10
Second quarter.................................... 23 5/8 17 3/8 0.12
Third quarter..................................... 18 1/2 15 7/8 0.12
Fourth quarter.................................... 16 5/8 13 7/8 0.12
1995:
First quarter..................................... $17 3/8 $15 7/8 $ 0.12
Second quarter.................................... 20 13 3/8 0.135
Third quarter..................................... 15 3/4 13 5/8 0.135
Fourth quarter.................................... 14 7/8 12 0.135
1996:
First quarter..................................... 15 1/2 13 0.135
Second quarter.................................... 18 3/8 13 7/8 0.135
Third quarter (through August 8, 1996)............ 16 7/8 13 1/8 --
</TABLE>
On August 8, 1996, the most recent practicable date prior to the date of
this Prospectus, the closing price of the Common Stock was $14 3/8 per share as
reported on the NYSE Composite Tape.
Crompton anticipates that it will pay an annual cash dividend of $0.05 per
share. However, the timing and amount of any future dividends remain within the
discretion of the Crompton Board of Directors and will depend on Crompton's
future earnings, financial condition, capital requirements and other factors.
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<PAGE>
THE COMPANY
GENERAL
Crompton was incorporated in Massachusetts in 1900. Crompton has engaged in
the manufacture and sale of specialty chemicals since 1954 and, since 1961, in
the manufacture and sale of specialty process equipment and controls. Crompton
expanded its specialty chemical business in 1988 with the acquisitions of
Ingredient Technology Corporation, a leading supplier of ingredients for the
food and pharmaceutical industries, and Townley Dyestuffs Auxiliaries Company,
Ltd., one of the largest independent suppliers of dyes for Great Britain's
textile and paper industries. Crompton made two acquisitions in calendar year
1990, acquiring the business and certain assets and liabilities of Atlantic
Industries, Inc., a domestic dye manufacturer, and APV Chemical Machinery, Inc.,
which manufactured the Sterling line of extruders, extrusion systems and
industrial blow molding equipment for the plastics industry. In 1991, Crompton
acquired a wire and cable equipment business from Clipper Machines, Inc. In
1992, Crompton acquired a pre-metallized dyes business and facility located in
Oissel, France. Crompton made two acquisitions in 1994, the Egan Machinery
plastics extrusion, precision coating and cast and blown film equipment business
and the plastics and rubber extrusion machinery and parts and after-market
services business of McNeil & NRM, Inc. Effective January 1, 1995, Crompton's
textile dyes and chemicals business and its specialty process equipment and
controls business have been conducted by Crompton & Knowles Colors Incorporated
and Davis-Standard Corporation, respectively, wholly owned subsidiaries of
Crompton. In 1995, Crompton acquired the plastics and rubber extrusion business
of McNeil Akron Repiquet SARL, including a manufacturing facility located in
Dannemarie, France, and Killion Extruders, Inc., a producer of precision
laboratory and small scale extrusion systems. In January 1996, Crompton acquired
Klockner ER-WE-PA GmbH, a manufacturer of extrusion coating, cast film and
plastic extrusion equipment located in Erkrath, Germany, and retained Salomon
Brothers to assist in exploring strategic alternatives to maximize shareholder
value with respect to the Ingredient Technology Corporation business, which
Crompton currently intends to retain. In April 1996, Crompton announced the
acquisition of the Hartig product line of industrial blow molding systems.
Information as to the sales, operating profit, and identifiable assets
attributable to each of Crompton's business segments during each of its last
three fiscal years is set forth in the Notes to Consolidated Financial
Statements contained elsewhere in this Prospectus. See "Index to Financial
Statements."
PRODUCTS AND SERVICES
The principal products and services offered by Crompton are described below.
Specialty Chemicals. Textile dyes manufactured and sold by Crompton are used
on both synthetic and natural fibers for knit and woven garments, home
furnishings such as carpets, draperies, and upholstery, and automotive
furnishings including carpeting, seat belts, and upholstery. Industrial dyes and
chemicals are marketed to the paper, leather, and ink industries for use on
stationery, tissue, towels, shoes, apparel, luggage, and other products and for
transfer printing inks. Crompton also markets organic chemical intermediates and
a line of chemical auxiliaries for the textile industry, including leveling
agents, dye fixatives, and scouring agents. Sales of this class of products
accounted for 43%, 50%, and 57% of the total revenues of Crompton in 1995, 1994,
and 1993, respectively.
Crompton manufactures and sells reaction and compounded flavor ingredients
for the food processing, bakery, beverage and pharmaceutical industries; colors
certified by the Food & Drug Administration for sale to domestic producers of
food and pharmaceuticals; and inactive ingredients for the pharmaceutical
industry. Crompton is also a leading supplier of specialty sweeteners, including
edible molasses, molasses blends, malt extracts, and syrups for the bakery,
confectionery and food processing industries and a supplier of seasonings and
seasoning blends for the food processing industry. Sales of this class of
products accounted for 15%, 17%, and 16% of the total revenues of Crompton in
1995, 1994, and 1993, respectively.
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Domestically, Crompton sells specialty chemicals predominantly through its
own dedicated sales force. Outside the United States, as much as one-half of
Crompton's sales of specialty chemicals are made through distributors.
Specialty Process Equipment and Controls. Crompton manufactures and sells
plastics and rubber extrusion equipment, industrial blow molding equipment,
electronic controls, and integrated extrusion systems and offers specialized
service and modernization programs for in-place extrusion systems. Sales of this
class of products accounted for 42%, 33%, and 27% of the total revenues of
Crompton in 1995, 1994, and 1993, respectively.
Integrated extrusion systems, which include extruders in combination with
controls and other accessory equipment, are used to process plastic resins and
rubber into various products such as plastic sheet used in appliances,
automobiles, home construction, sports equipment, and furniture; cast and blown
film used to package many consumer products; and extruded shapes used as house
siding, furniture trim, and substitutes for wood molding. Integrated extrusion
systems are also used to compound engineered plastics, to recycle and reclaim
plastics, to coat paper, cardboard and other materials used as packaging, and to
apply plastic or rubber insulation to high voltage power cable for electrical
utilities and to wire for the communications, construction, automotive, and
appliance industries.
Industrial blow molding equipment produced by the Corporation is sold to
manufacturers of non-disposable plastic items such as tool cases and beverage
coolers.
Crompton's HES unit produces electrical and electronic controls primarily
for use with extrusion systems. Crompton is a major user of such controls.
In the United States, most of Crompton's sales of specialty process
equipment and controls are made by its own dedicated sales force. In other parts
of the world, and for export sales from the United States, Crompton's sales of
such equipment and controls are made largely through agents.
SOURCES OF RAW MATERIALS
Chemicals, steel, castings, parts, machine components, edible molasses,
spices, and other raw materials required in the manufacture of Crompton's
products are generally available from a number of sources, some of which are
foreign. Substantial sales of the dyes and auxiliary chemicals business consist
of dyes manufactured from intermediates purchased from foreign sources. Crompton
has not experienced significant interruptions or other significant problems in
obtaining raw materials.
PATENTS AND LICENSES
Crompton owns patents, trade names, and trademarks and uses know-how, trade
secrets, formulae, and manufacturing techniques which assist in maintaining the
competitive position of certain of its products. Patents, expiring in 1999 and
thereafter, formulae, and know-how are of particular importance in the
manufacture of a number of the dyes and flavor ingredients sold in Crompton's
specialty chemicals business, and patents and know-how are also significant in
the manufacture of certain wire insulating and plastics processing machinery
product lines. Crompton believes that no single patent, trademark, or other
individual right is of such importance, however, that expiration or termination
thereof would materially affect its business. Crompton is also licensed to use
certain patents and technology owned by foreign companies to manufacture
products complementary to its own products, for which it pays royalties in
amounts not considered material to the consolidated results of the enterprise.
Products to which Crompton has such rights include certain dyes, plastics
machinery and flavored ingredients.
SEASONAL BUSINESS
No material portion of any segment of the business of Crompton is seasonal.
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CUSTOMERS
Crompton does not consider any segment of its business dependent on a single
customer or a few customers, the loss of any one or more of whom would have an
adverse effect on the segment. No one customer's business accounts for more than
ten percent of Crompton's gross revenues nor more than ten percent of its
earnings before taxes.
BACKLOG
Because machinery production schedules range from about 60 days to 10
months, backlog is important to Crompton's specialty process equipment and
controls business. Firm backlog of customers' orders for this business at
December 30, 1995, totalled approximately $72 million compared with $66 million
at December 31, 1994. The increase in the backlog was attributable to the $9
million of backlog acquired in the Killion and Repiquet acquisitions in 1995. It
is expected that all of the December 30, 1995 backlog will be shipped during
1996. Orders for specialty chemicals and equipment repair parts are filled
primarily from inventory stocks and thus are excluded from backlog.
COMPETITIVE CONDITIONS
Crompton has many competitors in each of its business segments. Crompton is
among the largest suppliers of dyes in the United States and is a leading
domestic producer of specialty dyes for nylon, polyester, acrylics, and cotton.
Crompton is less of a factor in other segments of the domestic dyes industry and
in the European market. Crompton is also a major United States and Canadian
supplier of edible molasses, a major United States supplier of malt extracts,
and a significant supplier of other sugar-based specialty products. As a
supplier of flavors and seasonings, Crompton has many competitors in the United
States and abroad.
Crompton is a leading producer of extrusion machinery for the plastics
industry and a leading domestic producer of industrial blow molding equipment
and competes with domestic and foreign producers of such products. Crompton is
one of a number of producers of other types of plastics processing machinery.
No one competitor or small number of competitors is believed to be dominant
in any of Crompton's major markets.
Product performance, service, and competitive prices are all important
factors in competing in the specialty chemicals and specialty process equipment
and controls product lines. Crompton has gained leadership positions in its
chosen markets by providing quality products, technical service and performance
know-how to solve problems and add value to customers' products. Crompton often
develops new products in response to a customer's specific needs. Crompton's
success as a producer of specialty process equipment and controls has been
augmented by its strength as a supplier of aftermarket systems and services,
including maintenance, parts and systems upgrade support.
RESEARCH AND DEVELOPMENT
Crompton employs about 285 engineers, draftsmen, chemists, and technicians
responsible for developing new and improved chemical products and process
equipment systems for the industries served by Crompton. Often, new products are
developed in response to specific customer needs. Crompton's process of
developing and commercializing new products and product improvements is ongoing
and involves many products, no one of which is large enough to significantly
impact Crompton's results of operations from year to year. Research and
development expenditures totalled $14.0 million for the year 1995, $12.1 million
for the year 1994, and $11.2 million for the year 1993.
ENVIRONMENTAL MATTERS
Crompton's manufacturing facilities are subject to various federal, state
and local requirements with respect to the discharge of materials into the
environment or otherwise relating to the protection of the environment. Although
precise amounts are difficult to define, in 1995, Crompton spent approximately
$15.8 million to comply with those requirements, including approximately $4.9
million in capital expenditures. Such capital expenditures are estimated to be
$3.5 million in 1996.
Crompton has been designated, along with others, as a potentially
responsible party under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, or comparable
15
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state statutes, at two waste disposal sites; and an inactive subsidiary has been
designated, along with others, as a potentially responsible party at two other
sites.
While the cost of compliance with existing environmental requirements is
expected to increase, based on the facts currently known to Crompton, management
expects that those costs, including the cost to Crompton of remedial actions at
the waste disposal sites where it has been named a potentially responsible
party, will not have a material effect on Crompton's liquidity and financial
condition and that the cost to Crompton of any remedial actions will not be
material to the results of Crompton's operations in any given year.
EMPLOYEES
Crompton had 2,761 employees on December 30, 1995.
FINANCIAL INFORMATION CONCERNING FOREIGN OPERATIONS AND EXPORT SALES
The information with respect to sales, operating profit, and identifiable
assets attributable to each of the major geographic areas served by Crompton and
export sales, for each of Crompton's last three fiscal years, is set forth in
the Notes to Consolidated Financial Statements contained elsewhere in this
Prospectus. See "Index to Financial Statements."
Crompton considers that the risks relating to operations of its foreign
subsidiaries are comparable to those of other U.S. companies which operate
subsidiaries in developed countries. All of Crompton's international operations
are subject to fluctuations in the relative values of the currencies in the
various countries in which its activities are conducted.
PROPERTIES
The following table sets forth information as to the principal operating
properties of Crompton and its subsidiaries:
<TABLE><CAPTION>
OWNERSHIP
BUSINESS SEGMENT DATES OR LEASE
AND LOCATION PRODUCTS BUILT EXPIRATION
- ---------------------------------- ---------------------------------- ---------- -----------
<S> <C> <C> <C>
Specialty Chemicals:
Carrollton, TX office and plant Seasonings 1982 1997
Des Plaines, IL office and plant Flavors 1968 Owned
Elyria, OH office and plant Seasonings 1978 2001
Gibraltar, PA office, laboratory Textile and other dyes 1964-1980 Owned
and chemical plant
Lowell, NC chemical plant Textile dyes, organic chemicals 1961 Owned
Mahwah, NJ office, laboratory and Flavors and Seasonings 1984-1989 2004
plant
Newark, NJ chemical plant Textile dyes, organic chemicals 1949-1985 Owned
Nutley, NJ office, laboratory and Textile and other dyes 1949-1977 Owned
chemical plant
Oissel, France office, laboratory Textile and other dyes 1946-1992 Owned
and chemical plant
Reading, PA chemical plant Textile dyes, organic chemicals 1910-1979 Owned
and food colors
Tertre, Belgium office, laboratory Textile and other dyes 1970 Owned
and chemical plant
Vineland, NJ office and plant Food and pharmaceutical 1995 Owned
ingredients and colors
Specialty Process Equipment and
Controls:
Cedar Grove, NJ office and machine Precision Laboratory extrusion 1929 1996
shop equipment and extrusion systems
Dannemarie, France office and Extrusion systems 1967-1980 Owned
machine shop
</TABLE>
16
<PAGE>
<TABLE><CAPTION>
OWNERSHIP
BUSINESS SEGMENT DATES OR LEASE
AND LOCATION PRODUCTS BUILT EXPIRATION
- ---------------------------------- ---------------------------------- ---------- -----------
<S> <C> <C> <C>
Edison, NJ office and machine shop Blow molding and extrusion 1974-1979 2000
equipment
Erkrath, Germany office and Extrusion systems 1954-1991 Owned
machine shop
Pawcatuck, CT office and machine Plastics and rubber extrusion and 1965-1985 Owned
shop electronic control equipment and
systems
Pawcatuck, CT office and machine Extrusion systems 1968 1998
shop
Somerville, NJ office and machine Extrusion systems 1966-1994 Owned
shop
</TABLE>
All plants are built of brick, tile, concrete, or sheet metal materials and
are of one-floor construction except parts of the plants located in Reading and
Gibraltar, Pennsylvania, Nutley, Cedar Grove, and Somerville, New Jersey, Oissel
and Dannemarie, France, Erkrath, Germany, and Tertre, Belgium. All are
considered to be in good operating condition, well maintained, and suitable for
Crompton's requirements.
LEGAL PROCEEDINGS
In the normal course of its business, Crompton is subject to investigations,
claims and legal proceedings, some of which concern environmental matters,
involving both private and governmental parties. In some cases, the remedies
sought or damages claimed may be substantial. While each of these matters is
subject to various uncertainties as to outcome, and some of them may be decided
unfavorably to Crompton, based on the facts known to Crompton and on
consultation with legal counsel, management of Crompton believes that there are
no such matters pending or threatened which will have a material effect on the
financial position of Crompton or the results of Crompton's operations in any
given year.
OPERATIONS FOLLOWING THE MERGER
Following the Merger, the operating activities of the combined company will
consist of the following:
1995 SALES
(% OF TOTAL)
------------
Chemicals and Polymers......................................... 27%
Crop Protection................................................ 19%
Dyes and Auxiliary Chemicals................................... 16%
Equipment and Controls......................................... 16%
Specialties.................................................... 16%
Food and Pharmaceutical Ingredients............................ 6%
---
100%
---
---
The food and pharmaceutical ingredients business, which Crompton had considered
selling, will be retained and Crompton has no current intention to sell the
business.
Upon completion of the Merger, the Chemicals and Polymers, Crop Protection,
and Specialties businesses of Uniroyal and the existing businesses of Crompton
will all report directly to Vincent A. Calarco. The managements of all of the
operating businesses and the nature and scope of their activities will remain
essentially the same following the Merger.
During the past three years, Crompton's dyes and auxiliary chemicals
business has been adversely affected primarily by external factors including a
retail apparel recession in the United States, slow economic growth in Europe,
fashion trends favoring lighter colors which require less dyes, and lower
pricing resulting from aggressive marketing on the part of competitors. Although
there has been some recent improvement with regard to these external factors,
further improvement is required in order for Crompton to regain earlier sales
and profitability levels for the business.
17
<PAGE>
In the first six months of 1996, Crompton's specialty equipment business
reported a 36% decrease in operating profit primarily attributable to lower unit
volume in its more profitable domestic business. Domestic equipment orders
weakened industry-wide during the second half of 1995 and have not recovered. An
improvement in domestic orders is necessary for the business to regain earlier
profitability levels.
Crompton currently anticipates capital spending during the next several
years at a level of approximately $60 million annually and debt repayment at a
level of approximately $75 million annually. This should be possible as a result
of anticipated cash flows and the planned reduction of Crompton's annual
dividend payments on its common stock from $0.54 to $0.05 per share, to be paid
annually rather than quarterly as in the past. The change in the dividend should
make available an additional $24 million annually for debt reduction.
Crompton has repurchased shares of its common stock in 1994 (2,954,700
shares) and 1995 (272,800 shares), but has no current intention of making
further repurchases, and the Board of Directors of Crompton rescinded an
outstanding authorization to repurchase shares in July 1996.
ENVIRONMENTAL MATTERS FOLLOWING THE MERGER
Chemical companies are subject to extensive environmental laws and
regulations concerning, among other things, emissions to the air, discharges to
land, surface, subsurface strata, and water and the generation, handling,
storage, transportation, treatment and disposal of waste and other materials and
are also subject to federal, state and local laws and regulations regarding
health and safety matters.
The ongoing operations of chemical manufacturing plants entail risks in
these areas, and there can be no assurance that material costs or liabilities
will not be incurred. In addition, future developments, such as increasingly
strict requirements of environmental and health and safety laws and regulations
and enforcement policies thereunder, could bring into question the handling,
manufacture, use, emission or disposal of substances or pollutants at facilities
owned, used or controlled by Crompton or Uniroyal or the manufacture, use,
emission or disposal of certain products or wastes by Crompton or Uniroyal and
could involve potentially material expenditures for Crompton or Uniroyal. To
meet changing permitting and regulatory standards, Crompton and Uniroyal may be
required to make significant site or operational modifications, potentially
involving substantial expenditures and reductions or suspensions of certain
operations.
Crompton and Uniroyal are involved in claims, litigation, administrative
proceedings and investigations of various types in a number of jurisdictions. A
number of such matters involve claims for a material amount of damages and
relate to or allege environmental liabilities, including clean-up costs
associated with hazardous waste disposal sites, natural resource damages,
property damage and personal injury. Crompton and Uniroyal have been identified
by the EPA, state or local governmental agencies, and other PRPs, as a PRP for
costs associated with waste disposal sites at various locations in the United
States. Because these regulations have been construed to authorize joint and
several liability, the EPA could seek to recover all costs involving a waste
disposal site from any one of the PRPs for such site, including Crompton or
Uniroyal, despite the involvement of other PRPs. In many cases, Crompton or
Uniroyal is one of several hundred PRPs so identified. In a few instances,
Uniroyal is one of only a handful of PRPs. In certain instances, a number of
other financially responsible PRPs are also involved, and Crompton and Uniroyal
expect that any ultimate liability resulting from such matters will be
apportioned between Crompton or Uniroyal and such other parties.
The combined companies intend to assert all meritorious legal defenses and
all other equitable factors which are available with respect to the above
matters. Neither company is assuming any environmental liability of the other as
a result of the Merger. While Crompton and Uniroyal believe it is unlikely, the
resolution of these matters could have material adverse effect on the combined
companies' consolidated results of operations if a significant number of these
matters is resolved unfavorably.
18
<PAGE>
RECENT DEVELOPMENTS
MERGER WITH UNIROYAL CHEMICAL CORPORATION
Pursuant to the Merger Agreement, Crompton has agreed to the merger of
Subcorp with and into Uniroyal, subject to the approval of the transaction by
the stockholders of each of Uniroyal and Crompton at special meetings thereof
currently scheduled to be held on August 21, 1996. The Board of Directors of
Crompton has fixed the close of business on July 9, 1996, as the record date for
determination of holders of Crompton Common Stock entitled to notice of and to
vote at such meeting of Crompton stockholders. Accordingly, purchasers of the
shares of Crompton Common Stock offered hereby will not be entitled to vote such
shares at such special meeting.
The Merger will be consummated on the terms and subject to the conditions
set forth in the Merger Agreement (which was filed by Crompton with the
Commission as an exhibit to Crompton's Quarterly Report on Form 10-Q for the
quarter ended March 30, 1996), pursuant to which, among other things, (i)
Subcorp will be merged with and into Uniroyal as a result of which Uniroyal will
become a wholly owned subsidiary of Crompton, (ii) each issued and outstanding
share (other than shares, if any, held in the treasury of Uniroyal or held by
Crompton or any of its subsidiaries, which will be cancelled) of Uniroyal Common
Stock will be converted into 0.9577 shares of Crompton Common Stock (with cash
in lieu of fractional shares), and (iii) each issued and outstanding share
(other than shares, if any, held in the treasury of Uniroyal or held by Crompton
or any of its subsidiaries, which will be cancelled, and other than shares as to
which dissenters' appraisal rights have been perfected) of Uniroyal Preferred
Stock will be converted into 6.3850 shares of Crompton Common Stock (with cash
in lieu of fractional shares). It is currently anticipated that the Merger will
be consummated shortly after the special meetings of Crompton and Uniroyal
stockholders, assuming the Merger Agreement and the Merger are approved at such
meetings and all other conditions to the Merger have been satisfied or waived.
Uniroyal, through its subsidiaries, is a major multinational manufacturer of
a wide variety of specialty chemical products, including specialty elastomers,
rubber chemicals, crop protection chemicals and additives for the plastics and
lubricants industries. Uniroyal produces high value added products which are
currently marketed in approximately 120 countries. Crompton does not currently
intend to make any material changes to the general operating activities of
Uniroyal following consummation of the Merger. The principal executive offices
of Uniroyal are located at Benson Road, Middlebury, Connecticut 06749, and its
telephone number is (203) 573-2000. Uniroyal is subject to the informational
requirements of the Exchange Act, and in accordance therewith files reports,
proxy statements and other information with the Commission. Prospective
investors are urged to read and consider carefully such reports, proxy
statements and other information. Uniroyal Common Stock is quoted on the
NASDAQ/NM.
Crompton is effecting the Offering in order for the Merger to qualify as a
pooling-of-interests for accounting and financial reporting purposes.
CERTAIN LITIGATION
Crompton, Uniroyal and the directors of Uniroyal were named as defendants in
a purported class action lawsuit filed in connection with the proposed Merger in
the Court of Chancery, County of New Castle, State of Delaware. Fassbender v.
Mazaika, C.A. No. 14980. The Stockholder Action alleged, among other things,
that the defendant directors breached their fiduciary duties by pursuing the
Merger at an allegedly unfair and inadequate price; by agreeing to the proposed
Merger without having conducted an "auction process or active market check" or a
full and thorough investigation; and by agreeing to the allegedly unfair terms
of the Merger. The Stockholder Action was brought on behalf of a purported class
of persons consisting of the stockholders of Uniroyal other than defendants.
Counsel for Uniroyal, Crompton and Subcorp and the counsel for plaintiff
entered into the Memorandum of Understanding in connection with the settlement
of the Stockholder Action. Among other things, the Memorandum of Understanding
provides that, in full settlement of the claims asserted, (i) the Merger
Agreement be amended so as to reduce the fee payable to Crompton upon
termination of the Merger Agreement under certain circumstances from $50 million
to $35 million, (ii) Uniroyal promptly disseminate to Uniroyal stockholders its
third quarter results, (iii) the defendants publicly
19
<PAGE>
disclose the proposed settlement by a filing with the Commission and (iv) the
plaintiff withdraw his request for a preliminary injunction enjoining
consummation of the Merger. The Merger Agreement was amended as of August 7,
1996 to reduce the termination fee as contemplated in the Memorandum of
Understanding.
The consummation of the proposed settlement is subject to (i) completion by
the plaintiff of discovery, (ii) execution of definitive settlement documents,
(iii) notice to members of the plaintiff class and (iv) approval by the Delaware
Court of Chancery. In connection with the proposed settlement, the defendants
have agreed that they will not oppose plaintiff's counsel's application for an
award of fees and expenses not to exceed $350,000 in the aggregate, to be paid
by Crompton and/or Uniroyal.
Uniroyal and its directors have denied, and continue to deny, that any of
them have committed any violations of law or breaches of duty to plaintiff or
any member of the plaintiff class, Uniroyal or its stockholders, or anyone else.
The defendants entered into the Memorandum of Understanding in order to
eliminate the distraction and expense of further litigation.
DESCRIPTION OF CERTAIN INDEBTEDNESS
Crompton has obtained a commitment letter from Citicorp USA, Inc. and
Citicorp Securities, Inc. in connection with credit facilities in the aggregate
amount of $600 million to be extended to Crompton and Uniroyal Chemical Company,
Inc., a wholly owned subsidiary of Uniroyal ("Uniroyal Chemical"), immediately
prior to the Effective Time (i) to replace certain bank credit facilities of
Crompton and Uniroyal Chemical that would otherwise be in default and subject to
acceleration as a result of the consummation of the Merger, (ii) to redeem or
repurchase public debt of Uniroyal and Uniroyal Chemical (including in
connection with the Merger), (iii) to pay transaction costs relating to the
Merger and (iv) for general corporate purposes, including, without limitation,
to make acquisitions and capital expenditures and to provide working capital for
Crompton and Uniroyal Chemical following the Merger.
The credit facilities to be extended to Crompton and Uniroyal Chemical upon
the completion of the proposed Merger are revolving facilities with five year
terms. Of the total amount of the facilities, $300 million will be extended to
Crompton and its operating subsidiaries and $300 million will be extended to
Uniroyal Chemical. The Crompton facility is secured by a pledge of the stock of
its operating subsidiaries and the Uniroyal Chemical facility by a pledge of the
stock of its operating subsidiaries and by a security interest in the accounts
receivable and inventory of Uniroyal Chemical. Interest rates payable include
several options including a spread over LIBOR that varies based on the
Debt/EBITDA ratio for the trailing four fiscal quarters and will be set
initially at .875% over LIBOR.
Approximately $42 million of Uniroyal Chemical debt and $140 million of
Crompton debt outstanding under existing bank credit facilities at the date of
the Merger will be repaid at no penalty with funds from the new credit
facilities. In addition, if holders of some or all of the 9% Senior Notes Due
2000 of Uniroyal Chemical accept its offer to purchase the 9% Notes at 101% of
their principal amount under the terms of the governing indenture (as described
below), additional debt repayment of up to $253 million will result. The
extraordinary loss associated with such repayment, including 1% of the amount
repaid and the write-off of unamortized financing fees, would be a maximum of
$4.8 million, net of tax, if all $253 million of the 9% Notes are repaid.
Assuming none of the 9% Notes are repaid, the $600 million credit facilities
may be reduced, at the election of Crompton, to $450 million. Of the $450
million, $182 million will be used to repay debt under outstanding bank credit
facilities, as explained above, and the balance of $268 million will be
available for general corporate purposes, including the payment of an estimated
$62 million ($55 million after tax) in merger related expenses.
In addition, Uniroyal has three series of public debt outstanding, comprised
of $283 million principal amount of 10 1/2% Senior Notes Due 2002, $232 million
principal amount of 11% Senior Subordinated Notes Due 2003 and $127 million
principal amount at maturity of 12% Subordinated Discount Notes Due 2005, and
Uniroyal Chemical has one series outstanding of 9% Senior Notes Due 2000 in the
principal amount of $253 million (collectively, the "Notes"), which in the
aggregate comprises $895 million in indebtedness. The Notes contain a
requirement that, within 30 days after a
20
<PAGE>
change of control of Uniroyal (which will occur upon consummation of the
Merger), Uniroyal or Uniroyal Chemical, as the case may be, must make an offer
to purchase all outstanding Notes at 101% of the principal amount thereof.
Waivers of this requirement have been obtained from the holders of a majority in
principal amount (as required under the governing indentures) of each of the 10
1/2%, 11% and 12% Notes of Uniroyal. Supplemental indentures have been executed
by Uniroyal and the respective trustees for such Notes giving effect to such
waivers, which are binding on all holders of such Notes whether or not such
holders consented to the waiver. In consideration for receipt of waivers from
holders of such Notes, Uniroyal has agreed to pay, promptly following
consummation of the Merger, to each such holder who delivered to the respective
trustee prior to 5:00 p.m., Eastern Time, on June 27, 1996 a properly completed,
executed and dated consent to such waiver (provided such consent was not
revoked) a one-time cash payment in the amount of $3.75 for each $1,000
principal amount (at maturity) of such Notes to which the consent relates. The
aggregate amount that will become payable by Uniroyal in consideration for such
waivers upon consummation of the Merger is approximately $2.4 million ($1.4
million after tax). With respect to the 9% Notes of Uniroyal Chemical, no such
waivers have been sought; instead, Crompton and Uniroyal Chemical expect to have
adequate capacity under the aforementioned $600 million new credit facilities to
fund the purchase of any 9% Notes that are tendered pursuant to the offer.
21
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF CROMPTON
The selected financial data presented below for Crompton as of December 31,
1994 and December 30, 1995 and for the years ended December 25, 1993, December
31, 1994 and December 30, 1995, have been derived from and are qualified in
their entirety by, and should be read in conjunction with, the audited financial
statements and notes thereto contained herein. See "Index to Financial
Statements."
Crompton's statement of operations data for the years ended December 28,
1991 and December 26, 1992 and the balance sheet data as of December 28, 1991,
December 26, 1992 and December 25, 1993 are derived from audited Crompton
consolidated financial statements that are neither included nor incorporated by
reference herein.
The unaudited financial data presented below for the interim periods ended
July 1, 1995 and June 29, 1996 are derived from the unaudited consolidated
financial statements of Crompton contained herein. In the opinion of Crompton,
such unaudited financial data have been prepared on the same basis as the
audited financial statements contained herein and include all adjustments
(consisting only of normal recurring adjustments) necessary to fairly state the
information set forth herein. Operating results for the interim period ended
June 29, 1996 are not necessarily indicative of the results that may be expected
for the year or for any other interim period.
<TABLE><CAPTION>
YEARS ENDED SIX MONTHS ENDED
------------------------------------------------------------------------ --------------------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1991 1992 1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Crompton & Knowles
Corporation
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales................. $450,228 517,718 558,348 589,757 665,513 343,810 332,410
Income before
extraordinary charges and
cumulative effect of
accounting changes........ $ 35,941 43,265 51,958 50,916 40,493 25,254 19,180
Net income................ $ 35,941 34,465 51,958 50,916 40,493 25,254 19,180
Income per common share
before extraordinary
charges and cumulative
effect of accounting
changes................... $ 0.73 0.87 1.00 1.00 0.84 0.52 0.40
Net income per common
share..................... $ 0.73 0.69 1.00 1.00 0.84 0.52 0.40
Weighted average number of
shares outstanding........ 49,317 49,967 52,176 51,152 48,448 48,569 48,499
CONSOLIDATED BALANCE SHEET
DATA:
Total assets.............. $308,562 350,715 363,246 432,328 484,138 537,369
Long-term debt............ $ 76,118 24,000 14,000 54,000 64,000 79,000
Cash dividends declared
per common share......... $ 0.25 0.31 0.38 0.46 0.525 0.255 0.27
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CROMPTON
The following should be read in conjunction with the year-end consolidated
financial statements and quarterly financial statements of Crompton contained
elsewhere in this Prospectus. See "Index to Financial Statements."
FINANCIAL CONDITION AND LIQUIDITY
Acquisitions
In January 1995, Crompton acquired the business and certain assets of McNeil
Akron Repiquet S.a.r.l. in France. In March 1995, Crompton acquired Killion
Extruders, Inc. Costs of these acquisitions were accounted for based on the
purchase method and, accordingly, the results of operations of these businesses
have been included in the Consolidated Statements of Earnings since their dates
of acquisition.
Liquidity and Capital Resources
The December 30, 1995 working capital balance of $126.2 million increased
$4.6 million from the December 31, 1994 balance of $121.6 million, while the
current ratio declined to 1.8 from 1.9 at the end of 1994. The decline in the
current ratio is primarily attributable to the increase in notes payable. Days
sales in receivables increased slightly to 55 days in 1995 from 54 days in 1994.
Inventory turnover averaged 2.8 in 1995, compared to 3.0 in 1994.
Cash flow from operating activities of $26.7 million increased $4.9 million
from $21.8 million in 1994 and was used with cash reserves and increased
borrowings to finance acquisitions, fund capital expenditures, pay cash
dividends and repurchase 272,800 shares of Crompton's outstanding common shares.
Dividends paid in 1995 of $25.2 million represent a payout ratio of 62% of
earnings. Crompton's debt-to-capital ratio increased to 34% from 29% at year-end
1994.
Capital expenditures of $18.2 million decreased $3.5 million from $21.7
million in 1994. Capital expenditures are expected to approximate $16 million in
1996 primarily for expansion and improvement of operating facilities in the
United States and Europe. Crompton's long-term liquidity needs including such
items as capital expenditures and dividends are expected to be financed through
operations. Crompton has available uncommitted short-term lines of credit of
$115 million that are unsecured, and a revolving credit agreement providing for
unsecured borrowings up to $125 million through September 1998. At year-end,
there were $60.4 million of short-term borrowings outstanding under Crompton's
uncommitted short-term lines of credit and $60 million outstanding under the
revolving credit agreement.
Inflation
During the last three years, inflation has not been a significant factor in
the net earnings of Crompton. The LIFO method of accounting is used for a major
portion of Crompton's inventories. Under this method, the cost of products sold
approximates current costs and thus reduces possible distortion of reported
earnings due to rising costs. Crompton continually emphasizes cost controls and
efficient management of resources to mitigate the influence of inflation.
International Operations
The lower U.S. dollar exchange rate versus primarily the Belgian Franc and
the French Franc accounted for the favorable adjustment of $4.5 million in the
accumulated translation adjustment account since year-end 1994. Changes in the
balance of this account are primarily a function of fluctuations in exchange
rates and do not necessarily reflect either enhancement or impairment of the net
asset values or the earnings potential of Crompton's foreign operations. The net
asset value of
23
<PAGE>
foreign operations amounting to $81.4 million, representing primarily Belgian
Francs and French Francs, is not currently being hedged with respect to
translation into U.S. dollars.
Crompton operates manufacturing facilities in Europe which serve primarily
the European market. Exchange rate disruptions between the United States and
European currencies, and among European currencies, are not expected to have a
material effect on year-to-year comparisons of Crompton's earnings. Cash
deposits, borrowings and forward exchange contracts are used to hedge
fluctuations between the U.S. and European currencies, and among European
currencies, if such fluctuations are earnings related. Such hedging activities
are not significant in total.
Research and Development
Crompton employs about 285 engineers, draftsmen, chemists, and technicians
responsible for developing new and improved chemical products and process
equipment systems for the industries served by Crompton. Often, new products are
developed in response to specific customer needs. Crompton's process of
developing and commercializing new products and product improvements is ongoing
and involves many products, no one of which is large enough to significantly
impact Crompton's results of operations from year to year. Research and
development expenditures totaled $14.0 million, $12.1 million and $11.2 million
in the fiscal years 1995, 1994 and 1993, respectively.
Environmental Matters
Crompton's manufacturing facilities are subject to various federal, state
and local requirements with respect to the discharge of materials into the
environment or otherwise relating to the protection of the environment. Although
precise amounts are difficult to define, Crompton spent approximately $15.8
million in 1995 to comply with those requirements, including approximately $4.9
million in capital expenditures. Such capital expenditures are estimated to be
$3.5 million in 1996.
Crompton has been designated, along with others, as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, or comparable state statutes, at two waste disposal
sites; and an inactive subsidiary has been designated, along with others, as a
potentially responsible party at two other sites.
While the cost of compliance with existing environmental requirements is
expected to increase, based on the facts currently known to Crompton, management
of Crompton expects that those costs, including the cost to Crompton of remedial
actions at the waste disposal sites where it has been named a potentially
responsible party, will not be material to the results of Crompton's operations
in any given year.
OPERATING RESULTS--1995 AS COMPARED TO 1994
Overview
Consolidated net sales increased 13% to $665.5 million from $589.8 million
in 1994. Net earnings declined 20% to $40.5 million from $50.9 million in 1994.
Earnings per common share declined 16% to $.84 from $1.00 in the prior year.
Average shares outstanding decreased 2.7 million to 48.5 million primarily as a
result of Crompton's share repurchase program, which was discontinued in July
1996 in connection with the Merger.
The gross margin percentage decreased to 28.8% from 31.5% in 1994 primarily
from lower margins in the specialty chemicals segment. Consolidated operating
profit of $72.3 million was 11% lower than 1994 as the specialty process
equipment and controls segment increased 29% while the specialty chemicals
segment decreased 30%.
Specialty Chemicals
Crompton's specialty chemicals segment reported sales of $385.6 million
representing a decline of 2% from 1994. The decrease was attributable to lower
selling prices (-4%), offset in part primarily by
24
<PAGE>
foreign currency translation. The proportion of sales outside the United States
increased slightly to 26% from 25% in 1994.
Domestic dyes sales declined 8% reflecting lower selling prices (-5%) and
lower unit volume (-3%) as weak demand primarily for apparel dyes continued to
negatively affect the business. International dyes sales increased by 3% versus
1994 due primarily to foreign currency translation (6%) and unit volume (4%),
offset by lower selling prices (-7%). Sales of specialty ingredients increased
5% reflecting primarily increased unit volume.
Operating profit declined 30% to $42.6 million from $60.8 million in 1994.
The decline was primarily due to domestic and international dyes. Domestic dyes
declined primarily due to lower pricing. International dyes declined primarily
due to lower pricing and exchange rate fluctuations among European currencies.
The percentage of operating profit outside the United States decreased to 13%
from 21% in 1994.
Specialty Process Equipment and Controls
Crompton's specialty process equipment and controls segment reported sales
of $279.9 million representing an increase of 43% from $196.2 million in 1994.
Approximately 27% was attributable to the incremental impact of acquisitions
with the balance primarily from increased unit volume. International sales of
$71 million increased 48% from 1994 and accounted for 25% of total segment sales
versus 24% in 1994. Operating profit increased 29% to $40.2 million from $31.2
million in 1994. Approximately 11% was attributable to the incremental impact of
acquisitions with the balance primarily attributable to unit volume, offset in
part by a lower-margin product mix. The equipment order backlog totaled $72
million at the end of 1995 compared to $66 million at the end of 1994. The
increase in the backlog was attributable to the $9 million of backlog acquired
in the Killion and Repiquet acquisitions in 1995.
Other
Selling, general and administrative expenses increased 14% primarily due to
the impact of acquisitions. Depreciation and amortization increased 13% over
1994 primarily as a result of a higher fixed asset base including acquisitions.
Interest expense increased $6.2 million over 1994 reflecting the increased
levels of borrowings in 1995. Other income declined $876 thousand versus 1994
primarily due to lower foreign exchange gains. Crompton's effective tax rate of
36.8% was up slightly from the prior year level of 36.3%.
OPERATING RESULTS--1994 AS COMPARED TO 1993
Overview
Consolidated net sales of $589.8 million increased 6% from $558.3 million in
1993. Net earnings of $50.9 million declined 2% from $52 million in 1993.
Earnings per common share of $1.00 were unchanged from the prior year. Average
shares outstanding decreased 1 million to 51.2 million primarily as a result of
Crompton's share repurchase program, which was discontinued in July 1996 in
connection with the Merger.
The gross margin percentage of 31.5% decreased slightly from 31.8% in 1993.
Consolidated operating profit of $81.1 million was 2% lower than 1993 as profit
of the specialty process equipment and controls segment increased 20% while the
specialty chemicals segment decreased 11%.
Specialty Chemicals
Crompton's specialty chemicals segment reported sales of $393.6 million
representing a decline of 3% from 1993. The decrease was primarily attributable
to lower selling prices (-2%) and unit volume (-1%). The proportion of sales
outside the United States was 25% in 1994, unchanged from 1993.
25
<PAGE>
Domestic dyes sales declined 6% reflecting lower selling prices (-4%) and
lower unit volume (-2%) as demand for apparel dyes remained weak. International
dyes sales were 5% lower than 1993 due primarily to lower unit volume under a
long-term supply agreement. Specialty ingredients sales increased 5% reflecting
increased unit volume in all major product groups.
Operating profit declined 11% to $60.8 million from $68 million in 1993 due
primarily to lower pricing and unit volume offset in part by lower dye
intermediate costs. The percentage of operating profit outside the United States
was 21% in 1994, unchanged from 1993.
Specialty Process Equipment and Controls
Crompton's specialty process equipment and controls segment reported sales
of $196.2 million representing an increase of 30% from $151 million in 1993.
Approximately 21% was attributable to the acquisition of Egan Machinery with the
balance attributable equally between pricing and unit volume. Export sales of
$48 million increased 18% from 1993 and accounted for 24% of total segment sales
versus 27% in 1993. Operating profit increased 20% to $31.2 million from $26
million in 1993. Approximately 7% was attributable to the acquisition of Egan
Machinery with the balance attributable primarily to unit volume and improved
pricing offset in part by higher manufacturing costs. The equipment order
backlog totalled $66 million at the end of 1994 compared to $38 million at the
end of 1993.
Other
Selling, general and administrative expenses increased 10% primarily due to
the acquisition of Egan Machinery and the impact of inflation. Depreciation and
amortization increased 10% over 1993 primarily as a result of the Egan Machinery
acquisition and a higher fixed asset base. Interest expense of $2.2 million was
double the amount in 1993 reflecting the increased level of borrowings in 1994.
Other income declined $163 thousand versus 1993. Crompton's effective tax rate
of 36.3% was slightly lower than the prior year level of 37%.
26
<PAGE>
SECOND QUARTER RESULTS
Overview
Consolidated net sales of $167.6 million for the second quarter of 1996
declined 5% from the comparable 1995 period. Net earnings of $9.7 million
declined 19% versus the second quarter of 1995. Net earnings per common share of
$.20 were 20% lower than the $.25 reported last year.
Gross margin as a percentage of net sales decreased to 29.1% from 29.5% in
the second quarter of 1995 primarily as a result of lower margins in the
specialty process equipment and controls segment. Consolidated operating profit
of $17.0 million declined 20% from the second quarter of 1995 as the specialty
chemicals segment approximated the prior years quarter and the specialty process
equipment and controls segment decreased 42%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of $96.9 million
which represents a decline of 4% from the second quarter of 1995. The decrease
was attributable to the impact of lower selling prices (-3%) and lower unit
volume (-1%).
Domestic dyes sales of $46.9 million declined 5% from the comparable 1995
quarter due to lower selling prices (-4%) and lower unit volume (-1%).
International dyes sales of $23.6 million declined 12% versus the second quarter
of 1995 primarily as a result of lower selling prices (-4%) and the balance
primarily from lower unit volume under a long-term supply agreement. Specialty
ingredients sales of $26.5 million rose 7% primarily as a result of increased
unit volume. The percentage of sales outside the United States was 26%, versus
28% in the comparable 1995 period.
Operating profit of $13.0 million approximated the $13.1 million reported in
the second quarter of 1995. The percentage of operating profit outside the
United States increased to 20% from 15% in the comparable quarter in 1995.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment reported
sales of $70.7 million, which represents a decrease of 5% from the second
quarter of 1995. The decrease was attributable primarily to lower unit volume in
the domestic business (as lower demand for U.S. extrusion equipment continued)
more than offsetting a 23% increase from acquisitions (primarily ER-WE-PA).
Export sales shipped from the U.S. accounted for 16% of total segment sales
versus 19% in the comparable period in 1995. International sales increased as a
result of the ER-WE-PA acquisition and accounted for 24% of total segment sales
versus 6% in the second quarter 1995.
Operating profit for the second quarter of 1996 declined 42% to $6.4 million
primarily attributable to lower unit volume in the higher margin domestic
business. International operating profit was not significant in either the
second quarter of 1996 or 1995. The order backlog for extruders and related
equipment at the end of the second quarter of 1996 amounted to $89 million
(including ER-WE-PA backlog of $16 million) compared to $72 million at December
30, 1995.
Other
Selling, general and administrative expenses of $27.6 million increased 3%
versus the comparable period in 1995 primarily due to the impact of
acquisitions. Depreciation and amortization of $4.1 million increased 9% versus
1995 primarily as a result of a higher fixed asset base including acquisitions.
Interest expense increased $259 thousand primarily as a result of increased
borrowings. Other income increased $186 thousand versus the second quarter of
1995. The effective tax rate of 35.0% decreased from the 37.5% in the comparable
1995 period.
27
<PAGE>
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales of $332.4 million for the first six months of 1996
decreased 3% from the comparable period in 1995. Net earnings of $19.2 million
decreased 24% versus the $25.3 million earned in the first half of 1995. Net
earnings per common share of $.40 decreased 23% from the $.52 reported last
year.
Gross margin as a percentage of net sales decreased to 29.1% from 30.1% in
the comparable 1995 period primarily as a result of lower margins in the
specialty process equipment and controls segment. Consolidated operating profit
of $33.8 million declined 23% from $43.8 million in the first half of 1995 as
specialty chemicals decreased 10% and specialty process equipment and controls
decreased 36%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of $193.0 million
representing a 5% decrease from $203.8 million in the first six months of 1995.
The decrease was primarily attributable to the impact of lower unit volume (-3%)
and lower selling prices (-2%).
Domestic dyes sales of $93.5 million were 8% lower than the first six months
of 1995 primarily due to lower unit volume (-5%) and lower selling prices (-3%).
International dyes sales of $47.0 million decreased by 9% versus 1995 primarily
as an equal result of lower selling prices and lower unit volume. Specialty
ingredients sales rose 4% to $52.5 million reflecting primarily increased unit
volume. The percentage of sales outside the United States decreased slightly to
26% from 27% for the comparable period in 1995.
Operating profit of $25.8 million for the first six months of 1996 decreased
10% from 1995. The decrease was attributable primarily to the impact of lower
pricing in the domestic dyes business. The percentage of operating profit
outside the United States remained the same at 16% from year to year.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment reported
sales of $139.4 million versus $140.0 million for the first six months of 1995.
The slight decline was comprised of a 22% increase attributable to the
incremental impact of acquisitions offset primarily by lower unit volume in the
domestic business. Export sales shipped from the U.S. accounted for 22% of total
segment sales versus 19% in the comparable period in 1995. International sales
of $28.2 million increased from $4.7 million in 1995 primarily as a result of
the ER-WE-PA acquisition and accounted for 20% of total segment sales versus 3%
in the first six months of 1995.
Operating profit of $13.5 million decreased 36% versus the comparable 1995
period due primarily to the decline in unit volume in the higher margin domestic
business. International operating profit was not significant in either the first
half of 1996 or 1995.
Other
Selling, general and administrative expenses of $54.7 million increased 5%
versus the first six months of 1995 primarily due to the impact of acquisitions.
Depreciation and amortization of $8.1 million increased 8% versus the 1995
period primarily as a result of a higher fixed capital base including
acquisitions. Interest expense of $4.3 million increased $728 thousand primarily
as a result of increased borrowings. Other income of $451 thousand increased
$210 thousand versus 1995. The effective tax rate of 36.0% decreased from the
37.6% in the comparable 1995 period.
28
<PAGE>
Liquidity and Capital Resources
The June 29, 1996 working capital balance of $130.6 million increased $4.4
million from $126.2 million at year-end 1995. The current ratio declined
slightly to 1.7 from 1.8 at the end of 1995. Days sales in receivables averaged
63 days in the first half of 1996, versus 55 days for all of 1995, primarily as
a result of longer collection periods in the specialty process equipment and
controls business. Inventory turnover averaged 2.8 for the first half of 1996
unchanged from year-end 1995.
Cash flows from operating activities of $9.0 million increased $5.7 million
from the first half of 1995 primarily attributable to decreases in working
capital requirements partially offset by lower earnings. Cash provided by
operations and increased borrowings were used to finance acquisitions, fund
capital expenditures and pay cash dividends. The Company's debt to total capital
ratio increased to 39% from 34% at year-end 1995. Capital expenditures are
expected to approximate $16 million in 1996 primarily for expansion and
improvement of operating facilities in the United States and Europe. The
Company's long-term liquidity needs including such items as capital expenditures
and dividends are expected to be financed from operations.
International Operations
The stronger U.S. dollar exchange rate versus the Belgian Franc and French
Franc accounted primarily for the reduction of $4.0 million in the accumulated
translation adjustment account since year-end 1995. Changes in the balance of
this account are primarily a function of fluctuations in exchange rates and do
not necessarily reflect either enhancement or impairment of the net asset values
or the earnings potential of the Company's foreign operations.
The Company operates manufacturing facilities in Europe which serve
primarily the European market. Exchange rate disruptions between the United
States and European currencies, and among European currencies, are not expected
to have a material effect on year-to-year comparisons of the Company's earnings.
Research and Development
Research and development expenditures totaled $6.9 million for the first
half of 1996 compared to $7.2 million in the comparable 1995 period.
29
<PAGE>
HISTORICAL AND UNAUDITED PRO FORMA COMBINED CAPITALIZATION
The following table sets forth the historical capitalization of Crompton and
Uniroyal as of June 29, and June 30, 1996, respectively, and the pro forma
combined capitalization as of June 29, 1996, giving effect to the Merger. The
pro forma combined information set forth below is not necessarily indicative of
what the actual combined capitalization would have been had the foregoing
transaction been consummated, nor does it give effect to (a) any transactions
other than the foregoing transaction and those discussed in the accompanying
Notes to Historical and Unaudited Pro Forma Combined Capitalization, or (b)
Crompton's results of operations since June 29, 1996, or Uniroyal's results of
operations since June 30, 1996. Accordingly, the pro forma combined information
set forth below does not purport to be indicative of the actual combined
capitalization as of the date hereof, the effective time of the Merger (the
"Effective Time"), or any future date.
The following table should be read in conjunction with the historical
financial statements of Crompton which are contained elsewhere herein, and the
unaudited pro forma combined financial information, the related notes, and the
other information contained elsewhere in this Prospectus. See "Unaudited Pro
Forma Combined Financial Information."
<TABLE><CAPTION>
HISTORICAL
------------------------------ PRO FORMA
JUNE 29, 1996 JUNE 30, 1996 --------------------------------
CROMPTON UNIROYAL ADJUSTMENTS COMBINED
------------- ------------- ----------- ----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Short-term debt:
Notes payable................. $ 75,358 42,245 -- 117,603
Current portion of long-term
debt............................ -- 11,122 -- 11,122
------------- ------------- ----------- ----------
Total short-term debt..... 75,358 53,367 -- 128,725
Long-term debt.................. 79,000 888,856 40,050(1)(2) 1,007,906(6)
------------- ------------- ----------- ----------
Total debt................ $ 154,358 942,223 40,050 1,136,631
------------- ------------- ----------- ----------
Stockholders' equity (deficit):
Preferred stock............... $ -- 4,172 (4,172)(3) --
Common stock.................. 5,336 254 2,100(3)(4) 7,690
Additional paid-in capital.... 59,567 177,032 (9,230)(1)(3)(4)(5) 227,369
Retained earnings (deficit)... 240,326 (429,919) (55,000)(2) (244,593)(7)
Pension liability
adjustment...................... -- (3,617) -- (3,617)
Cumulative translation
adjustment...................... 2,301 (25,008) -- (22,707)
Treasury stock................ (62,831) (10,644) 26,252(1)(5) (47,223)
Deferred compensation......... (1,890) -- -- (1,890)
------------- ------------- ----------- ----------
Total stockholders' equity
(deficit)....................... 242,809 (287,730) (40,050) (84,971)
------------- ------------- ----------- ----------
Total capitalization...... $ 397,167 654,493 -- 1,051,660
------------- ------------- ----------- ----------
------------- ------------- ----------- ----------
Ratio of total debt to total
capitalization.................. 38.9% 144% 108.1%
------------- ------------- ----------
------------- ------------- ----------
</TABLE>
30
<PAGE>
NOTES TO HISTORICAL AND UNAUDITED PRO FORMA COMBINED CAPITALIZATION
(1) Reflects the issuance from treasury stock of 1,000,000 shares of Crompton
Common Stock, in an offering to take place prior to consummation of the
Merger. The issuance of such shares is required to reduce treasury share
purchases within two years of the initiation date of the Merger to less than
10 percent of the Crompton shares to be issued in exchange for all of the
outstanding shares of Uniroyal, in order to qualify for pooling-of-interests
accounting. Proceeds are calculated based on an estimated offering price of
$15 1/8 per share, net of estimated costs of $175,000. The net proceeds of
$14,950,000 will be used to partially offset the estimated merger costs
discussed in note (2).
(2) Estimated costs expected to be incurred as a result of the Merger comprise
principally bonus and severance $27.6 million, investment banking $12.4
million, legal $6 million, bank revolver and other debt fees $5.2 million,
and other fees and costs $10.8 million, net of the expected tax benefit of
$7 million.
(3) Assumes the issuance of 6.3850 shares of Crompton Common Stock for each
share of Uniroyal Preferred Stock as provided for in the Merger Agreement.
(4) Reflects the conversion of all outstanding shares of Uniroyal Common Stock
(par value .01 per share) into shares of Crompton Common Stock (par value
.10 per share) at a conversion rate of 0.9577 shares of Crompton Common
Stock for each share of Uniroyal Common Stock.
(5) Reflects the retirement of Uniroyal treasury stock, as provided for in the
Merger Agreement.
(6) Depending upon adverse movement within the credit markets, it is possible
that holders of some or all of the 9% Notes of Uniroyal Chemical will accept
Uniroyal Chemical's offer to purchase the notes at 101% of their principal
amount under the terms of the indenture (see description under the caption
"Recent Developments--Description of Certain Indebtedness"). If that should
occur, up to $253 million of the new revolving facility may be used to
redeem the 9% Notes. This would result in additional long-term debt of $1.5
million and, together with the write-off of unamortized financing fees, an
extraordinary charge of approximately $4.8 million, net of tax.
(7) The pro forma combined balance sheet excludes a one-time cash payment of
approximately $2.4 million ($1.4 million after tax) to be provided to
certain Uniroyal noteholders in consideration for waivers of certain
provisions of the indentures governing Uniroyal's notes. See "Recent
Developments--Description of Certain Indebtedness."
31
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives
effect to the Merger using the pooling of interests basis of accounting. The
information is based upon the historical financial statements of Crompton and
Uniroyal and should be read in conjunction with such historical financial
statements, the related notes, and the other information contained elsewhere in
this Prospectus. Certain items derived from Crompton's and Uniroyal's historical
financial statements have been reclassified to conform to the pro forma combined
presentation.
The unaudited pro forma combined financial information is not necessarily
indicative of what the actual combined financial position or results of
operations would have been had the foregoing transaction been consummated on the
dates set forth therein, nor does it give effect to (a) any transaction other
than the Merger, (b) Crompton's results of operations since June 29, 1996 or
Uniroyal's results of operations since June 30, 1996, or (c) all of the
synergies, cost savings, and one-time charges expected to result from the
Merger. Accordingly, the pro forma combined financial information does not
purport to be indicative of the financial position or results of operations as
of the date hereof or for any period ended on the date hereof, as of the
Effective Time, for any period ending at the Effective Time, or as of or for any
other future date or period.
32
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 29, 1996 (CROMPTON) AND
JUNE 30, 1996 (UNIROYAL)
(IN THOUSANDS)
<TABLE><CAPTION>
PRO FORMA PRO FORMA
CROMPTON UNIROYAL ADJUSTMENTS COMBINED
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 3,869 31,243 -- 35,112
Accounts receivable.................. 128,173 153,411 -- 281,584
Inventories.......................... 170,147 196,468 -- 366,615
Other current assets................. 29,070 44,072 -- 73,142
-------- ---------- ----------- ---------
Total current assets............. 331,259 425,194 -- 756,453
Property, plant and equipment, net..... 134,204 378,223 -- 512,427
Intangible assets...................... 60,594 228,701 -- 289,295
Deferred income taxes.................. -- 65,727 -- 65,727(10)
Other assets........................... 11,312 63,202 -- 74,514
-------- ---------- ----------- ---------
$537,369 1,161,047 -- 1,698,416
-------- ---------- ----------- ---------
-------- ---------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................ $ 75,358 42,245 -- 117,603
Accounts payable..................... 58,913 90,440 -- 149,353
Current portion of long-term debt.... -- 11,122 -- 11,122
Accrued liabilities.................. 66,351 109,168 -- 175,519
-------- ---------- ----------- ---------
Total current liabilities........ 200,622 252,975 -- 453,597
Long-term debt......................... 79,000 888,856 40,050(1)(2) 1,007,906(11)
Accrued postretirement liability....... 7,768 180,966 -- 188,734
Other liabilities...................... 7,170 125,980 -- 133,150
-------- ---------- ----------- ---------
Total liabilities................ 294,560 1,448,777 40,050 1,783,387
Stockholders' equity (deficit):
Preferred stock...................... -- 4,172 (4,172)(3) --
Common stock......................... 5,336 254 2,100(3)(4) 7,690
Additional paid-in capital........... 59,567 177,032 (9,230)(1)(3)(4)(5) 227,369
Retained earnings (deficit).......... 240,326 (429,919) (55,000)(2) (244,593)(12)
Pension liability adjustment......... -- (3,617) -- (3,617)
Cumulative translation adjustment.... 2,301 (25,008) -- (22,707)
Treasury stock....................... (62,831) (10,644) 26,252(1)(5) (47,223)
Deferred compensation................ (1,890) -- -- (1,890)
-------- ---------- ----------- ---------
Total stockholders' equity
(deficit).............................. 242,809 (287,730) (40,050) (84,971)
-------- ---------- ----------- ---------
$537,369 1,161,047 -- 1,698,416
-------- ---------- ----------- ---------
-------- ---------- ----------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
33
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 25, 1993 (CROMPTON)
AND SEPTEMBER 30, 1993 (UNIROYAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
PRO FORMA PRO FORMA
CROMPTON UNIROYAL ADJUSTMENTS COMBINED
-------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Net sales................................. $558,348 907,862 -- 1,466,210
Operating costs and expenses:
Cost of products sold................... 380,941 616,208(7) (70,802)(6) 926,347
Selling, general and administrative..... 82,970 181,999(7) (44,479)(6) 220,490
Depreciation and amortization........... 12,076 -- 77,792(6) 89,868
Research & development.................. -- -- 42,133(6) 42,133
-------- -------- -------------- ---------
Operating profit.......................... 82,361 109,655 (4,644) 187,372
Interest expense.......................... 1,093 120,567 -- 121,660
Other expense (income).................... (1,205) 7,347 (4,644)(6) 1,498
-------- -------- -------------- ---------
Income (loss) before income taxes,
extraordinary charges and cumulative
effect of accounting changes.............. 82,473 (18,259) -- 64,214
Income taxes.............................. 30,515 6,533 -- 37,048
-------- -------- -------------- ---------
Income (loss) before extraordinary charges
and cumulative effect of accounting
changes................................... $ 51,958 (24,792) -- 27,166
-------- -------- -------------- ---------
-------- -------- -------------- ---------
Income (loss) per common share before
extraordinary charges and cumulative
effect of accounting changes.............. $ 1.00 (2.31) 0.43
-------- -------- ---------
-------- -------- ---------
Weighted average shares outstanding(8).... 52,176 10,847 63,689
-------- -------- ---------
-------- -------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
34
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994 (CROMPTON)
AND OCTOBER 2, 1994 (UNIROYAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
PRO FORMA PRO FORMA
CROMPTON UNIROYAL ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.............................. $589,757 946,454 -- 1,536,211
Operating costs and expenses:
Cost of products sold................ 403,784 638,933(7) (69,823)(6) 972,894
Selling, general and
administrative......................... 91,581 192,754(7) (44,256)(6) 240,079
Depreciation and amortization........ 13,298 -- 72,841(6) 86,139
Research & development............... -- -- 44,682(6) 44,682
Write-off of intangibles............. -- 191,000 -- 191,000
-------- --------- ----------- ---------
Operating profit....................... 81,094 (76,233) (3,444) 1,417
Interest expense....................... 2,167 128,567 -- 130,734
Other expense (income)................. (1,042) 125 (3,444)(6) (4,361)
-------- --------- ----------- ---------
Income (loss) before income taxes...... 79,969 (204,925) -- (124,956)
Income taxes........................... 29,053 8,918 -- 37,971
-------- --------- ----------- ---------
Net income (loss)...................... $ 50,916 (213,843) -- (162,927)
-------- --------- ----------- ---------
-------- --------- ----------- ---------
Net income (loss) per common share..... $ 1.00 (20.31) (2.65)
-------- --------- ---------
-------- --------- ---------
Weighted average shares
outstanding(8)....................... 51,152 10,543 61,515
-------- --------- ---------
-------- --------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
35
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 1995 (CROMPTON)
AND OCTOBER 1, 1995 (UNIROYAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
PRO FORMA PRO FORMA
CROMPTON UNIROYAL ADJUSTMENTS COMBINED
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales............................... $665,513 1,079,321 -- 1,744,834
Operating costs and expenses:
Cost of products sold................. 473,654 718,809(7) (66,297)(6) 1,126,166
Selling, general and administrative... 104,535 212,435(7) (46,632)(6) 270,338
Depreciation and amortization......... 15,035 -- 65,083(6) 80,118
Research & development................ -- -- 50,090(6) 50,090
-------- ---------- ----------- ---------
Operating profit........................ 72,289 148,077 (2,244) 218,122
Interest expense........................ 8,364 114,034 -- 122,398
Other expense (income).................. (166) (326) (2,244)(6) (2,736)
-------- ---------- ----------- ---------
Income before income taxes and
extraordinary charge.................... 64,091 34,369 -- 98,460
Income taxes (benefit).................. 23,598 (65,060)(10) -- (41,462)
-------- ---------- ----------- ---------
Income before extraordinary charge...... $ 40,493 99,429 -- 139,922
-------- ---------- ----------- ---------
-------- ---------- ----------- ---------
Income per common share before
extraordinary charge.................... $ 0.84 5.37 2.11
-------- ---------- ---------
-------- ---------- ---------
Weighted average shares
outstanding(8)........................ 48,448 18,461 66,394
-------- ---------- ---------
-------- ---------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
36
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 1, 1995 (CROMPTON)
AND JULY 2, 1995 (UNIROYAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
PRO FORMA PRO FORMA
CROMPTON UNIROYAL ADJUSTMENTS COMBINED
-------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Net sales................................. $343,810 572,926 -- 916,736
Operating costs and expenses:
Cost of products sold................... 240,358 370,031 (33,387)(6) 577,002
Selling, general and administrative..... 52,158 105,587 (22,369)(6) 135,376
Depreciation and amortization........... 7,494 -- 32,484(6) 39,978
Research & development.................. -- -- 24,394(6) 24,394
-------- -------- ------- ---------
Operating profit.......................... 43,800 97,308 (1,122) 139,986
Interest expense.......................... 3,602 57,377 -- 60,979
Other expense (income).................... (241) (3,233) (1,122)(6) (4,596)
-------- -------- ------- ---------
Income before income taxes and
extraordinary charge.................... 40,439 43,164 -- 83,603
Income taxes (benefit).................... 15,185 (63,066)(10) -- (47,881)
-------- -------- ------- ---------
Income before extraordinary charge........ $ 25,254 106,230 -- 131,484
-------- -------- ------- ---------
-------- -------- ------- ---------
Income per common share before
extraordinary charge.................... $ 0.52 5.57 1.96
-------- -------- ---------
-------- -------- ---------
Weighted average shares outstanding (8)... 48,569 19,081 67,109
-------- -------- ---------
-------- -------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
37
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 29, 1996 (CROMPTON)
AND JUNE 30, 1996 (UNIROYAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
PRO FORMA PRO FORMA
CROMPTON UNIROYAL ADJUSTMENTS(2) COMBINED(9)
-------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Net sales................................... $332,410 597,691 -- 930,101
Operating costs and expenses:
Cost of products sold..................... 235,802 388,687 (34,282)(6) 590,207
Selling, general and administrative....... 54,658 109,950 (24,891)(6) 139,717
Depreciation and amortization............. 8,126 -- 34,222(6) 42,348
Research & development.................... -- -- 26,073(6) 26,073
-------- -------- ------- ---------
Operating profit............................ 33,824 99,054 (1,122) 131,756
Interest expense............................ 4,330 53,696 -- 58,026
Other expense (income)...................... (451) 1,294 (1,122)(6) (279)
-------- -------- ------- ---------
Income before income taxes and
extraordinary charge...................... 29,945 44,064 -- 74,009
Income taxes................................ 10,765 17,714 -- 28,479
-------- -------- ------- ---------
Income before extraordinary charge.......... $ 19,180 26,350 -- 45,530
-------- -------- ------- ---------
-------- -------- ------- ---------
Income per common share before
extraordinary charge...................... $ 0.40 1.07 0.63
-------- -------- ---------
-------- -------- ---------
Weighted average shares outstanding(8)...... 48,499 24,684 72,405
-------- -------- ---------
-------- -------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
38
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Reflects the issuance from treasury stock of 1,000,000 shares of Crompton
Common Stock in an offering to take place prior to consummation of the
Merger. The issuance of such shares is required to reduce treasury share
purchases within two years of the initiation date of the Merger to less
than 10 percent of the Crompton shares to be issued in exchange for all of
the outstanding shares of Uniroyal, in order to qualify for pooling of
interests accounting. Proceeds are calculated based on an estimated
offering price of $15 1/8 per share, net of estimated costs of $175,000.
The net proceeds of $14,950,000 will be used to partially offset the
estimated merger costs discussed in note (2).
(2) Estimated costs expected to be incurred as a result of the Merger comprise
principally bonus and severance $27.6 million, investment banking $12.4
million, legal $6 million, bank revolver and other debt fees $5.2 million
and other fees and costs $10.8 million, net of the expected tax benefit of
$7 million. The Unaudited Pro Forma Combined Statements of Operations do
not include such estimated costs associated with the Merger, as these costs
are non-recurring and will be reflected in the statement of operations of
the combined company in its first reporting period.
(3) Assumes the issuance of 6.3850 shares of Crompton Common Stock for each
share of Uniroyal Preferred Stock as provided for in the Merger Agreement.
(4) Reflects the conversion of all outstanding shares of Uniroyal Common Stock
(par value .01 per share) into shares of Crompton Common Stock (par value
.10 per share) at a conversion rate of 0.9577 shares of Crompton Common
Stock for each share of Uniroyal Common Stock as provided for in the Merger
Agreement.
(5) Reflects the retirement of Uniroyal treasury stock, as provided for in the
Merger Agreement.
(6) Reflects certain reclassifications of research and development and
depreciation and amortization expenses made to conform to Crompton's and
the combined company's intended presentations.
(7) Historical Uniroyal amounts for the fiscal years ended September 30, 1993,
October 2, 1994, and October 1, 1995 reflect certain reclassifications of
research and development and other expenses made to conform with Uniroyal's
current historical presentation.
(8) Common and common equivalent shares outstanding were calculated assuming a
conversion rate of 0.9577 shares of Crompton Common Stock for each share of
Uniroyal Common Stock, and 6.3850 shares of Crompton Common Stock for each
share of Uniroyal Preferred Stock as provided for in the Merger Agreement.
(9) After the consummation of the Merger, Uniroyal will change its fiscal
year-end to conform with that of Crompton. Results of operations for
Uniroyal's quarter ended December 31, 1995 were a net loss of $8.4 million
which will be reflected as a one-time adjustment to stockholders' equity in
the combined company's 1996 financial statements.
(10) As a result of the interest savings from Uniroyal's March 1995 IPO,
Uniroyal's previously recorded tax valuation reserve was reduced.
Accordingly, Uniroyal included a benefit of $78.9 million for this
reduction in its tax provision for fiscal 1995. Uniroyal's remaining net
deferred tax asset as of 10/1/95 of some $82 million, including NOL
carryforwards which do not expire until the year 2008, requires future
taxable income of approximately $200 million to be fully realized.
Uniroyal's 1995 pretax income was approximately $34 million. Pretax income
for the first three quarters of fiscal 1996 was approximately $30 million.
(11) Depending upon adverse movement within the credit markets, it is possible
that holders of some or all of the 9% Notes of Uniroyal Chemical will
accept Uniroyal Chemical's offer to purchase the notes at 101% of their
principal amount under the terms of the indenture (see description under
the caption "Recent Developments--Description of Certain Indebtedness"). If
that should occur,
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<PAGE>
up to $253 million of the new revolving facility may be used to redeem the
9% Notes. This would result in additional long-term debt of $1.5 million,
and together with the write-off of unamortized financing fees, an
extraordinary charge of approximately $4.8 million, net of tax.
(12) The pro forma combined balance sheet excludes a one-time cash payment of
approximately $2.4 million ($1.4 million after tax) to be provided to
certain Uniroyal noteholders in consideration for waivers of certain
provisions of the indentures governing Uniroyal's notes. See "Recent
Developments--Description of Certain Indebtedness."
40
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF CROMPTON
DIRECTORS OF CROMPTON
Set forth below is information as of March 15, 1996 with respect to each
person who currently is, and immediately following the Merger will be, a
director of Crompton.
VINCENT A. CALARCO, 53, Chairman of the Board, President and Chief Executive
Officer of Crompton. He is former Vice President for Strategy and Development,
Uniroyal, Inc., and former President of Uniroyal Chemical Company. Mr. Calarco
has been a director since 1985. Mr. Calarco also serves as a director of
Caremark International Inc.
JAMES A. BITONTI, 65, is President and Chief Executive Officer of TCOM,
L.P., an aerostat systems manufacturer, integrator and operator, Columbia, MD.
He is a retired Vice President of International Business Machines Corporation,
where he held the positions of Assistant Group Executive of the Asia/Pacific
Group and President of the Communication Products Division. Mr. Bitonti has been
a director of Crompton since 1983 and is Chairman of the Executive Compensation
Committee. He also serves as a director of E-Systems, Inc., and as a director
and the Chief Executive Officer of KFX, Inc.
ROBERT A. FOX, 58, is President and Chief Executive Officer of Foster
Poultry Farms, a privately held, integrated poultry company, Livingston, CA. He
is former Executive Vice President of Revlon, Inc., a cosmetics, fragrances and
toiletries manufacturer, New York, NY; and former Chairman and Chief Executive
Officer of Clarke Hooper America, an international marketing services firm,
Irvine, CA. Mr. Fox has been a director of Crompton since 1990 and is a member
of the Executive Compensation Committee and Nominating Committee. He is also a
director of the American Balanced Fund, the Growth Fund of America, Inc., the
New Perspective Fund and the Income Fund of America, Inc., and a trustee of the
Euro-Pacific Growth Fund.
ROGER L. HEADRICK, 59, is President and Chief Executive Officer of the
Minnesota Vikings Football Club, Eden Prairie, MN, and President and Chief
Executive Officer of ProtaTek International, Inc., a biotechnology animal
vaccine company, St. Paul, MN. Mr. Headrick is former Executive Vice President
and Chief Financial Officer of The Pillsbury Company, a food processing and
restaurant company, Minneapolis, MN. He has been a director of Crompton since
1988 and is Chairman of the Nominating Committee and a member of the Executive
Compensation Committee. He also serves as a director of Caremark International
Inc.
LEO I. HIGDON, JR., 49, is Dean of the Darden Graduate School of Business
Administration at the University of Virginia, Charlottesville, VA. He is a
former Managing Director and member of the Executive Committee of Salomon
Brothers, an investment banking firm, New York, NY. Mr. Higdon became a director
of Crompton in 1993 and is Chairman of the Audit Committee and a member of the
Nominating Committee. He is a director of CPC International Corporation and
Newmont Mining Corp.
MICHAEL W. HUBER, 68, is retired Chairman of the Board of J. M. Huber
Corporation, a diversified manufacturing and natural resource development
company, Edison, NJ. He has been a director of Crompton since 1983 and is a
member of the Executive Compensation Committee and the Audit Committee. He also
serves as a director of Norland Medical Systems, Inc.
CHARLES J. MARSDEN, 55, Vice President-Finance and Chief Financial Officer
of Crompton. Mr. Marsden has been a director of Crompton since 1985.
C.A. (LANCE) PICCOLO, 55, is Chairman and Chief Executive Officer of
Caremark International Inc., a provider of alternate-site health-care services,
Northbrook, IL. He is former Executive Vice President of Baxter International
Inc., a supplier of health-care products, Deerfield, IL. He has been a director
of Crompton since 1988 and is a member of the Audit Committee and the Nominating
Committee. Mr. Piccolo is also a director of Caremark International Inc.
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<PAGE>
PATRICIA K. WOOLF, PH.D., 61, is a private investor, and lecturer in the
Department of Molecular Biology, Princeton University. She has been a director
of Crompton since 1994 and is a member of the Audit Committee. Dr. Woolf is also
a director of the American Balanced Fund, the Income Fund of America, Inc., the
Growth Fund of America, Inc., Smallcap World Fund, Inc., the New Economy Fund,
the National Life Insurance Co. of Vermont, and General Public Utilities
Corporation.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of Crompton held five regular meetings during 1995.
All of the directors except Mr. Bitonti attended at least 75% of the aggregate
of the meetings of the Crompton Board and of the committees on which they served
in 1995.
The Crompton Board has established three committees to assist it in the
discharge of its responsibilities. The Audit Committee, no member of which is an
employee of Crompton, meets periodically with Crompton's independent auditor to
review the scope of the annual audit and the policies relating to internal
auditing procedures and controls, provides general oversight with respect to the
accounting principles employed in Crompton's financial reporting, and reviews
Crompton's annual report on Form 10-K prior to its filing each year. The Audit
Committee also recommends to the Crompton Board each year the selection of the
auditor, has responsibility for approving professional non-audit services
provided by the independent auditor, considers the possible effect of providing
such non-audit services on the auditor's independence, and reviews the range of
fees of the auditor for both audit and non-audit services. The Audit Committee
held two meetings during 1995.
The Committee on Executive Compensation is composed of directors who are not
employees of Crompton. Its functions include approval of the level of
compensation for executive officers serving on the Crompton Board, adoption of
bonus and deferred compensation plans and arrangements for executive officers,
and administration of the Crompton & Knowles Corporation 1993 Stock Option Plan
for Non-Employee Directors, the Crompton & Knowles Corporation Restricted Stock
Plan for Directors and the Corporation's 1988 Long-Term Incentive Plan (the
"1988 Plan"). The Executive Compensation Committee held two meetings during
1995.
The Nominating Committee is also composed of directors who are not employees
of Crompton. The Committee makes recommendations with respect to the
organization, size, and composition of the Crompton Board, identifies suitable
candidates for Crompton Board membership and reviews their qualifications,
proposes a slate of directors for election by the stockholders at each annual
meeting, and assists the Crompton Board in providing for orderly succession in
the top management of Crompton. The Nominating Committee met once in 1995.
EXECUTIVE OFFICERS OF CROMPTON
Set forth below is information as of March 15, 1996 with respect to each
person who currently is, and immediately following the Merger will be, an
executive officer of Crompton.
VINCENT A. CALARCO, age 53, has served as President and Chief Executive
Officer of Crompton since 1985 and Chairman of the Board since 1986. He is
former Vice President for Strategy and Development, Uniroyal, Inc. (1984-1985),
and former President of Uniroyal Chemical Company (1979-1984). Mr. Calarco has
been a member of the Board of Directors of Crompton since 1985. Mr. Calarco also
serves as a director of Caremark International Inc.
ROBERT W. ACKLEY, age 54, has served as a Vice President of Crompton since
1986 and as President of Davis-Standard Corporation (formerly the Davis-Standard
Division) since 1983.
PETER BARNA, age 52, has served as Treasurer of Crompton since 1980 and as
Principal Accounting Officer since 1986.
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<PAGE>
JOHN T. FERGUSON, II, age 49, has served as General Counsel and Secretary of
Crompton since 1989.
NICHOLAS FERN, PH.D., age 52, has served as President, Dyes and
Chemicals--Asia, for Crompton since 1994, as President of Crompton's
International Dyes and Chemicals Division from 1992 to 1994, and as Managing
Director of Crompton & Knowles Europe, S.A. (formerly Crompton & Knowles Tertre)
from 1978 to 1994.
GERALD H. FICKENSCHER, PH.D., age 52, has served as President, Dyes and
Chemicals--Europe, for Crompton and as Managing Director of Crompton & Knowles
Europe, S.A. since 1994. He is the former Chief Financial Officer of Uniroyal
Chemical Corporation (1986-1994).
EDMUND H. FORDING, JR., age 59, has served as Vice President of Crompton
since 1991 and as President of Crompton & Knowles Colors Incorporated (formerly
the domestic Dyes and Chemicals Division) since 1989. He is the former General
Manager of the Dyes Division of Hilton Davis Co. (1988-1989) and Director of the
Organic Department of Mobay Corporation (1980-1988).
MARVIN H. HAPPEL, age 56, has served as Vice President--Organization of
Crompton since 1986. He is the former Director of Human Resources of Uniroyal
Chemical Company (1979-1986).
CHARLES J. MARSDEN, age 55, has served as Vice President--Finance and Chief
Financial Officer and as a member of the Board of Directors of Crompton since
1985.
RUDY M. PHILLIPS, age 54, has served as President of Ingredient Technology
Corporation since January, 1996. He is a former Vice President of Ingredient
Technology Corporation (1988-1996).
The term of office of each of the above-named executive officers is until
the first meeting of the Board of Directors of Crompton following Crompton's
next annual meeting of stockholders and until the election and qualification of
his successor.
There is no family relationship between any of such officers, and there is
no arrangement or understanding between any of them and any other person
pursuant to which any such officer was selected as an officer.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF CROMPTON
COMPENSATION OF DIRECTORS
Directors who are employees of Crompton receive no additional compensation
for services on the Board of Directors of Crompton. Members of the Crompton
Board who are not employees receive an annual retainer of $20,000 (committee
chairmen receive an additional retainer of $2,500) and a fee of $7,500 for
meeting service, and are reimbursed for expenses incurred in attending meetings.
Crompton also provides $25,000 of term life insurance and accidental death and
travel insurance coverage for each non-employee director.
Under the Crompton & Knowles Corporation Restricted Stock Plan for
Directors, one quarter of each director's retainer and fees is paid in shares of
Crompton's common stock. A director may elect to receive any portion or all of
the remainder of the retainer and fees in common stock under the plan. All
shares issued under the plan are held by Crompton until the recipient of the
shares leaves the Crompton Board, however the directors receive all dividends on
the shares and may vote the shares.
The Crompton & Knowles Corporation 1993 Stock Option Plan for Non-Employee
Directors provides for the issuance to non-employee directors on the date of the
first regular meeting of the Crompton Board in the fourth quarter of each
calendar year of an option to purchase that number of full shares of Crompton's
common stock determined by dividing the amount of the annual retainer payable to
non-employee directors for service on the Crompton Board by the fair market
value of the
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<PAGE>
stock on the date of the grant. The exercise price of the options is to be equal
to such fair market value on the date of grant. The options are to vest over a
two-year period and are to be exercisable over a ten-year period from the date
of grant. The plan provides for the grant of options with respect to a maximum
of 100,000 shares of stock. Options to be granted under the plan are
nonstatutory options not intended to qualify as incentive stock options under
the Code.
REPORT OF THE COMMITTEE ON EXECUTIVE COMPENSATION
Executive Compensation Philosophy
The compensation program for Crompton's executive officers is administered
in accordance with a pay for performance philosophy to link executive
compensation with the values, objectives, business strategy, management
initiatives and financial performance of Crompton. In addition, a significant
portion of each executive officer's compensation is contingent upon the creation
of shareholder value.
The Committee on Executive Compensation of the Board (the "Committee")
believes that stock ownership by management and restricted stock-based
performance compensation plans serve to align the interests of management and
other shareholders in the enhancement of shareholder value. The Committee
further maintains that long-term strategic leadership commitment is promoted
through vesting a significant portion of restricted stock performance awards at
retirement.
The compensation of Crompton's executive officers is comprised of cash and
equity components and is designed to be competitive and highly leveraged based
upon corporate financial performance and shareholder returns. The compensation
program provides an opportunity to earn compensation in the third quartile
within the chemical industry as well as within a broader group of companies of
comparable size and complexity. Actual compensation levels may be greater or
less than average competitive levels in surveyed companies based upon annual and
long-term performance of Crompton as well as individual performance. The
measures of performance utilized under Crompton's compensation plans are as
follows:
. Annual actual after-tax earnings performance versus targeted after-tax
earnings performance.
. Annual actual return on capital performance versus targeted return on
capital performance.
. Annual actual revenue performance versus targeted revenue performance.
. Three-year average annual return on equity and after-tax earnings per
share growth.
Base Salaries
Base salaries and salary ranges for the executive officers are based upon
competitive data gathered from several national and highly recognized
compensation services. The Committee on Executive Compensation reviews and
approves the salary ranges for the executive officers.
Management Incentive Plan
Crompton's Management Incentive Plan is an annual incentive program for
executive officers and other key managers. The purpose of the plan is to provide
a direct financial incentive in the form of an annual cash award to executives
who achieve the annual goals for their business unit and Crompton. The plan
includes the Annual Incentive Compensation Plan for "A" Group of Senior
Executives, which provides for an annual incentive pool for eligible executives
based upon Crompton's return on stockholders' equity. Awards from the incentive
pool are made annually by the Committee on Executive Compensation, with the
maximum award not to exceed 100% of a participant's base salary. At the present
time, Mr. Calarco is the only participant authorized to receive such awards.
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<PAGE>
The other officers named in the compensation table below participate in a
plan which provides for the payment of annual awards from a fund established
with reference to the return on capital employed of Crompton as a whole, or of
the business unit for which the officer is responsible. Assuming a stipulated
level for return on capital employed has been attained, individual awards are
based 60% on the achievement by the applicable business unit of specific
objectives with respect to revenue, after-tax earnings, and return on capital,
and 40% on the achievement by the individual of individual management
objectives.
Stock Options and Restricted Stock
The stock option and restricted stock program is a long-term incentive plan
for Crompton's executive officers and other key managers. The objectives of the
program are to align executive and shareholder long-term interests by creating a
strong and direct link between executive pay and shareholder return, and to
enable executives to develop and maintain a significant, long-term stock
ownership position in Crompton's common stock.
The executive officers listed in the compensation table below receive a
major portion of their compensation in the form of shares of Crompton's common
stock. They receive annual grants of stock options, priced at fair market value
on the date of grant. The number of options granted in 1995 was in the second
quartile of all companies included in industrial company survey data available
to the Committee.
The factors used to award options include overall corporate performance,
percentile rankings, base salary, and total compensation.
In addition, Crompton's executive officers have received the opportunity
under the 1988 Plan to earn shares of restricted stock based upon Crompton's
cumulative after-tax earnings growth and return on equity over a three-year
period. These grants have the potential to deliver above-average compensation if
the goals are met. If the employment of an individual terminates after an award
is earned for any reason other than death, disability, retirement, or a change
in control of Crompton, any shares that have not vested will be forfeited.
Crompton exceeded the performance criteria established under the 1988 Plan for
the period 1989-1991. Awards for the 1989-1991 period vest and are distributed
to individuals in common stock of Crompton in five installments, the first four
having been distributed on December 9, 1992, December 6, 1993, December 13,
1994, and December 12, 1995, and the final one to be distributed upon
retirement. Crompton met the performance criteria established under the 1988
Plan for the period 1992-1994. Awards for the 1992-1994 period vest and are
distributed to individuals in common stock of Crompton in four uniform
installments, one during each of the years 1994-1996, and the final one upon
retirement. If the employment of an individual terminates for any reason other
than death, disability, retirement or a change in control of Crompton, all
shares that have not vested will be forfeited.
Compensation of Chief Executive Officer
The Committee did not increase Mr. Calarco's base salary of $495,000 during
fiscal year 1995. The Executive Compensation Committee administers the Annual
Incentive Compensation Plan for "A" Group of Senior Executives. Currently, the
CEO is the only participant in this plan. Each year, a pool of funds is made
available under this plan based upon Crompton's return on equity (ROE). At
higher ROE levels, larger percentages of net income are allocated to the pool.
The maximum incentive which the CEO may receive is equal to the lesser of 100%
of salary or $650,000. The maximum award may be reduced if other goals, such as
those for revenue and earnings growth, are not achieved. Based on the
performance of Crompton in 1995 and the achievement of a return on average
common equity of 17.4%, and an increase in sales of 13%, Mr. Calarco earned
$415,000 under the Annual Incentive Compensation Plan for "A" Group of Senior
Executives. The Committee believes Mr. Calarco has continued to manage Crompton
extremely well in a particularly challenging business climate and has achieved
above
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average results in comparison to others in the chemical industry. For example,
the Crompton's average ROE for the 1991 to 1995 period was 23.4% which placed
the Crompton in the top quartile of the peer group of 22 specialty chemical
companies reflected in the performance graphs on pages 9 and 10 below. The stock
options granted to Mr. Calarco during 1995 are consistent with the design of
Crompton's executive compensation program and are shown in the compensation
table below.
Tax Deductibility of Executive Compensation
The Committee's policy on the tax deductibility of compensation paid to
Crompton's CEO and other executive officers is to maximize deductibility to the
extent possible without abdicating all of its discretionary power. To this end,
the Committee has reviewed all of Crompton's plans and has taken several actions
as follows. First, the Committee has assured that the gains on non-qualified
stock option grants will be deductible by amending the 1988 Plan to place a
limit on the number of option shares that one individual may receive. The limit
is 25% of the total share authorization. Secondly, the Committee resolved to
continue the practice of not repricing options. Finally, at the 1994 annual
meeting of shareholders, the shareholders approved the material terms of the
performance goal for the Annual Incentive Compensation Plan for "A" Group of
Senior Executives, which is "performance-based" under Section 162(m) of the
Code, and amounts paid under the plan are fully deductible.
Committee on Executive Compensation
Decisions on compensation of Crompton's executive officers are made by the
four member Committee on Executive Compensation, a committee of the Board of
Directors composed of the persons listed below, all of whom are non-employee
directors. The Committee has retained an independent executive compensation
consultant to evaluate Crompton's executive compensation program and has access
to independent compensation data.
The Committee on Executive
Compensation:
James A. Bitonti, Chairman
Robert A. Fox
Roger L. Headrick
Michael W. Huber
Notwithstanding anything to the contrary set forth in any of Crompton's
previous filings under the Securities Act or the Exchange Act that might
incorporate future filings, including this Joint Proxy Statement/Prospectus, in
whole or in part, the foregoing Report of the Committee on Executive
Compensation and the following Performance Graphs shall not be deemed
incorporated by reference into any such filings.
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PERFORMANCE GRAPHS
The following graph compares the cumulative total return on the common stock
of Crompton for the last five fiscal years with the returns on the Standard &
Poor's 500 Stock Index, the Standard & Poor's Specialty Chemicals Index and a
peer group of 22 specialty chemical companies, assuming the investment of $100
in Crompton's common stock, the S&P 500 Index, the S&P Specialty Chemicals Index
and the peer group companies on December 31, 1990, and the reinvestment of all
dividends. The peer group investment is weighted based on total market
capitalization at the beginning of each fiscal year.
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
CROMPTON & KNOWLES CORPORATION, S&P 500,
S&P SPECIALTY CHEMICALS, AND PEER GROUP
$300
$250
$200
$150
$100
$50
$0
1990 1991 1992 1993 1994 1995
C & K $100 $257 $268 $270 $205 $173
S & P 500 100 130 140 154 156 215
Peer Group 100 151 166 171 165 193
S&P Specialty 100 141 149 170 149 195
Chemicals
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The graph below shows the cumulative total return to Crompton's stockholders
since December 31, 1984, shortly before Mr. Calarco became President and CEO,
compared with the same indices shown on the previous graph, thus illustrating
the relative performance of Crompton's common stock during Mr. Calarco's entire
tenure with Crompton.
COMPARISON OF ELEVEN-YEAR CUMULATIVE RETURN
CROMPTON & KNOWLES CORPORATION, S&P 500,
S&P SPECIALTY CHEMICALS, AND PEER GROUP
$2,500
$2,000
$1,500
$1,000
$500
$0
<TABLE><CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C & K $100 $132 $188 $216 $337 $695 $792 $2,032 $2,122 $2,135 $1,620 $1,366
S & P 500 100 132 156 164 191 252 244 318 342 376 382 524
Peer Group 100 132 159 178 197 258 276 417 457 473 455 533
S&P Specialty 100 137 156 162 177 216 207 292 310 353 308 404
Chemicals
</TABLE>
The specialty chemical peer group comprises the following 22 companies: Betz
Laboratories, Inc., The Dexter Corporation, Ecolab Inc., Engelhard Corporation,
Ethyl Corporation, Ferro Corporation, H.B. Fuller Company, Great Lakes Chemical
Corporation, M. A. Hanna Company, International Flavors & Fragrances Inc.,
Lawter International, Inc., Loctite Corporation, The Lubrizol Corporation, Nalco
Chemical Company, Pall Corporation, Petrolite Corporation, Quaker Chemical
Corporation, RPM, Inc., A. Schulman, Inc., Sigma-Aldrich Corporation, Valspar
Corporation, and Witco Corporation.
The S&P Specialty Chemicals Index companies are W.R. Grace & Co., Great
Lakes Chemical Corporation, Morton International Inc. and Nalco Chemical
Company.
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EXECUTIVE COMPENSATION
The following tables set forth information concerning compensation paid or
to be paid to the chief executive officer of Crompton and each of the four most
highly compensated executive officers of Crompton other than the chief executive
officer, for services to Crompton in all capacities during 1993, 1994 and 1995,
and options granted to and exercised by the same individuals during the period
indicated.
SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
LONG TERM
COMPENSATION
-----------------------
AWARDS
ANNUAL COMPENSATION -----------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND -------------------- STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($) OPTIONS(#) SATION($)(1)
- -------------------------------------------- ---- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Vincent A. Calarco.......................... 1995 495,000 415,000 -- 110,000 89,687
Chairman of the Board 1994 493,000 300,000 -- 78,000 111,870
President and CEO 1993 472,917 495,000 -- 60,000 105,480
Charles J. Marsden.......................... 1995 250,000 55,000 -- 28,000 39,512
Vice President-- 1994 240,000 56,000 -- 22,000 42,121
Finance and 1993 230,000 112,000 -- 17,000 44,393
Chief Financial Officer
Robert W. Ackley............................ 1995 216,000 117,000 -- 26,500 36,714
V.P. and President-- 1994 203,750 108,000 -- 20,000 36,383
Davis-Standard Corporation 1993 188,750 100,000 -- 16,000 33,357
John T. Ferguson II......................... 1995 178,000 30,000 -- 10,500 27,314
General Counsel and 1994 168,000 35,000 -- 12,500 29,656
Secretary 1993 156,667 67,000 -- 9,500 33,060
Edmund H. Fording, Jr....................... 1995 175,167 25,000 -- 10,500 24,774
V.P. and President-- 1994 166,000 29,000 -- 8,000 23,891
Crompton & Knowles 1993 166,000 59,000 -- 11,500 25,531
Colors Incorporated
</TABLE>
- ------------
(1) Includes the following amounts paid during 1995 under Crompton's
Supplemental Medical and Dental Reimbursement Plans (SMD), and employer
contributions to Crompton's Employee Stock Ownership Plan (ESOP) and
Individual Account Retirement Plan (IARP) (with that portion of the ESOP and
IARP contributions in excess of the Section 401(k) and Section 415
limitations having been paid into Crompton's Benefit Equalization Plan): Mr.
Calarco, $2,235 (SMD), $31,802 (ESOP), $55,560 (IARP); Mr. Marsden, $5,027
(SMD), $13,065 (ESOP), $21,420 (IARP); Mr. Ackley, $1,074 (SMD), $12,960
(ESOP), $22,680 (IARP); Mr. Ferguson, $4,397 (SMD), $9,063 (ESOP), $13,854
(IARP); and Mr. Fording, $1,291 (SMD), $8,166 (ESOP), $15,317 (IARP).
Total restricted stock outstanding for the persons shown in the table at the
end of fiscal year 1995: Vincent A. Calarco, 276,033 shares valued at
$3,657,437, of which 132,033 shares valued at $1,749,437 are forfeitable;
Charles J. Marsden, 80,232 shares valued at $1,063,074, of which 36,232 shares
valued at $480,074 are forfeitable; Robert W. Ackley, 50,002 shares valued at
$662,527, of which 23,002 shares valued at $304,777 are forfeitable; Edmund H.
Fording, 12,691 shares valued at $168,156, all of which shares are forfeitable;
and John T. Ferguson II, 9,634 shares valued at $127,651, all of which shares
are forfeitable. Dividends are paid on restricted shares from the date of grant
but do not vest and are not distributed until the underlying shares are
distributed.
49
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE><CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER TOTAL STOCK
OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM
UNDERLYING EMPLOYEES EXERCISE -------------------
OPTIONS IN FISCAL PRICE EXPIRATION 5%($) 10%($)
NAME GRANTED(#) YEAR ($/SH) DATE $21.18 $33.72
- ---------------------------------- ---------- ---------- ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
V.A. Calarco...................... 102,308(2) 33.0% 13.00 11/17/05 836,879 2,119,822
7,692(3) 2.5% 13.00 10/17/05 62,921 159,378
C.J. Marsden...................... 20,808(2) 6.7% 13.00 11/17/05 170,209 431,142
7,692(3) 2.5% 13.00 10/17/05 62,921 159,378
R.W. Ackley....................... 18,808(2) 6.1% 13.00 11/17/05 153,849 389,702
7,692(3) 2.5% 13.00 10/17/05 62,921 159,378
J.T. Ferguson II.................. 4,589(2) 1.5% 13.00 11/17/05 37,538 95,084
5,911(3) 1.9% 13.00 10/17/05 48,352 122,476
E.H. Fording, Jr.................. 2,058(2) 0.7% 13.00 11/17/05 16,834 42,642
8,442(3) 2.7% 13.00 10/17/05 69,056 174,918
</TABLE>
- ------------
(1) An option entitles the holder to purchase one share of the common stock of
Crompton at a purchase price equal to the fair market value of Crompton's
common stock on October 18, 1995, the date of grant of all of the options
shown in the table. All options are subject to expiration prior to the dates
shown in the table in case of death or termination of employment. Fifty
percent of the options shown in the table are exercisable beginning on the
first anniversary of the date of grant, and fifty percent are exercisable
beginning on the second anniversary of the date of grant. The purchase price
for stock on the exercise of options may be paid in cash or in shares of
Crompton's common stock already owned by the option holder, or by a
combination thereof. In the event of a change in control of Crompton, all of
the options shown in the table will immediately become exercisable.
(2) Non-qualified options.
(3) Incentive options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)
<TABLE><CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED AT FY-END($)
ACQUIRED ON VALUE OPTIONS FY-END(#) 12/30/95--FMV $13.2500
EXERCISE REALIZED -------------------------- ---------------------------
NAME (#) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
V.A. Calarco................ -- -- 894,160 149,000 5,697,531.73 27,500.00
C.J. Marsden................ 16,300 253,791.00 237,376 39,500 1,251,138.93 7,125.00
R.W. Ackley................. 11,500 110,687.50 62,000 36,500 -- 6,625.00
J.T. Ferguson II............ 8,834 65,167.26 38,250 16,750 -- 2,625.00
E.H. Fording, Jr............ -- -- 74,500 14,500 204,172.50 2,625.00
</TABLE>
- ------------
(1) All numbers reflect the 2-for-1 stock split on May 22, 1992.
(2) Fair market value at date of exercise less exercise price.
Compensation Committee Interlocks and Insider Participation
Messrs. Fox, Headrick and Huber served as members and Mr. Bitonti served as
Chairman of the Executive Compensation Committee of the Crompton Board during
the last completed fiscal year. No member of the Executive Compensation
Committee is a current or former officer or employee of Crompton or any of its
subsidiaries.
During 1995, Mr. Calarco served as a director of Caremark International
Inc., of which Mr. Piccolo is Chairman and Chief Executive Officer.
50
<PAGE>
Retirement Plans
Each of the persons shown in the Summary Compensation Table on page 11 is
covered by a supplemental retirement agreement with Crompton. Under each
supplemental agreement, the aggregate benefit payable on an annualized basis
from employer contributions under Crompton's Individual Account Retirement Plan
to each officer at normal retirement age will be supplemented by Crompton so
that the total annual benefit payable to him for life will be 35%, 50% or 60% of
the average total compensation (including salary and bonus) paid to him during
the highest five years of the last ten years prior to his normal retirement age.
A supplemental benefit in a reduced amount may be payable in the event of
termination of employment prior to normal retirement age. At any time after the
date on which benefit payments commence, the officer may elect to receive a
single lump sum equal to 90% of the actuarial equivalent of the benefit
otherwise payable to the officer. An officer may elect to have his supplemental
benefit under the agreement paid in a form which will provide for the
continuation of benefits, to a beneficiary selected by him, upon his death after
retirement. Each agreement also provides for the payment of a reduced benefit to
the officer's beneficiary in the event of his death prior to normal retirement
age and for the payment of disability benefits in addition to those available
under Crompton's regular disability insurance program. Benefits under each
agreement are payable only if the officer has completed at least five years of
service after entering into the agreement, does not voluntarily terminate his
employment unless such termination is the result of his retirement under a
retirement plan or is with approval of the Crompton Board, and meets certain
other conditions set forth in the agreement.
Each of the supplemental retirement agreements also provides that if, after
a change in control of Crompton (as defined in the agreement) has occurred, the
officer's employment is terminated by Crompton other than for cause, disability,
or death or the officer resigns for good reason (as defined in the agreement),
the officer will be vested in an unreduced benefit equal to 35%, 50% or 60%
(whichever level is applicable to him under the agreement) of his average total
compensation over the highest five of the last ten years of his employment. In
the event the officer is under age 55 when terminated, the benefit would be
based on his final average total compensation projected to age 55 in accordance
with certain assumptions set forth in the agreement. The benefit would be paid
annually for life commencing at age 65, with provision made for payment to the
officer's beneficiary of the value of the expected benefit in the event of his
death prior to attaining that age.
The following table sets forth the estimated aggregate annual benefit
payable to each of the officers named in the table under his supplemental
retirement agreement, from employer contributions to the IARP, and (in the case
of Mr. Ackley) under a retirement plan which was terminated in 1982, upon
retirement at or after normal retirement age based on each officer's
compensation history to date and assuming payment of such benefit in the form of
a life annuity:
ESTIMATED ANNUAL
NAME OF INDIVIDUAL RETIREMENT BENEFIT
- -------------------------- ------------------
Vincent A. Calarco........ $523,900
Charles J. Marsden........ 158,892
Robert W. Ackley.......... 145,642
John T. Ferguson II....... 71,852
Edmund H. Fording, Jr..... 72,485
Employment Agreements
Mr. Calarco is employed pursuant to an employment agreement which was
amended and restated in February 1988. The amended agreement provides for Mr.
Calarco's employment as Chairman of the Board, President and Chief Executive
Officer for a term of three years, with automatic annual one year extensions of
the term unless Crompton gives notice at least 60 days prior to the anniversary
of the date of the agreement that the term will not be extended. The amended
agreement calls for a base salary of not less than $310,000 and for Mr.
Calarco's continued participation in employee benefit plans and other fringe
benefit arrangements substantially as in the past. In the event Mr. Calarco's
employment is
51
<PAGE>
terminated by Crompton other than for cause, disability, or death or by Mr.
Calarco for good reason (as defined in the agreement), Crompton is obligated to
pay Mr. Calarco his salary to the date of termination, incentive compensation in
an amount no less than the bonus paid to him for the prior year pro-rated to
that date, and a lump sum termination payment equal to three times the sum of
his then current salary and the highest bonus paid to him during the three years
preceding his termination, to continue other employee benefits provided under
the agreement for a period of three years or until he obtains other employment,
and to make certain additional payments to cover any excise tax imposed under
the Code on the amounts payable as a result of his termination and any legal
fees incurred by Mr. Calarco in enforcing Crompton's obligations under the
agreement.
Crompton has entered into employment agreements with certain other key
management employees, including Messrs. Marsden, Ackley, Ferguson and Fording.
Each agreement is operative only upon the occurrence of a change in control (as
defined in the agreement) and is intended to encourage the executive to remain
in the employ of Crompton by providing him with greater security. Absent a
change in control, the agreement does not require Crompton to retain the
executive or to pay him any specified level of compensation or benefits. In the
event of a change in control, the agreement provides that there will be no
change, without the executive's consent, in the salary, bonus opportunity,
benefits, duties, and location of employment of the executive for a period of
one or two years after the change in control. If, during such period, the
executive's employment is terminated by Crompton other than for cause,
disability, or death or the executive resigns for good reason (as defined in the
agreement), Crompton will pay the executive his salary to the date of
termination, incentive compensation in an amount no less than the bonus paid to
him for the prior year pro-rated to that date, and a lump sum severance payment
equal to one or two times (depending on the executive) the sum of his base
salary and the highest bonus paid to him during the three years preceding his
termination and will continue other employee benefits similar to those provided
to the executive prior to his termination for a period of one or two years or
until his earlier employment with another employer.
52
<PAGE>
PRINCIPAL STOCKHOLDERS OF CROMPTON
The directors and the executive officers of Crompton have advised Crompton
that they were directly or indirectly the beneficial owners of outstanding
common stock of Crompton at the close of business on February 9, 1996, as set
forth below, in each case representing less than one percent of such shares
outstanding except as otherwise indicated. No person was known to the Crompton
Board to be the beneficial owner of more than 5% of Crompton's outstanding
voting securities as of February 9, 1996.
<TABLE><CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
- -------------- -------------------------------------------- -------------------------- ----------------
<S> <C> <C> <C>
Common Vincent A. Calarco.......................... 1,744,427(2) 3.6%(15)
Common James A. Bitonti............................ 29,547(3)
Common Robert A. Fox............................... 30,829(4)
Common Roger L. Headrick........................... 57,190(5)
Common Leo I. Higdon, Jr........................... 2,906(6)
Common Michael W. Huber............................ 19,889(7)
Common Charles J. Marsden.......................... 480,450(8)
Common C.A. (Lance) Piccolo........................ 14,452(9)
Common Patricia K. Woolf........................... 3,413(10)
Common Robert W. Ackley............................ 349,110(11)
Common John T. Ferguson II......................... 56,119(12)
Common Edmund H. Fording, Jr....................... 96,227(13)
Common Directors and Executive Officers as a Group
(17 persons)................................ 3,277,696(14) 6.6%(16)
</TABLE>
- ------------
(1) Except as noted below, the officers and directors have both sole voting and
sole investment power over the shares reflected in this table.
(2) Includes 894,160 shares which Mr. Calarco had the right to acquire through
stock options exercisable within 60 days of February 9, 1996; 496,944
shares held under the 1988 Plan and the Employee Stock Ownership Plan, as
to which he has voting but no investment power; and 58,872 shares owned by
his wife and 18,721 shares held by him or his wife as custodian for their
children, as to which he disclaims beneficial ownership.
(3) Includes 2,397 shares which Mr. Bitonti had the right to acquire through
stock options exercisable within 60 days of February 9, 1996; 11,200 shares
owned jointly by Mr. Bitonti with his wife; 10,494 shares held under the
Restricted Stock Plan for Directors; and 4,800 shares owned by his wife as
to which he disclaims beneficial ownership.
(4) Includes 2,397 shares which Mr. Fox had the right to acquire through stock
options exercisable within 60 days of February 9, 1996; and 8,448 shares
held under the Restricted Stock Plan for Directors.
(5) Includes 2,397 shares which Mr. Headrick had the right to acquire through
stock options exercisable within 60 days of February 9, 1996; and 10,173
shares held under the Restricted Stock Plan for Directors.
(6) Includes 1,555 shares which Mr. Higdon had the right to acquire through
stock options exercisable within 60 days of February 9, 1996; and 1,351
shares held under the Restricted Stock Plan for Directors.
(7) Includes 2,397 shares which Mr. Huber had the right to acquire through
stock options exercisable within 60 days of February 9, 1996; and 7,492
shares held under the Restricted Stock Plan for Directors.
(8) Includes 237,376 shares which Mr. Marsden had the right to acquire through
stock options exercisable within 60 days of February 9, 1996; 106,665
shares held under the 1988 Plan and the Employee Stock Ownership Plan, as
to which he has voting but no investment power; and 19,000 shares owned by
his wife as to which he disclaims beneficial ownership.
(9) Includes 2,397 shares which Mr. Piccolo had the right to acquire through
stock options exercisable within 60 days of February 9, 1996; and 9,115
shares held under the Restricted Stock Plan for Directors.
(10) Includes 622 shares which Ms. Woolf had the right to acquire through stock
options exercisable within 60 days of February 9, 1996; and 1,845 shares
held under the Restricted Stock Plan for Directors.
(11) Includes 62,000 shares which Mr. Ackley had the right to acquire through
stock options exercisable within 60 days of February 9, 1996; 86,912 shares
held under the 1988 Plan and the Employee Stock Ownership Plan, as to which
he has voting but no investment power; and 2,400 shares owned by his wife,
as to which he disclaims beneficial ownership.
(12) Includes 38,250 shares which Mr. Ferguson had the right to acquire through
stock options exercisable within 60 days of February 9, 1996; 15,189 and
shares held under the 1988 Plan, the Employee Stock Ownership Plan, and a
Benefit Equalization Plan Trust as to which he has voting but no investment
power.
(13) Includes 74,500 shares which Mr. Fording had the right to acquire through
stock options exercisable within 60 days of February 9, 1996; and 9,164
shares held under the 1988 Plan and the Employee Stock Ownership Plan, as
to which he has voting but no investment power.
(14) Includes 1,441,921 shares which the officers and directors in the group had
the right to acquire through stock options exercisable within 60 days of
February 9, 1996.
(15) 2.4%, giving effect to the issuance of up to 26,089,206 shares of Crompton
Common Stock in the Merger.
(16) 4.4%, giving effect to the issuance of up to 26,089,206 shares of Crompton
Common Stock in the Merger.
53
<PAGE>
DESCRIPTION OF CROMPTON CAPITAL STOCK
Under the Crompton Articles, Crompton is authorized to issue (i) 250,000,000
shares of Crompton Common Stock, of which 48,039,309 shares were issued and
outstanding as of July 9, 1996 and (ii) 250,000 shares of Preferred Stock,
without par value, none of which was issued and outstanding.
CROMPTON COMMON STOCK
The holders of Crompton Common Stock are entitled to receive dividends as
may be declared from time to time by the Board of Directors out of funds legally
available therefor. The holders of Crompton Common Stock are entitled to one
vote per share on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Holders of Crompton Common Stock are entitled to
receive, upon any liquidation of Crompton, all remaining assets available for
distribution to stockholders after satisfaction of Crompton's liabilities and
the preferential rights of any preferred Stock that may then be issued and
outstanding. The outstanding shares of Crompton Common Stock are, and the shares
to be issued in the Merger will be, fully paid and nonassessable. The holders of
Crompton Common Stock have no preemptive, conversion or redemption rights. The
transfer agent and registrar for the Crompton Common Stock is Chemical Mellon
Shareholder Services.
PREFERRED SHARE PURCHASE RIGHTS
On July 20, 1988, the Crompton Board declared a dividend of one preferred
share purchase right on each outstanding share of Crompton Common Stock. The
Crompton Rights, which expire on August 4, 1998, were issued on August 5, 1988
to stockholders of record on that date and were authorized to be issued in
respect of each share of Crompton Common Stock subsequently issued. Under
certain circumstances each Crompton Right will entitle the holder to purchase
one eight-hundredth of a share of Series A Junior Participating Preferred Stock,
without par value (the "Series A Junior Preferred Shares"), of Crompton at an
exercise price of $18.75 per one eight-hundredth of a Series A Junior Preferred
Share, subject to adjustment. The Crompton Rights will not be exercisable or
transferable apart from the Crompton Common Stock until the earlier to occur of
either: (i) ten days following a public announcement that a person or group has
acquired 20% or more of the outstanding Crompton Common Stock, or (ii) ten
business days following commencement of, or a public announcement of an
intention to make, a tender or exchange offer, which would result in the
beneficial ownership by a person or group of 20% or more of the outstanding
Crompton Common Stock. The Crompton Rights will not have any voting rights nor
be entitled to dividends.
If, after the Crompton Rights become exercisable, Crompton is acquired in a
merger or other business combination transaction or 50% or more of its
consolidated assets or earning power is sold, provision will be made for each
holder of a Crompton Right to receive on exercise of the Crompton Right, that
number of shares of common stock of the acquiring company which at the item of
such transaction would have a market value of two times the exercise price of
the Crompton Right. In addition, in the event a person or group shall become the
beneficial owner of 20% or more of the outstanding Crompton Common Stock (an
"Acquiring Person"), each holder of a Crompton Right other than an Acquiring
Person shall have the right, upon exercise of a Crompton Right, to purchase
shares of Crompton Common Stock having a market value equal to two times the
exercise price of the Crompton Right. Notwithstanding the foregoing, any
Crompton Rights that are owned or acquired by an Acquiring Person will be void
and the holder thereof shall have no right to exercise or transfer such Crompton
Rights. The Crompton Rights are redeemable at $.00125 per Crompton Right at any
time prior to the time that a person or group acquires beneficial ownership of
20% or more of the outstanding Crompton Common Stock.
54
<PAGE>
CERTAIN CHARTER AND BY-LAW PROVISIONS
The Crompton Articles and Crompton By-Laws contain certain provisions that
would likely have an effect of delaying or deterring a change in control of
Crompton. Such provisions require, among other things, (i) a classified Board of
Directors, with each class containing as nearly as possible one-third of the
whole number of members of the Board of Directors and the members of each class
serving for three-year terms, (ii) a vote of at least 80% of the holders of
Crompton's voting securities to approve certain business combination
transactions with a stockholder who is the beneficial owner of 10% or more of
Crompton's outstanding voting securities, (iii) a vote of at least 80% of
Crompton's voting securities to amend certain of the Crompton Articles and
Crompton By-Laws, (iv) advance notice procedures with respect to nominations of
directors other than by or at the direction of the Board of Directors, and (v) a
vote of two-thirds ( 2/3) of Crompton's outstanding voting securities to approve
certain merger and consolidation agreements involving Crompton.
PLAN OF DISTRIBUTION
Under the terms of a Placement Agreement dated as of , 1996 (the
"Placement Agreement"), the shares of Common Stock offered hereby are being
offered by the Company through Salomon Brothers Inc, as exclusive placement
agent (the "Placement Agent"), which has agreed to use its best efforts to
solicit offers to purchase such shares on the terms and subject to the
conditions set forth therein. The shares of Common Stock offered hereby may also
be sold to the Placement Agent, acting as principal, at a discount for resale to
one or more purchasers at market prices prevailing at the time of sale or at
negotiated prices. After the Common Stock is released for sale to the public,
the offering price and other selling terms may be varied by the Placement Agent.
The Company shall have the right, in its discretion, to reject any offer
received by it, in whole or in part. The Placement Agent shall have the right,
in its discretion, without notice to the Company, to reject any offer received
by it, in whole or in part. The Company will pay the Placement Agent a
commission of % of the aggregate purchase price of the shares of Common Stock
offered hereby.
The Placement Agreement provides that Crompton will indemnify the Placement
Agent against certain liabilities in connection with the Offering, including
liabilities under the Securities Act, or to contribute to payments that the
Placement Agent may be required to make in respect thereof.
Payment of the purchase price of the shares of Common Stock offered hereby
will be required to be made in immediately available funds in The City of New
York.
Salomon Brothers Inc has provided financial advisory services to the Company
and to entities related to the Company and may in the future provide financial
advisory services to the Company or such other entities, for which it has
received or expects to receive customary fees.
LEGAL MATTERS
The validity of the shares of Crompton Common Stock offered hereby will be
passed upon for Crompton by Wachtell, Lipton, Rosen & Katz, special counsel to
Crompton.
EXPERTS
The consolidated financial statements of Crompton as of December 30, 1995
and December 31, 1994, and for the years ended December 30, 1995, December 31,
1994, and December 25, 1993, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Uniroyal as of October 1, 1995 and
October 2, 1994, and for the years ended October 1, 1995, October 2, 1994, and
September 30, 1993, have been included herein and in the Registration Statement
in reliance upon the report of Deloitte & Touche LLP, independent auditors,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE><CAPTION>
PAGE
----
<S> <C>
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS OF CROMPTON & KNOWLES CORPORATION:
Consolidated Statements of Earnings for the fiscal years ended December 30, 1995,
December 31, 1994, and December 25, 1993............................................. F-2
Consolidated Balance Sheets at December 30, 1995 and December 31, 1994............. F-3
Consolidated Statements of Cash Flows for the fiscal years ended December 30, 1995,
December 31, 1994, and December 25, 1993............................................. F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended December
30, 1995, December 31, 1994, and December 25, 1993............................... F-5
Notes to Consolidated Financial Statements......................................... F-6
Independent Auditors' Report....................................................... F-16
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF CROMPTON & KNOWLES CORPORATION:
Consolidated Statements of Earnings (Unaudited) for the quarters and six months
ended June 29, 1996 and July 1, 1995............................................. F-17
Consolidated Balance Sheets (Unaudited) at June 29, 1996 and December 30, 1995..... F-18
Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 29,
1996 and July 1, 1995................................................................ F-19
Notes to Consolidated Financial Statements for the quarter ended June 29, 1996
(Unaudited).......................................................................... F-20
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS OF UNIROYAL CHEMICAL CORPORATION:
Consolidated Statements of Operations for the fiscal years ended October 1, 1995,
October 2, 1994, and September 30, 1993.............................................. F-24
Consolidated Balance Sheets at October 1, 1995 and October 2, 1994................. F-25
Consolidated Statements of Stockholders' Equity (Deficit) for the fiscal years
ended October 1, 1995, October 2, 1994, and September 30, 1993................... F-26
Consolidated Statements of Cash Flows for the fiscal years ended October 1, 1995,
October 2, 1994, and September 30, 1993.............................................. F-27
Notes to Consolidated Financial Statements......................................... F-28
Independent Auditors' Report....................................................... F-53
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF UNIROYAL CHEMICAL CORPORATION:
Consolidated Statements of Operations (Unaudited) for the three months ended June
30, 1996, and July 2, 1995, and for the nine months ended June 30, 1996, and July
2, 1995.......................................................................... F-54
Consolidated Balance Sheets (Unaudited) at June 30, 1996 and October 1, 1995....... F-55
Consolidated Statements of Cash Flows (Unaudited) for the nine months ended June
30, 1996, and July 2, 1995....................................................... F-56
Notes to Unaudited Consolidated Financial Statements............................... F-57
</TABLE>
F-1
<PAGE>
CROMPTON & KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994,
AND DECEMBER 25, 1993
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $665,513 $589,757 $558,348
-------- -------- --------
Costs and Expenses
Cost of products sold..................................... 473,654 403,784 380,941
Selling, general and administrative....................... 104,535 91,581 82,970
Depreciation and amortization............................. 15,035 13,298 12,076
Interest.................................................. 8,364 2,167 1,093
Other income.............................................. (166) (1,042) (1,205)
-------- -------- --------
Total costs and expenses................................ 601,422 509,788 475,875
-------- -------- --------
Earnings
Earnings before income taxes.............................. 64,091 79,969 82,473
Income taxes.............................................. 23,598 29,053 30,515
-------- -------- --------
Net earnings.............................................. $ 40,493 $ 50,916 $ 51,958
-------- -------- --------
-------- -------- --------
Net Earnings Per Common Share............................... $ .84 $ 1.00 $ 1.00
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CROMPTON & KNOWLES CORPORATION
CONSOLIDATED BALANCE SHEETS
FISCAL YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Assets
Current Assets
Cash................................................................. $ 918 $ 1,832
Accounts receivable.................................................. 112,693 81,859
Inventories.......................................................... 154,846 157,356
Other current assets................................................. 23,038 19,610
-------- --------
Total current assets............................................. 291,495 260,657
Non-Current Assets
Property, plant and equipment........................................ 129,991 117,105
Cost in excess of acquired net assets................................ 51,922 43,429
Other assets......................................................... 10,730 11,137
-------- --------
$484,138 $432,328
-------- --------
-------- --------
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable........................................................ $ 60,439 $ 39,670
Accounts payable..................................................... 49,415 47,000
Accrued expenses..................................................... 35,136 33,369
Income taxes payable................................................. 3,747 4,138
Other current liabilities............................................ 16,578 14,865
-------- --------
Total current liabilities........................................ 165,315 139,042
-------- --------
Non-Current Liabilities
Long-term debt....................................................... 64,000 54,000
Accrued postretirement liability..................................... 7,559 8,698
Deferred income taxes................................................ 7,217 6,681
Stockholders' Equity
Common stock, $.10 par value--issued 53,361,072 shares............... 5,336 5,336
Additional paid-in capital........................................... 59,440 62,241
Retained earnings.................................................... 234,113 218,837
Accumulated translation adjustment................................... 6,320 1,858
Treasury stock at cost............................................... (62,972) (54,213)
Deferred compensation................................................ (2,190) (10,152)
-------- --------
Total stockholders' equity....................................... 240,047 223,907
-------- --------
$484,138 $432,328
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CROMPTON & KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994,
AND DECEMBER 25, 1993
INCREASE (DECREASE) TO CASH (IN THOUSANDS OF DOLLARS)
<TABLE><CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings............................................... $ 40,493 $ 50,916 $ 51,958
Adjustments to reconcile net earnings to net cash provided
by operations:
Depreciation and amortization............................ 15,035 13,298 12,076
Deferred income taxes.................................... 729 2,389 340
Deferred compensation.................................... 768 (332) 1,611
Changes in assets and liabilities:
Accounts receivable...................................... (27,234) 5,815 (11,798)
Inventories.............................................. 8,247 (34,695) (253)
Other current assets..................................... (3,080) (2,735) 722
Other assets............................................. (485) (943) 2
Accounts payable and accrued expenses.................... (4,719) (8,186) (4,937)
Income taxes payable..................................... 323 (7,986) 3,918
Other current liabilities................................ (1,938) 4,777 (1,435)
Accrued postretirement liability......................... (1,139) (386) 310
Other.................................................... (264) (175) (109)
-------- -------- --------
Net cash provided by operations............................ 26,736 21,757 52,405
-------- -------- --------
Cash Flows from Investing Activities
Acquisitions............................................... (9,538) (13,734) --
Capital expenditures....................................... (18,249) (21,710) (14,299)
Other investing activities................................. (1,505) 590 1,972
-------- -------- --------
Net cash used by investing activities...................... (29,292) (34,854) (12,327)
-------- -------- --------
Cash Flows from Financing Activities
Proceeds from (payments on) long-term borrowings........... 10,000 40,000 (10,000)
Change in notes payable.................................... 20,675 34,533 (282)
Treasury stock acquired.................................... (4,296) (47,647) (5,103)
Treasury stock issued under stock options and other
plans........................................................ 393 1,756 1,905
Dividends paid............................................. (25,217) (23,309) (19,482)
-------- -------- --------
Net cash provided (used) by financing activities........... 1,555 5,333 (32,962)
-------- -------- --------
Cash
Effect of exchange rates on cash........................... 87 312 (273)
-------- -------- --------
Change in cash............................................. (914) (7,452) 6,843
Cash at beginning of year.................................. 1,832 9,284 2,441
-------- -------- --------
Cash at end of year........................................ $ 918 $ 1,832 $ 9,284
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CROMPTON & KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994,
AND DECEMBER 25, 1993
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Common Stock
Balance at beginning and end of year...................... $ 5,336 $ 5,336 $ 5,336
-------- -------- --------
Additional Paid-in Capital
Balance at beginning of year.............................. 62,241 61,783 59,644
Stock options and other issuances......................... (410) 1,592 2,139
Return of shares from long-term incentive plan trust...... (2,391) -- --
Issuance under long-term incentive plan................... -- (1,134) --
-------- -------- --------
Balance at end of year.................................... 59,440 62,241 61,783
-------- -------- --------
Retained Earnings
Balance at beginning of year.............................. 218,837 191,230 158,754
Net earnings.............................................. 40,493 50,916 51,958
Cash dividends declared on common stock ($.525 per share
in 1995, $.46 in 1994, and $.38 in 1993)................ (25,217) (23,309) (19,482)
-------- -------- --------
Balance at end of year.................................... 234,113 218,837 191,230
-------- -------- --------
Accumulated Translation Adjustment
Balance at beginning of year.............................. 1,858 (557) 3,803
Equity adjustment for translation of foreign currencies... 4,462 2,415 (4,360)
-------- -------- --------
Balance at end of year.................................... 6,320 1,858 (557)
-------- -------- --------
Treasury Stock
Balance at beginning of year.............................. (54,213) (11,278) (7,956)
Issued, primarily under stock options (72,729 shares in
1995, 58,957 shares in 1994, and 489,976 in 1993)....... 340 276 1,781
Common stock acquired (272,800 shares in 1995, 2,954,700
shares in 1994 and 280,000 in 1993)......................... (4,296) (47,647) (5,103)
Return of shares from long-term incentive plan trust
(448,000 shares)........................................ (4,803) -- --
Issuance under long-term incentive plan (261,399
shares)..................................................... -- 4,436 --
-------- -------- --------
Balance at end of year.................................... (62,972) (54,213) (11,278)
-------- -------- --------
Deferred Compensation
Balance at beginning of year.............................. (10,152) (6,518) (8,129)
Return of shares from long-term incentive plan trust...... 7,194 -- --
Issuance under long-term incentive plan................... -- (3,302) --
Amortization.............................................. 768 (332) 1,611
-------- -------- --------
Balance at end of year.................................... (2,190) (10,152) (6,518)
-------- -------- --------
Total stockholders' equity................................ $240,047 $223,907 $239,996
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CROMPTON & KNOWLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of all
subsidiaries. Intercompany balances and transactions are eliminated in
consolidation. The Company's fiscal year ends on the last Saturday in December
for domestic operations and a week earlier for most foreign operations.
Translation of Foreign Currencies
Foreign currency accounts are translated into U.S. dollars as follows:
exchange rates at the end of the period are used to translate all assets and
liabilities; average exchange rates during the year are used to translate income
and expense accounts. Gains and losses resulting from the translation of foreign
currency balance sheet accounts into U.S. dollars are included in a separate
caption, "Accumulated translation adjustment," in the stockholders' equity
section of the consolidated balance sheets.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated
depreciation. Depreciation expense ($13,204 in 1995, $11,935 in 1994 and $10,828
in 1993) is computed generally on the straight-line method using the following
ranges of asset lives: buildings and improvements--10 to 40 years, machinery and
equipment--5 to 15 years, and furniture and fixtures--5 to 10 years.
Renewals and improvements which extend the useful lives of the assets are
capitalized. Capitalized leased assets and leasehold improvements are
depreciated over their useful lives or the remaining lease term, whichever is
shorter. Expenditures for maintenance and repairs are charged to expense as
incurred.
Inventory Valuation
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for a significant portion of
chemicals inventories and the first-in, first-out (FIFO) method for the
remaining inventories.
Cost in Excess of Acquired Net Assets
The cost of acquisitions in excess of tangible and identifiable intangible
assets in the amount of $51,922 has, in the opinion of management based on the
undiscounted expected cash flows of the businesses, incurred no permanent
impairment in value. This cost is being amortized using the straight-line method
over periods from twenty to forty years. Accumulated amortization amounted to
$8,281 in 1995 and $6,622 in 1994.
Research and Development
Expenditures for research and development costs are charged to operations as
incurred ($14,027 in 1995, $12,106 in 1994, and $11,184 in 1993).
Income Taxes
A provision has not been made for U.S. income taxes which would be payable
if undistributed earnings of foreign subsidiaries of approximately $72,400 at
December 30, 1995, were distributed to the Company in the form of dividends,
since it is management's intention to permanently invest such earnings in the
related foreign operations. If distributed, such earnings would incur income tax
expense at substantially less than the U.S. income tax rate, primarily because
of the offset of foreign tax credits.
F-6
<PAGE>
CROMPTON & KNOWLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Statements of Cash Flows
Cash includes bank term deposits of three months or less. Cash payments
during the years ended 1995, 1994 and 1993 included interest of $8,488, $2,005
and $1,556 and income taxes of $23,515, $35,319 and $24,347, respectively.
Earnings Per Common Share
The computation of earnings per common share is based on the weighted
average number of common and common equivalent shares outstanding amounting to
48,447,686 in 1995, 51,151,525 in 1994 and 52,175,691 in 1993. A dual
presentation of earnings per common share has not been made since there is no
significant difference in earnings per share calculated on a primary or fully
diluted basis.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" defines the fair value of a financial instrument
as the amount at which the instrument could be exchanged in a current
transaction between willing parties. Such fair values must often be determined
by using one or more methods that indicate value based on estimates of
quantifiable characteristics as of a particular date. Values were estimated as
follows:
Cash, short-term receivables and accounts payable--The carrying amount
approximates fair value because of the short maturity of these instruments.
Notes payable and long-term debt--Fair values of short-term borrowings
and long-term debt approximate carrying value because interest rates on such
debt are at variable market rates.
Hedging contracts--Consists primarily of forward foreign currency
contracts carried at market.
Other Disclosures
Included in accounts receivable are allowances for doubtful accounts in the
amount of $3,269 in 1995 and $3,829 in 1994. Included in other current
liabilities are customer deposits in the amount of $11,322 in 1995 and $11,183
in 1994.
Accounting Standard Changes
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" which is effective in 1996. The statement requires
companies to review assets for possible impairment and provides guidelines for
recognition of impairment losses related to long-lived assets and certain
intangibles. The Company is evaluating the impact of the statement, but expects
that the guidelines required by the statement will not result in impairment of
value that would have a material effect on the Company's net earnings and
financial position in 1996.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 "Accounting for Stock-Based Compensation" which is effective in 1996.
The Company intends to follow the option that permits entities to continue to
apply current accounting standards to stock based employee compensation
arrangements. Effective with year-end 1996 reporting, the Company will disclose
in the notes to the consolidated financial statements the impact on net earnings
and earnings per share as if Statement No. 123 were applied.
F-7
<PAGE>
CROMPTON & KNOWLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Acquisitions
In January 1995, the Company acquired the business and certain assets of
McNeil Akron Repiquet S.a.r.l. in France at a cost of $4,638. In March 1995, the
Company acquired Killion Extruders, Inc. at a cost of $4,900. The acquisitions
have been accounted for using the purchase method and, accordingly, the acquired
assets and liabilities have been recorded at their fair values at the dates of
acquisition. The excess cost of the purchase price over fair value of net assets
acquired in the amount of $9,649 is being amortized over forty years. The
operating results of each acquisition are included in the Consolidated
Statements of Earnings since the date of the acquisition.
Inventories
1995 1994
-------- --------
Finished goods........................................ $ 89,177 $ 90,386
Work in process....................................... 30,316 32,640
Raw materials and supplies............................ 35,353 34,330
-------- --------
$154,846 $157,356
-------- --------
-------- --------
At December 30, 1995, inventories valued using the last-in, first-out (LIFO)
method amounted to $70,550 ($75,958 at December 31, 1994). The LIFO reserve was
not significant in 1995 and 1994.
Property, Plant and Equipment
1995 1994
-------- --------
Land.................................................. $ 7,490 $ 7,292
Buildings and improvements............................ 71,677 61,926
Machinery and equipment............................... 133,111 113,296
Furniture and fixtures................................ 4,030 3,662
Construction in progress.............................. 12,975 16,620
-------- --------
229,283 202,796
Less accumulated depreciation......................... 99,292 85,691
-------- --------
$129,991 $117,105
-------- --------
-------- --------
Leases
The future minimum rental payments under operating leases having initial or
remaining non-cancellable lease terms in excess of one year (as of December 30,
1995) total $21,434 as follows: $5,533 in 1996, $4,254 in 1997, $3,637 in 1998,
$3,223 in 1999, $1,676 in 2000 and $3,111 in later years. Total rental expense
for all operating leases was $8,126 in 1995, $7,305 in 1994, and $6,509 in 1993.
All long-term leases expire prior to 2013. Real estate taxes, insurance and
maintenance expenses generally are obligations of the Company and, accordingly,
are not included as part of rental payments. It is expected that, in the normal
course of business, leases that expire will be renewed or replaced by leases on
other properties.
F-8
<PAGE>
CROMPTON & KNOWLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Debt
Long-term debt is summarized as follows:
1995 1994
------- -------
Revolving credit loans.................................. $60,000 $50,000
Industrial revenue bonds................................ 4,000 4,000
------- -------
Total long-term debt.............................. $64,000 $54,000
------- -------
------- -------
The industrial revenue bonds mature in 1997 and carry an interest rate that
fluctuates within the tax exempt market. The average interest rate incurred in
1995 was 3.8%. The bonds are secured by a bank letter of credit.
In June 1995, the Company amended its credit agreement with a group of five
banks whereby the unsecured revolving credit loans available to the Company were
increased to $125,000 through September 28, 1998. The agreement calls for
interest at the prime rate on revolving loans, but offers pricing options based
on certificate of deposit and Eurodollar rates which generally are more
favorable than the prime rate option. The Company must pay an annual fee of .15%
of the total unused commitment. The covenants of the revolving credit agreement
impose restrictions on the Company with respect to debt and tangible net worth
levels. These restrictions are not expected to adversely affect the Company's
operations. At December 30, 1995, the $60,000 borrowed under the revolving
credit agreement bore an interest rate of 6.2%. At December 30, 1995, unsecured
notes payable outstanding of $60,439 borrowed under the Company's uncommitted
lines of credit bore a variable interest rate of 6.0%.
The aggregate annual maturities of long-term debt are $4,000 in 1997 and
$60,000 in 1998.
Income Taxes
The components of pretax earnings and taxes are as follows:
1995 1994 1993
------- ------- -------
PreTax Earnings:
Domestic.................................... $59,306 $67,555 $68,498
Foreign..................................... 4,785 12,414 13,975
------- ------- -------
Total....................................... $64,091 $79,969 $82,473
------- ------- -------
------- ------- -------
Taxes:
Domestic
Current taxes............................. $21,500 $23,361 $27,857
Deferred taxes............................ 1,604 2,057 (587)
------- ------- -------
$23,104 $25,418 $27,270
------- ------- -------
------- ------- -------
Foreign
Current taxes............................... $ 1,369 $ 3,303 $ 2,318
Deferred taxes.............................. (875) 332 927
------- ------- -------
$ 494 $ 3,635 $ 3,245
------- ------- -------
------- ------- -------
Total
Current taxes............................... $22,869 $26,664 $30,175
Deferred taxes.............................. 729 2,389 340
------- ------- -------
$23,598 $29,053 $30,515
------- ------- -------
------- ------- -------
F-9
<PAGE>
CROMPTON & KNOWLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
The following is a percentage reconciliation of computed "expected" tax
expense to actual tax expense:
1995 1994 1993
---- ---- ----
Computed "expected" tax expense.................. 35.0% 35.0% 35.0%
State taxes (net of U.S. tax benefit)............ 4.3 3.6 3.6
Foreign tax differential......................... (1.8) (0.9) (2.0)
Other, net....................................... (0.7) (1.4) .4
---- ---- ----
36.8% 36.3% 37.0%
---- ---- ----
---- ---- ----
Provisions have been made for deferred income taxes based on differences
between financial statement and tax bases of assets and liabilities using
currently enacted tax rates and regulations. The components of the net deferred
tax asset as of December 30, 1995 and December 31, 1994, are as follows:
1995 1994
------- -------
Deferred tax asset:
Inventory reserves.................................... $ 3,596 $ 3,239
Bad debt reserves..................................... 515 232
Deferred compensation liability....................... 885 638
Various expense accruals.............................. 3,395 4,475
Accrued postretirement liability...................... 3,024 3,598
------- -------
Total deferred tax assets......................... 11,415 12,182
Deferred tax liability--depreciation.................... (10,241) (10,279)
------- -------
Net deferred tax asset............................ $ 1,174 $ 1,903
------- -------
------- -------
Total deferred tax assets for 1995 and 1994 include current assets of $8,391
and $8,584, respectively. The deferred tax liability is non-current for 1995 and
1994.
Capital Stock
The Company is authorized to issue 250,000,000 shares of common stock at a
par value of $.10. There are 53,361,072 common shares issued, of which 5,351,962
and 4,703,891 shares were held in the treasury at December 30, 1995 and December
31, 1994, respectively.
The Company is authorized to issue 250,000 shares of preferred stock without
par value, none of which are outstanding. Preferred share purchase rights
(Rights) outstanding with respect to each share of the Company's common stock
entitle the holder to purchase one eight-hundredth of a share of Series A Junior
Participating Preferred Stock at an exercise price of $18.75. The Rights cannot
become exercisable until ten days following a public announcement that a person
or group has acquired 20% or more of the common shares of the Company or intends
to make a tender or exchange offer which would result in their ownership of 20%
or more of the Company's common shares. The Rights also entitle the holder under
certain circumstances to receive shares in another company which acquires the
Company or merges with it.
Stock Incentive Plans
The 1988 Long Term Incentive Plan (the 1988 Plan) authorizes the Board to
grant stock options, stock appreciation rights, restricted stock and long-term
performance awards to the officers and other key employees of the Company over a
period of ten years. Non-qualified and incentive stock options
F-10
<PAGE>
CROMPTON & KNOWLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
may be granted under the 1988 plan at prices not less than 100% of the market
value on the date of the grant. All outstanding options will expire not more
than ten years and one month from the date of grant. There were 4,000,000 shares
of common stock reserved for awards under the 1988 Plan.
The 1993 Stock Option Plan for Non-Employee Directors authorizes 100,000
shares to be optioned to non-employee directors at the rate of their annual
retainer divided by the stock price on the date of grant. The option will vest
over a two year period and be exercisable over a ten year period from the date
of grant, at a price equaling the fair market value on the date of grant.
Under the 1988 Plan, 1,261,000 common shares have been transferred to an
independent trustee to administer restricted stock awards for the Company's long
term incentive program. At December 30, 1995 deferred compensation relating to
such shares in the amount of $2,190 is being amortized over an estimated service
period of six to fifteen years. In June 1995, the trustee returned 448,000
common shares to the Company representing those shares which have not yet been
earned under the incentive program. Compensation expense relating to unearned
shares is being accrued annually based upon the expected level of incentive
achievement.
Changes during 1995, 1994 and 1993 in shares under option are summarized as
follows:
<TABLE><CAPTION>
PRICE PER SHARE
-------------------------------
RANGE AVERAGE SHARES
------------ --------------- ---------
<S> <C> <C> <C>
Outstanding at 12/26/92............................. $ 1.29-22.78 $ 7.88 1,929,900
Granted............................................. 19.31-23.75 19.45 218,736
Exercised........................................... 1.29-18.31 2.87 (424,419)
Lapsed.............................................. 4.01-19.19 14.01 (6,667)
Outstanding at 12/25/93............................. 2.15-23.75 10.57 1,717,550
Granted............................................. 14.63-21.44 14.83 282,647
Exercised........................................... 2.15-9.31 5.59 (57,473)
Lapsed.............................................. 9.31-19.31 18.12 (27,001)
Outstanding at 12/31/94............................. 2.47-23.75 11.24 1,915,723
Granted............................................. 9.31-16.06 13.07 330,481
Exercised........................................... 2.49-9.31 6.40 (61,299)
Lapsed.............................................. 9.31-23.75 18.04 (23,791)
Outstanding at 12/30/95............................. $ 2.47-23.75 $ 11.59 2,161,114
Exercisable at 12/30/95............................. $ 2.47-23.75 $ 10.64 1,592,779
</TABLE>
Shares available for grant at December 30, 1995 and December 31, 1994 were
536,302 and 842,992, respectively.
The Company has an Employee Stock Ownership Plan that is offered to eligible
employees of the Company and certain of its subsidiaries. The Company makes
contributions equivalent to a stated percentage of employee contributions. The
Company's contributions were $2,020, $1,677 and $1,617 in 1995, 1994 and 1993,
respectively.
Postretirement Health Care Benefits
The Company provides health benefits attributable to past service of
eligible retired and active employees under the Company's postretirement health
care benefit plans. Effective January 1, 1992, the
F-11
<PAGE>
CROMPTON & KNOWLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Company adopted the provisions of FASB Statement No. 106 "Employers' Accounting
for Postretirement Benefits Other Than Pensions." In 1994, the Company adopted
several changes to its postretirement health care benefit plans including an
annual cap for medical premiums paid by the Company, higher deductible amounts
and out-of-pocket limits on medical payments. The plan amendments resulted in a
prior service gain of $3,254 which is being amortized over the average remaining
employee service period of 15 years. Postretirement health care benefit expense
did not have a material effect on net earnings for the years 1995, 1994 and
1993.
The financial status of the accrued postretirement liability is as follows:
1995 1994
------- ------
Retirees................................................. $ 3,834 $2,812
Fully eligible active participants....................... 662 608
Other active participants................................ 1,150 1,240
------- ------
Total accumulated postretirement liability............... 5,646 4,660
Unrecognized actuarial gain (loss)....................... (1,113) 784
Unrecognized prior service gain.......................... 3,026 3,254
------- ------
$ 7,559 $8,698
------- ------
------- ------
For measurement purposes, a 11.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1995. The rate is assumed
to decrease 1% per year to 6.5% in 2000 and remain at that level thereafter. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0%.
An increase in the assumed health care cost rate of 1% in each year would
increase the accumulated postretirement benefit obligation by approximately
$460.
Pensions
The Company maintains a defined contribution pension plan for eligible
employees under provisions of section 401(k) of the Internal Revenue Code. The
plan provides for Company contributions at a certain percentage of each
participant's salary and allows voluntary tax-deferred employee contributions up
to a stated percentage of salary. Other foreign and domestic pension plans are
not significant. Total pension expense aggregated $4,516 in 1995, $4,251 in 1994
and $4,036 in 1993.
Contingencies
In the normal course of its business, the Company is subject to
investigations, claims and legal proceedings, some of which concern
environmental matters, involving both private and governmental parties. In some
cases, the remedies sought or damages claimed may be substantial. While each of
these matters is subject to various uncertainties as to outcome, and some of
them may be decided unfavorably to the Company, based on the facts known to the
Company and on consultation with legal counsel, management believes that there
are no such matters pending or threatened which will have a material effect on
the financial position of the Company or the results of the Company's operations
in any given year.
F-12
<PAGE>
CROMPTON & KNOWLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Foreign Operations
Financial data applicable to the Company's foreign operations are as
follows:
1995 1994 1993
-------- ------- --------
Net sales................................... $113,280 $97,848 $103,356
Net earnings................................ $ 4,291 $ 8,779 $ 10,730
Assets...................................... $113,852 $90,508 $ 82,789
Business Segment Data
Sales by segment represent sales to unaffiliated customers only.
Intersegment sales and transfers between geographic areas are nominal and have
not been disclosed separately. Consolidated operating profit is defined as total
revenue less operating expenses. In computing consolidated operating profit, the
following items have not been deducted: interest expense, other income and
income taxes. Identifiable assets by segment are those assets that are used in
the Company's operations in each segment. Corporate assets are principally cash,
prepayments and other assets maintained for general corporate purposes.
Information by Business Segment
<TABLE><CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Sales
Specialty chemicals....................................... $385,647 $393,544 $407,280
Specialty process equipment and controls.................. 279,866 196,213 151,068
-------- -------- --------
$665,513 $589,757 $558,348
-------- -------- --------
-------- -------- --------
Operating Profit
Specialty chemicals....................................... $ 42,609 $ 60,783 $ 68,067
Specialty process equipment and controls.................. 40,154 31,195 25,967
General corporate expenses................................ (10,474) (10,884) (11,673)
-------- -------- --------
72,289 81,094 82,361
Interest expense.......................................... (8,364) (2,167) (1,093)
Other income.............................................. 166 1,042 1,205
-------- -------- --------
Earnings before income taxes.............................. $ 64,091 $ 79,969 $ 82,473
-------- -------- --------
-------- -------- --------
Identifiable Assets
Specialty chemicals....................................... $318,020 $313,457 $281,804
Specialty process equipment and controls.................. 150,320 103,151 69,279
-------- -------- --------
468,340 416,608 351,083
Corporate................................................. 15,798 15,720 12,163
-------- -------- --------
$484,138 $432,328 $363,246
-------- -------- --------
-------- -------- --------
Depreciation and Amortization
Specialty chemicals....................................... $ 11,510 $ 11,141 $ 10,628
Specialty process equipment and controls.................. 3,328 1,995 1,324
-------- -------- --------
14,838 13,136 11,952
Corporate................................................. 197 162 124
-------- -------- --------
$ 15,035 $ 13,298 $ 12,076
-------- -------- --------
-------- -------- --------
</TABLE>
F-13
<PAGE>
CROMPTON & KNOWLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Capital Expenditures
Specialty chemicals....................................... $ 15,076 $ 18,891 $ 12,057
Specialty process equipment and controls.................. 3,087 2,756 2,131
-------- -------- --------
18,163 21,647 14,188
Corporate................................................. 86 63 111
-------- -------- --------
$ 18,249 $ 21,710 $ 14,299
-------- -------- --------
-------- -------- --------
Information by Major Geographic Segment
1995 1994 1993
-------- -------- --------
Sales
United States............................................. $552,233 $491,909 $454,992
Europe.................................................... 94,347 88,693 93,808
Other..................................................... 18,933 9,155 9,548
-------- -------- --------
$665,513 $589,757 $558,348
-------- -------- --------
-------- -------- --------
Exports to Unaffiliated Customers
Included in United States sales:
Far East.................................................. $ 16,895 $ 19,858 $ 26,244
Latin America............................................. 12,225 15,027 10,183
Europe.................................................... 23,713 9,381 7,251
Other..................................................... 11,989 10,178 4,338
-------- -------- --------
64,822 54,444 48,016
-------- -------- --------
Included in European sales:
Far East.................................................. -- 10,117 8,649
Latin America............................................. 4,422 4,631 4,261
Other..................................................... 3,042 6,362 3,756
-------- -------- --------
7,464 21,110 16,666
-------- -------- --------
$ 72,286 $ 75,554 $ 64,682
-------- -------- --------
-------- -------- --------
Operating Profit
United States............................................. $ 77,893 $ 79,148 $ 79,536
Europe.................................................... 4,166 12,038 13,736
Other..................................................... 704 792 762
-------- -------- --------
82,763 91,978 94,034
General corporate expenses................................ (10,474) (10,884) (11,673)
-------- -------- --------
$ 72,289 $ 81,094 $ 82,361
-------- -------- --------
-------- -------- --------
Identifiable Assets
United States............................................. $370,286 $341,820 $280,457
Europe.................................................... 105,408 85,578 77,203
Other..................................................... 8,444 4,930 5,586
-------- -------- --------
$484,138 $432,328 $363,246
-------- -------- --------
-------- -------- --------
</TABLE>
F-14
<PAGE>
CROMPTON & KNOWLES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Summarized Unaudited Quarterly Financial Data
<TABLE><CAPTION>
1995
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales........................................ $168,193 $175,617 $159,065 $162,638
Gross profit..................................... 51,634 51,818 44,606 43,801
Net earnings..................................... 13,196 12,058 8,077 7,162
Net earnings per common share.................... .27 .25 .17 .15
Common dividends per share....................... .12 .135 .135 .135
Market price per common share:
High........................................... 17 3/8 20 15 3/4 14 7/8
Low............................................ 15 7/8 13 3/8 13 5/8 12
<CAPTION>
1994
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales........................................ $133,594 $154,452 $142,821 $158,890
Gross profit..................................... 42,684 50,952 44,025 48,312
Net earnings..................................... 12,758 16,107 10,224 11,827
Net earnings per common share.................... .25 .31 .20 .24
Common dividends per share....................... .10 .12 .12 .12
Market price per common share:
High........................................... 24 1/8 23 5/8 18 1/2 16 5/8
Low............................................ 19 5/8 17 3/8 15 7/8 13 7/8
</TABLE>
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and have been audited by KPMG Peat
Marwick LLP, Independent Certified Public Accountants, whose report is presented
herein.
Management of the Company assumes responsibility for the accuracy and
reliability of the financial statements. In discharging such responsibility,
management has established certain standards which are subject to continuous
review and are monitored through the Company's financial management and internal
audit group.
The Board of Directors pursues its oversight role for the financial
statements through its Audit Committee which consists of outside directors. The
Audit Committee meets on a regular basis with representatives of management, the
internal audit group and KPMG Peat Marwick LLP.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CROMPTON & KNOWLES CORPORATION
We have audited the consolidated balance sheets of Crompton & Knowles
Corporation and subsidiaries as of December 30, 1995 and December 31, 1994 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the fiscal years in the three-year period ended December 30,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Crompton &
Knowles Corporation and subsidiaries at December 30, 1995 and December 31, 1994
and the results of their operations and their cash flows for each of the fiscal
years in the three-year period ended December 30, 1995 in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Stamford, Connecticut
January 24, 1996
F-16
<PAGE>
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
QUARTERS AND SIX MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
-------------------- --------------------
JUNE 29, JULY 1, JUNE 29, JULY 1,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales........................................ $167,570 $175,617 $332,410 $343,810
-------- -------- -------- --------
Cost of products sold............................ 118,854 123,799 235,802 240,358
Selling, general and administrative.............. 27,564 26,736 54,658 52,158
Depreciation and amortization.................... 4,117 3,769 8,126 7,494
Interest......................................... 2,293 2,034 4,330 3,602
Other income..................................... (199) (13) (451) (241)
-------- -------- -------- --------
Total costs and expenses....................... 152,629 156,325 302,465 303,371
-------- -------- -------- --------
Earnings before income taxes..................... 14,941 19,292 29,945 40,439
Income taxes..................................... 5,229 7,234 10,765 15,185
-------- -------- -------- --------
Net earnings..................................... $ 9,712 $ 12,058 $ 19,180 $ 25,254
-------- -------- -------- --------
-------- -------- -------- --------
Net earnings per common share.................... $ .20 $ .25 $ .40 $ .52
-------- -------- -------- --------
-------- -------- -------- --------
Dividends per common share....................... $ .135 $ .135 $ .27 $ .255
-------- -------- -------- --------
-------- -------- -------- --------
Average shares outstanding....................... 48,499 48,577 48,499 48,569
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 29, 1996 AND DECEMBER 30, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE><CAPTION>
JUNE 29, DECEMBER 30,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................... $ 3,869 $ 918
Accounts receivable................................................ 128,173 112,693
Inventories........................................................ 170,147 154,846
Other current assets............................................... 29,070 23,038
-------- ------------
Total current assets........................................... 331,259 291,495
NON-CURRENT ASSETS
Property, plant and equipment...................................... 134,204 129,991
Cost in excess of acquired net assets.............................. 60,594 51,922
Other assets....................................................... 11,312 10,730
-------- ------------
$537,369 $484,138
-------- ------------
-------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable...................................................... $ 75,358 $ 60,439
Accounts payable................................................... 58,913 49,415
Accrued expenses................................................... 39,212 35,136
Income taxes payable............................................... 6,050 3,747
Other current liabilities.......................................... 21,089 16,578
-------- ------------
Total current liabilities...................................... 200,622 165,315
-------- ------------
NON-CURRENT LIABILITIES
Long-term debt..................................................... 79,000 64,000
Accrued postretirement liability................................... 7,768 7,559
Deferred income taxes.............................................. 7,170 7,217
STOCKHOLDERS' EQUITY
Common stock....................................................... 5,336 5,336
Additional paid-in capital......................................... 59,567 59,440
Retained earnings.................................................. 240,326 234,113
Accumulated translation adjustment................................. 2,301 6,320
Treasury stock at cost............................................. (62,831) (62,972)
Deferred compensation.............................................. (1,890) (2,190)
-------- ------------
Total stockholders' equity..................................... 242,809 240,047
-------- ------------
$537,369 $484,138
-------- ------------
-------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE><CAPTION>
JUNE 29, JULY 1,
1996 1995
-------- -------
<S> <C> <C>
Increase (decrease) to cash
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings........................................................... $ 19,180 $25,254
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and amortization........................................ 8,126 7,494
Deferred compensation................................................ 300 383
Changes in assets and liabilities, net............................... (18,638) (29,845)
-------- -------
Net cash provided by operations.................................. 8,968 3,286
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions........................................................... (15,713) (8,633)
Capital expenditures................................................... (6,209) (10,037)
Other investing activities............................................. (954) (584)
-------- -------
Net cash used by investing activities............................ (22,876) (19,254)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings..................................... 15,000 --
Change in notes payable................................................ 15,074 33,329
Net treasury stock activity............................................ 104 (3,395)
Dividends paid......................................................... (12,967) (12,361)
-------- -------
Net cash provided by financing activities........................ 17,211 17,573
-------- -------
CASH
Effect of exchange rates on cash....................................... (352) 110
-------- -------
Change in cash......................................................... 2,951 1,715
Cash at beginning of period............................................ 918 1,832
-------- -------
Cash at end of period.................................................. $ 3,869 $ 3,547
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 29, 1996 (UNAUDITED)
(IN THOUSANDS)
PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The information included in the foregoing consolidated financial statements
is unaudited but reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented.
Included in accounts receivable are allowances for doubtful accounts of
$3,017 in 1996 and $3,269 at December 30, 1995.
Accumulated depreciation amounted to $105,527 in 1996 and $99,292 at
December 30, 1995.
Accumulated amortization of cost in excess of acquired net assets amounted
to $9,044 in 1996 and $8,281 at December 30, 1995.
Other current liabilities primarily include customer deposits.
It is suggested that the interim consolidated financial statements be read
in conjunction with the consolidated financial statements and notes included in
the Company's 1995 Annual Report on Form 10-K.
CAPITAL STOCK
There are 53,361,072 common shares issued at $.10 par value, of which
5,321,763 shares and 5,351,962 shares were held in the treasury at June 29, 1996
and December 30, 1995, respectively.
INVENTORIES
Components of inventories are as follows
JUNE 29, DEC. 30,
1996 1995
-------- --------
Finished goods........................................ $ 96,213 $ 89,177
Work in process....................................... 37,993 30,316
Raw materials and supplies............................ 35,941 35,353
-------- --------
$170,147 $154,846
-------- --------
-------- --------
EARNINGS PER COMMON SHARE
The computation of earnings per common share is based on the weighted
average number of common and common equivalent shares outstanding. A dual
presentation of earnings per common share has not been made since there is no
significant difference in earnings per share calculated on a primary or fully
diluted basis.
ACQUISITIONS
In January 1996, the Company acquired ER-WE-PA, GMBH at a cost of $10,025
subject to audit adjustment. In April 1996, the Company acquired the Hartig line
of industrial blow molding systems at a cost of $5,688. The acquisitions have
been accounted for using the purchase method and, accordingly,
F-20
<PAGE>
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTER ENDED JUNE 29, 1996 (UNAUDITED)
(IN THOUSANDS)
the acquired assets and liabilities have been recorded at their fair values at
the dates of acquisition. The excess cost of the purchase price over fair value
of net assets acquired in the amount of $9,142 is being amortized over forty
years. The operating results of each acquisition are included in the
consolidated statements of earnings since the date of acquisition.
BUSINESS SEGMENT DATA
QUARTER ENDED
--------------------
JUNE 29, JULY 1,
1996 1995
-------- --------
SALES
Specialty chemicals................................... $ 96,935 $101,229
Specialty process equipment and controls.............. 70,635 74,388
-------- --------
$167,570 $175,617
-------- --------
-------- --------
OPERATING PROFIT
Specialty chemicals................................... $ 13,039 $ 13,133
Specialty process equipment and controls.............. 6,395 11,043
General corporate expense............................. (2,399) (2,863)
-------- --------
Operating profit...................................... 17,035 21,313
Interest expense...................................... (2,293) (2,034)
Other income.......................................... 199 13
-------- --------
Earnings before income taxes.......................... $ 14,941 $ 19,292
-------- --------
-------- --------
SIX MONTHS ENDED
--------------------
JUNE 29, JULY 1,
1996 1995
-------- --------
SALES
Specialty chemicals................................... $193,018 $203,771
Specialty process equipment and controls.............. 139,392 140,039
-------- --------
$332,410 $343,810
-------- --------
-------- --------
OPERATING PROFIT
Specialty chemicals................................... $ 25,830 $ 28,724
Specialty process equipment and controls.............. 13,501 21,100
General corporate expense............................. (5,507) (6,024)
-------- --------
Operating profit...................................... 33,824 43,800
Interest expense...................................... (4,330) (3,602)
Other income.......................................... 451 241
-------- --------
Earnings before income taxes.......................... $ 29,945 $ 40,439
-------- --------
-------- --------
F-21
<PAGE>
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTER ENDED JUNE 29, 1996 (UNAUDITED)
(IN THOUSANDS)
RECENT EVENT
Pursuant to an Agreement and Plan of Merger, dated as of April 30, 1996 (the
"Merger Agreement"), Crompton has agreed to the merger (the "Merger") of Tiger
Merger Corp., a Delaware corporation and a wholly owned subsidiary of Crompton
("Subcorp"), with and into Uniroyal Chemical Corporation, a Delaware corporation
("Uniroyal"), subject to the approval of the transaction by the stockholders of
each of Uniroyal and Crompton at special meetings thereof currently scheduled to
be held on August 21, 1996. The Board of Directors of Crompton has fixed the
close of business on July 9, 1996, as the record date for determination of
holders of Crompton common stock entitled to notice of and to vote at such
meeting of Crompton stockholders.
The Merger will be accounted for on a pooling-of-interests basis and will be
consummated on the terms and subject to the conditions set forth in the Merger
Agreement (which was filed by Crompton with the Commission as an exhibit to
Crompton's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996),
pursuant to which, among other things, (i) Subcorp will be merged with and into
Uniroyal as a result of which Uniroyal will become a wholly owned subsidiary of
Crompton, (ii) each issued and outstanding share (other than shares, if any,
held in the treasury of Uniroyal or held by Crompton or any of its subsidiaries,
which will be canceled) of common stock, $0.01 par value per share (together
with the attached preferred stock purchase rights, "Uniroyal Common Stock"), of
Uniroyal will be converted into 0.9577 shares of Crompton common stock (with
cash in lieu of fractional shares), and (iii) each issued and outstanding share
(other than shares, if any, held in the treasury of Uniroyal or held by Crompton
or any of its subsidiaries, which will be canceled, and other than shares as to
which dissenters' appraisal rights have been perfected) of Series A Cumulative
Redeemable Preferred Stock, par value $0.01 per share ("Series A Preferred
Stock"), of Uniroyal and of Series B Preferred Stock, par value $0.01 per share
("Series B Preferred Stock," and together with the Series A Preferred Stock,
"Uniroyal Preferred Stock"), of Uniroyal will be converted into 6.3850 shares of
Crompton common stock (with cash in lieu of fractional shares). It is currently
anticipated that the Merger will be consummated shortly after the special
meetings of Crompton and Uniroyal stockholders, assuming the Merger Agreement
and the Merger are approved at such meetings and all other conditions of the
Merger have been satisfied or waived.
Crompton, Uniroyal and the Directors of Uniroyal were named as defendants in
a purported class action lawsuit (the "Stockholder Action") filed in connection
with the proposed Merger in the Court of Chancery, County of New Castle, State
of Delaware. Fassbender v. Mazaika, C.A. No. 14980. The Stockholder Action
alleged, among other things, that defendant directors breached their fiduciary
duties by pursuing the Merger at an allegedly unfair and inadequate price; by
agreeing to the proposed Merger without having conducted an "auction process or
active market check" or a full and thorough investigation; and by agreeing to
the allegedly unfair terms of the Merger. The Stockholder Action was brought on
behalf of a purported class of persons consisting of the stockholders of
Uniroyal other than defendants.
Counsel for Uniroyal, Crompton and Subcorp and the counsel for plaintiff
entered into a memorandum of understanding (the "Memorandum of Understanding")
dated August 5, 1996 in connection with the settlement of the Stockholder
Action. Among other things, the Memorandum of Understanding provides that, in
full settlement of the claims asserted, (i) the Merger Agreement be amended so
as to reduce the fee payable to Crompton upon termination of the Merger
Agreement under certain circumstances from $50 million to $35 million, (ii)
Uniroyal promptly disseminate to Uniroyal
F-22
<PAGE>
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTER ENDED JUNE 29, 1996 (UNAUDITED)
(IN THOUSANDS)
stockholders its third quarter results, (iii) the defendants publicly disclose
the proposed settlement by a filing with the Commission and (iv) the plaintiff
withdraw his request for a preliminary injunction enjoining consummation of the
Merger. The Merger Agreement was amended as of August 7, 1996 to reduce the
termination fee as contemplated in the Memorandum of Understanding.
The consummation of the proposed settlement is subject to (i) completion by
the plaintiff of discovery, (ii) execution of definitive settlement documents,
(iii) notice to members of the plaintiff class and (iv) approval by the Delaware
Court of Chancery. In connection with the proposed settlement, the defendants
have agreed that they will not oppose plaintiff's counsel's application for an
award of fees and expenses not to exceed $350,000 in the aggregate, to be paid
by Crompton and/or Uniroyal.
Uniroyal and its directors have denied, and continue to deny, that any of
them have committed any violations of law or breaches of duty to plaintiff or
any member of the plaintiff class, Uniroyal or its stockholders, or anyone else.
The defendants entered into the Memorandum of Understanding in order to
eliminate the distraction and expense of further litigation.
F-23
<PAGE>
UNIROYAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE><CAPTION>
FISCAL YEAR
----------------------------------------
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................ $1,079,321 $ 946,454 $ 907,862
Operating costs and expenses:
Cost of products sold.............................. 758,970 675,578 651,021
Selling, general and administrative expenses....... 172,274 156,109 147,186
Write-off of intangible assets (Note 7)............ 191,000
---------- ----------- -----------
Operating income (loss).............................. 148,077 (76,233) 109,655
Interest expense (Note 8)............................ 114,034 128,567 120,567
Other income (expense), net.......................... 326 (125) (7,347)
---------- ----------- -----------
Income (loss) before provision (benefit) for income
taxes, extraordinary charges and cumulative effect
of accounting changes.............................. 34,369 (204,925) (18,259)
Provision (benefit) for income taxes (Note 11)....... (65,060) 8,918 6,533
---------- ----------- -----------
Income (loss) before extraordinary charges and
cumulative effect of accounting changes.............. 99,429 (213,843) (24,792)
Extraordinary charges--early retirement of debt
(Notes 3 and 8):
Debt Repurchase, net of income tax benefit of
$4,490........................................... (8,279)
The Company Refinancing, net of income tax benefit
of $700.............................................. (71,832)
Uniroyal Chemical Refinancing, net of income tax
benefit of $699...................................... (28,253)
Cumulative effect of accounting changes for:
Environmental restoration liability, net of income
tax benefit of $4,884 (Note 16).................. (11,530)
Other post retirement benefits, net of income tax
benefit of $28,913 (Note 12)......................... (100,326)
---------- ----------- -----------
Net income (loss).................................... 91,150 (213,843) (236,733)
Preferred stock dividends earned during the period... 395 292 267
---------- ----------- -----------
Net income (loss) applicable to common
stockholders....................................... $ 90,755 $ (214,135) $ (237,000)
---------- ----------- -----------
---------- ----------- -----------
Per share data:
Income (loss) before extraordinary charges and
cumulative effect of accounting changes.............. $ 5.34 $ (18.62) $ (2.08)
Extraordinary charges................................ (0.44) -- (8.40)
Cumulative effect of accounting changes.............. -- -- (9.38)
Preferred stock dividends............................ (0.02) (0.03) (0.02)
---------- ----------- -----------
Net income (loss) applicable to common
stockholders....................................... $ 4.88 $ (18.65) $ (19.88)
---------- ----------- -----------
---------- ----------- -----------
Weighted average number of shares outstanding........ 18,606,637 11,484,176 11,920,199
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-24
<PAGE>
UNIROYAL CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE><CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents (Note 4)............................... $ 29,519 $ 121,344
Accounts receivable--net (Notes 5 and 8)......................... 172,081 154,444
Inventories (Notes 2 and 8)...................................... 177,647 153,117
Deferred income taxes and other current assets................... 26,287 7,373
---------- ----------
Total current assets......................................... 405,534 436,278
Property, plant and equipment--net (Notes 2 and 6)................. 394,472 340,899
Investments in and advances to unconsolidated affiliates (Notes 2
and 7)............................................................. 31,355 27,403
Intangible assets--net (Notes 2 and 7)............................. 241,710 208,153
Deferred income taxes (Note 11).................................... 63,890 1,284
Deferred charges and other non-current assets--net (Note 2)........ 34,746 42,000
---------- ----------
$1,171,707 $1,056,017
---------- ----------
---------- ----------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Short-term debt.................................................. $ 33,305 $ 24,494
Current portion of long-term debt (Note 8)....................... 11,434 2,917
Accounts payable................................................. 94,826 82,386
Accrued payroll and employee benefits............................ 27,291 21,611
Accrued interest................................................. 25,988 30,454
Accrued income taxes............................................. 29,150 28,272
Other accrued expenses........................................... 23,936 18,551
---------- ----------
Total current liabilities.................................... 245,930 208,685
Long-term debt (Notes 3 and 8)..................................... 910,156 1,048,225
Postretirement benefits other than pensions (Note 12).............. 180,413 180,688
Accruals for environmental restoration (Note 16)................... 58,690 63,270
Pension liability (Note 13)........................................ 47,694 47,455
Other non-current liabilities...................................... 28.053 34,857
Commitments and contingencies (Notes 14, 15 and 16)
Redeemable capital stock (Note 10)................................. -- 24,996
Stockholders' equity (deficit) (Notes 3 and 10)
Preferred Stock, $0.01 par value; 50,000,000 shares authorized:
Series A cumulative redeemable preferred stock, 29,721 shares
issued and outstanding, stated at the total liquidation
preference......................................................... 2,972 2,972
Series B preferred stock, 12,000 shares issued and outstanding,
stated at the total liquidation preference......................... 1,200 1,200
Common Stock, $0.01 par value: 205,000,000 shares authorized,
25,289,831 shares issued (including 1,139,873 treasury shares)
(Note 3) 253 --
Common Stock, $0.01 par value:
Class A, 200,000,000 shares authorized, (8,702,179 shares
issued including 511,724 treasury shares).................... -- 87
Class B, 393,311 shares issued, including 16,691 treasury
shares............................................................. -- 4
Additional paid-in capital....................................... 176,799 --
Accumulated deficit.............................................. (447,460) (538,610)
Pension liability adjustment..................................... (3,617) (1,903)
Cumulative translation adjustment................................ (18,488) (9,964)
Treasury stock, at cost.......................................... (10,888) (5,945)
---------- ----------
Total stockholders' deficit.................................. (299,229) (552,159)
---------- ----------
$1,171,707 $1,056,017
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-25
<PAGE>
UNIROYAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE><CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ---------------------------- PAID-IN ACCUMULATED
SERIES A SERIES B NO CLASS CLASS A CLASS B CAPITAL DEFICIT
-------- -------- -------- ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1992...................... $ 81 $ 4 $ 274 $ (68,621)
Net loss........................................ (236,733)
Pension liability adjustment (Note 13)..........
Proceeds from the exercise of warrants (Note
10).............................................. 1 99
Purchase of shares for treasury.................
Translation adjustment..........................
Reclassification of Preferred Stock............. $2,972 $1,200
Adjustment of Redeemable Capital Stock carrying
value............................................ (350) (17,986)
Dividends on Preferred Stock.................... (980)
-------- -------- --- ------- ------- ---------- -----------
Balance, September 30, 1993...................... 2,972 1,200 82 4 23 (324,320)
Net loss........................................ (213,843)
Pension liability adjustment (Note 13)..........
Proceeds from the exercise of warrants (Note
10).............................................. 1 99
Purchase of shares for treasury.................
Translation adjustment..........................
Reclassification of Common Stock................ 4 4,061
Adjustment of Redeemable Capital Stock carrying
value............................................ (4,183) (447)
-------- -------- --- ------- ------- ---------- -----------
Balance, October 2, 1994......................... 2,972 1,200 87 4 (538,610)
Net income...................................... 91,150
Pension liability adjustment (Note 13)..........
Proceeds from the exercise of warrants (Note
10).............................................. $ 3 332
Purchase rights exercised....................... (38)
Translation adjustment..........................
IPO proceeds--net............................... 134 146,492
Reclassification of Common Stock (Note 10)...... 91 (87) (4)
Reclassification of Redeemable Capital Stock
(Note 10)........................................ 25 30,013
-------- -------- --- ------- ------- ---------- -----------
Balance, October 1, 1995......................... $2,972 $1,200 $253 $ -- $ -- $176,799 $(447,460)
-------- -------- --- ------- ------- ---------- -----------
-------- -------- --- ------- ------- ---------- -----------
<CAPTION>
PENSION CUMULATIVE
LIABILITY TRANSLATION TREASURY
ADJUSTMENT ADJUSTMENT STOCK TOTAL
---------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Balance, September 30, 1992.................................... $ (2,175) $ (4,370) $ (74,807)
Net loss...................................................... (236,733)
Pension liability adjustment (Note 13)........................ (506) (506)
Proceeds from the exercise of warrants (Note 10).............. 100
Purchase of shares for treasury............................... $ (5,757) (5,757)
Translation adjustment........................................ (5,798) (5,798)
Reclassification of Preferred Stock........................... 4,172
Adjustment of Redeemable Capital Stock carrying value......... (18,336)
Dividends on Preferred Stock.................................. (980)
---------- ----------- -------- ---------
Balance, September 30, 1993.................................... (2,681) (10,168) (5,757) (338,645)
Net loss...................................................... (213,843)
Pension liability adjustment (Note 13)........................ 778 778
Proceeds from the exercise of warrants (Note 10).............. 100
Purchase of shares for treasury............................... (188) (188)
Translation adjustment........................................ 204 204
Reclassification of Common Stock.............................. 4,065
Adjustment of Redeemable Capital Stock carrying value......... (4,630)
---------- ----------- -------- ---------
Balance, October 2, 1994....................................... (1,903) (9,964) (5,945) (552,159)
Net income.................................................... 91,150
Pension liability adjustment (Note 13)........................ (1,714) (1,714)
Proceeds from the exercise of warrants (Note 10).............. 335
Purchase rights exercised..................................... 99 61
Translation adjustment........................................ (8,524) (8,524)
IPO proceeds--net............................................. 146,626
Reclassification of Common Stock (Note 10).................... --
Reclassification of Redeemable Capital Stock (Note 10)........ (5,042) 24,996
---------- ----------- -------- ---------
Balance, October 1, 1995....................................... $ (3,617) $ (18,488) $(10,888) $(299,229)
---------- ----------- -------- ---------
---------- ----------- -------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-26
<PAGE>
UNIROYAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE><CAPTION>
FISCAL YEAR
---------------------------------
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Cash Flows from (used in) Operating Activities
Income (loss) before extraordinary charges and cumulative
effect of accounting changes................................ $ 99,429 $(213,843) $(24,792)
Adjustments for non-cash items:
Write-off of intangible assets.......................... 191,000
Depreciation............................................ 44,239 44,390 42,192
Amortization............................................ 20,844 28,451 35,600
Non-cash interest and amortization of debt expense...... 18,781 37,782 19,105
Gain on sales of assets, net (Note 18).................. (4,163)
Change in deferred income taxes (Note 11)............... (76,865) (3,569) (8,001)
Other non-cash charges, net............................. 590 3,417 3,392
Change in current assets and liabilities:
Accounts receivable..................................... (18,823) (8,336) (13,137)
Inventories............................................. (8,425) (12,497) (11,662)
Accounts payable........................................ 12,296 6,522 5,704
Other current assets and liabilities, net............... 8,067 9,539 (2,190)
Change in non-current liabilities......................... (13,905) (6,005) (1,057)
Other operating activities--net........................... (310) (919) 193
-------- --------- --------
Net cash flows from operating activities.................. 85,918 71,769 45,347
-------- --------- --------
Cash Flows from (used in) Investing Activities
Additions to property, plant and equipment................ (69,495) (30,380) (46,061)
Acquisitions, including working capital of $17,756 in 1995
(Note 18)................................................... (98,497) (6,231) (1,352)
Proceeds from sales of assets (Note 18)................... 26,006
Additional investments in affiliates...................... (5,636) (5,921)
Other investing activities--net........................... (1,202) 510 (215)
-------- --------- --------
Net cash flows used in investing activities............... (174,830) (16,016) (47,628)
-------- --------- --------
Cash Flows from (used in) Financing Activities
Issuance of long-term debt................................ 45,055 1,031,265
Repayments of long-term debt (including related
premiums)............................................... (197,768) (2,960) (977,585)
Debt issuance costs....................................... (2,945) (690) (42,151)
Short-term borrowings--net................................ 9,301 15,059 5,860
Proceeds from the Offering--net (Note 3).................. 146,626
Purchases of treasury stock............................... (1,161) (3,001) (5,757)
Other financing activities--net........................... (780) 562 229
-------- --------- --------
Net cash flows from (used in) financing activities........ (1,672) 8,970 11,861
-------- --------- --------
Effects of exchange rate changes on cash.................. (1,241) 401 (2,083)
-------- --------- --------
Increase (decrease) in cash and cash equivalents.......... (91,825) 65,124 7,497
Cash and cash equivalents, beginning of period............ 121,344 56,220 48,723
-------- --------- --------
Cash and cash equivalents, end of period.................. $ 29,519 $ 121,344 $ 56,220
-------- --------- --------
-------- --------- --------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest--net (Note 4).................................. $ 99,379 $ 89,968 $105,620
Income taxes............................................ 8,671 4,910 7,740
</TABLE>
See Notes to Consolidated Financial Statements.
F-27
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Uniroyal Chemical Corporation (formerly UCC Investors Holding, Inc.) (the
"Company") was incorporated in Delaware in December 1988 for the sole purpose of
acquiring Uniroyal Chemical Company, Inc. ("Uniroyal Chemical") in October 1989
(the "Acquisition"). Immediately following the Company Refinancing (see Note 8),
through a series of mergers, Uniroyal Chemical became a direct wholly-owned
subsidiary of the Company.
Uniroyal Chemical, a New Jersey corporation, directly and indirectly through
a number of domestic and foreign subsidiaries and affiliates, manufactures and
markets rubber chemicals and polymers, crop protection chemicals and other
specialty chemicals. The Company sells its rubber chemical and polymer products
primarily to the tire and automotive industries, commercial building and
construction materials manufacturers, and manufacturers of engineered rubber
products. Its crop protection chemicals are sold primarily to domestic
agricultural distributors, seed companies and multinational chemical companies
and its other specialty chemicals are sold primarily to plastics, petroleum,
petrochemical and recreational equipment manufacturers. The Company's products
are sold both domestically and internationally with approximately 40% of its
sales derived from markets outside the United States.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
During fiscal 1994, the Company conformed to a 52 or 53 week fiscal year
ending on the Sunday nearest September 30. The fiscal years for the financial
statements presented were for the 52 weeks ended October 1, 1995 and October 2,
1994 and the year ended September 30, 1993.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its majority owned subsidiaries. Other companies in which the Company has a
20% to 50% ownership and exercises significant management influence are
accounted for in accordance with the equity method. All significant intercompany
accounts and transactions have been eliminated.
Translation
Balance sheet accounts denominated in foreign currencies are translated
generally at the current rate of exchange as of the balance sheet date, while
revenues and expenses are translated at average rates of exchange during the
periods presented. The cumulative foreign currency adjustments resulting from
such translation are reported as a component of stockholders' equity (deficit).
For foreign subsidiaries operating in highly inflationary economies, principally
the Brazilian operations, monetary balance sheet accounts and related revenues
and expenses are translated at current rates of exchange while non-monetary
balance sheet accounts and related revenues and expenses are translated at
historical exchange rates. The resulting translation gains and losses related to
those countries are reflected in operations. Operations for fiscal years 1995
and 1994 included translation gains of $1.6 million and $2.7 million,
respectively, while fiscal year 1993 included a translation loss of $1.9
million. In addition, foreign currency transaction losses charged to operations
for fiscal years 1995, 1994 and 1993 were $3.8 million, $6.6 million and $4.3
million, respectively.
F-28
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
a monthly average basis for the materials component and on a first-in, first-out
(FIFO) basis for other components. A summary of inventory components is as
follows:
1995 1994
-------- --------
(IN THOUSANDS)
Finished goods........................................ $129,263 $107,923
Work in process....................................... 7,437 8,453
Raw materials......................................... 40,947 36,741
-------- --------
$177,647 $153,117
-------- --------
-------- --------
Property, Plant and Equipment
Property, plant and equipment is stated at cost and where appropriate,
includes interest capitalized during construction. Depreciation and amortization
is computed using the straight-line method over the estimated useful lives of
the assets which range from 2 to 39 years.
Intangible Assets
The cost of patents and unpatented technology is amortized over their
estimated useful lives averaging approximately eleven years. The excess of cost
over the fair value of net assets of businesses acquired is being amortized on a
straight-line basis over twenty to forty years. A summary of intangible assets
is as follows:
<TABLE><CAPTION>
1995 1994
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Excess of cost over net assets acquired, net of accumulated
amortization of $21,281 and $17,194.................................. $133,726 $121,894
Patents and unpatented technology, net of accumulated amortization of
$58,457 and $48,374.................................................... 51,867 59,070
-------- --------
Other intangible assets, net of accumulated amortization of $29,356 and
$25,607.............................................................. 56,117 27,189
-------- --------
$241,710 $208,153
-------- --------
-------- --------
</TABLE>
Each year the Company evaluates the recoverability of the carrying value of
the intangible assets of each of its businesses by assessing whether the
projected earnings and cash flows of each of its businesses is sufficient to
recover the existing unamortized cost of these assets. On this basis, if the
Company determined that any assets have been permanently impaired, the amount of
the impaired asset is written-off against earnings in the quarter in which the
impairment is determined. See Note 7 for further discussion of intangible
assets.
Deferred debt issuance expenses are being amortized using the interest
method over the expected terms of the respective debt.
F-29
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Research and Development
Research and development costs, which are expensed as incurred, were $37.8
million, $34.2 million and $32.4 million during fiscal years 1995, 1994 and
1993, respectively.
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.
NOTE 3--INITIAL PUBLIC OFFERING AND DEBT REPURCHASE
During the second quarter of fiscal 1995, the Company completed an initial
public offering (the "Offering") and sold 13,350,000 shares of its common stock
at $12.00 per share. The proceeds of the Offering, after deducting underwriting
discounts, other fees and expenses were $146.6 million. The net proceeds along
with $45.7 million of available cash and borrowings under the 1993 Credit
Facility were used to (i) retire an aggregate of $181.7 million of the Company's
12% Subordinated Discount Notes, 11% Senior Subordinated Notes, and 10.5% Senior
Notes (collectively the "Debt Repurchase") and (ii) pay related premiums and
accrued interest. Interest expense will be reduced by approximately $20.9
million annually as a result of the Debt Repurchase (see Note 20).
As a result of the Debt Repurchase, the Company recognized an extraordinary
charge of $8.3 million comprised of redemption premiums ($5.9 million), and the
write-off of unamortized financing fees ($6.9 million), net of related tax
benefit of $4.5 million.
NOTE 4--CASH AND CASH EQUIVALENTS
The Company considers cash in banks, certificates of deposit and commercial
paper maturing within 90 days of issuance as cash and cash equivalents for the
purposes of reporting cash flows. Cash and cash equivalents presented on the
balance sheet include cash equivalents of $5.7 million and $90.2 million at
October 1, 1995 and October 2, 1994, respectively.
NOTE 5--ACCOUNTS RECEIVABLE
Accounts receivable, net, consisted of the following:
1995 1994
-------- --------
(IN THOUSANDS)
Trade accounts receivable............................. $162,169 $133,356
Notes receivable...................................... 1,812 2,435
Due from affiliates................................... 5,864 8,740
Other receivables..................................... 5,109 12,365
Less--allowance for doubtful accounts................. (2,873) (2,452)
-------- --------
$172,081 $154,444
-------- --------
-------- --------
F-30
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
1995 1994
--------- ---------
(IN THOUSANDS)
Land and land improvements.......................... $ 22,223 $ 16,619
Buildings and building improvements................. 75,315 65,423
Machinery and equipment............................. 508,724 444,303
Less--accumulated depreciation and amortization..... (211,790) (185,446)
--------- ---------
$ 394,472 $ 340,899
--------- ---------
--------- ---------
NOTE 7--WRITE-OFF OF INTANGIBLE ASSETS
As stated in Note 2, it has been the policy of the Company to evaluate the
recoverability of the carrying value of the intangible assets of each of its
businesses by assessing whether the projected earnings and cash flows of each of
its businesses is sufficient to recover the existing unamortized cost of these
assets. On this basis, if the Company determines that any assets have been
permanently impaired, the amount of the impaired asset is written-off against
earnings in the current period.
In connection with the Company's acquisition of Uniroyal Chemical in 1989,
the $800 million purchase price resulted in the recognition of identifiable
intangible assets such as patented and unpatented technology and trademarks and
tradenames which are attributable to specific businesses and the recognition of
goodwill which was allocated to the businesses based on their pro rata
profitability at the time of the acquisition.
For the period subsequent to the acquisition through September 1993, the
Company's operating income had grown at a compound annual rate of 1.0%
principally because of flat earnings of the Chemicals and Polymers ("C&P")
Division during this period of time. These results were due principally to
prolonged recessionary conditions in many of the industrialized regions of the
world and economic difficulties in Eastern Europe, the former Soviet Union and
Brazil. While these factors impacted the C&P business since 1990, and had
prevented earnings in this business from growing, in calendar 1994 there was a
pronounced acceleration in the downward pricing pressure on rubber chemical
products that began in October 1993 which caused a decline in earnings of the
C&P business in fiscal 1994. The existence of excess capacity in the marketplace
and an increasing trend by customers in the automotive and tire industries
worldwide who sought to lower their operating costs in part through price
reductions from their suppliers were the primary factors causing this pricing
pressure. Due to that recent decline in earnings, management projected earnings
and cash flow of the C&P business through the year 2028 (40 years from the date
of the 1989 acquisition). The projection reflected competitive conditions
affecting selling prices and an assumption that per unit manufacturing costs
would be maintained at current levels. Selling, general and administrative costs
were expected to increase at the expected rate of inflation of 3%. Capital
spending was limited to maintaining current manufacturing capacity plus amounts
expected to be necessary to comply with current environmental regulations. This
projected level of future cash flow indicated that the Company could have been
required to refinance a portion of its debt at maturity because projected cash
flow alone would not have been sufficient to repay such debt. Based on this
projection of undiscounted operating income before amortization of intangible
assets and after considering interest on indebtedness and payments for
environmental restoration, the Company concluded that the existing unamortized
cost of the intangible
F-31
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--WRITE-OFF OF INTANGIBLE ASSETS--(CONTINUED)
assets associated with the C&P business could not be recovered from future cash
flows from this business, and the value of such assets was therefore permanently
impaired. Consequently, the Company wrote off the $191.0 million carrying value
of such assets during the quarter ended March 31, 1994, comprised of goodwill
($119.1 million), patented and unpatented technology ($54.0 million), trademarks
and tradenames ($11.7 million) and investments in affiliates ($6.2 million), to
reflect the Company's best estimates of future operating results and cash flows.
Management believes that the intangible assets associated with the Company's
other two businesses, Crop Protection and Specialties, are recoverable from the
projected cash flows of their respective businesses and are therefore not
impaired.
NOTE 8--LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE><CAPTION>
1995 1994
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt--the Company:
10.5% Senior Notes Due 2002........................................ $283,078 $ 300,000
11% Senior Subordinated Notes Due 2003............................. 232,175 325,000
12% Subordinated Discount Notes Due 2005........................... 91,857 148,476
-------- ----------
Total long-term debt--the Company.............................. 607,110 773,476
-------- ----------
Long-term debt--Uniroyal Chemical:
9% Senior Notes Due 2000........................................... 270,000 270,000
Italian Financing.................................................. 39,468 --
Bahamian Financing................................................. 3,812 6,353
Other.............................................................. 1,200 1,313
-------- ----------
Total long-term debt--Uniroyal Chemical........................ 314,480 277,666
-------- ----------
Less--Amounts due within one year.................................. (11,434) (2,917)
-------- ----------
Total long-term debt........................................... $910,156 $1,048,225
-------- ----------
-------- ----------
</TABLE>
THE COMPANY'S DEBT
The Company Refinancing
On February 8, 1993, the Company completed a refinancing plan (the "Company
Refinancing") designed to improve its operating and financial flexibility by
reducing its future interest expense, extending the maturity of a substantial
portion of its debt and enhancing its liquidity. The Company Refinancing
included the following primary components: (i) the issuance of $300 million of
10.5% Senior Notes Due 2002, $325 million of 11.0% Senior Subordinated Notes Due
2003 and $125 million initial accreted value of 12.0% Subordinated Discount
Notes Due 2005 (collectively the "New Notes"); (ii) the repayment of the
Company's 14% Senior Discount Notes and Uniroyal Chemical Acquisition
Corporation's ("UCAC"), Uniroyal Chemical's parent company prior to UCAC's
merger with and into the Company, 13.5% Senior Subordinated Notes and 14.25%
Subordinated Notes (collectively the "Old Notes"); and (iii) the restructuring
of the Company's then existing holding company structure (see
F-32
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--LONG-TERM DEBT--(CONTINUED)
Note 1). The Company Refinancing resulted in an extraordinary charge of $71.8
million, during the second quarter of fiscal 1993, comprised of redemption
premiums on the Old Notes ($52.3 million) and the write-off of unamortized debt
issuance costs and debt discounts (together $14.1 million) and other fees and
expenses ($6.1 million), net of a related tax benefit of $0.7 million.
10.5% Senior Notes
The 10.5% Senior Notes Due 2002 (the "10.5% Senior Notes") were issued by
UCC Investors Holding, Inc. ("Holding") (now the Company), and are unsecured.
The 10.5% Senior Notes are not redeemable prior to maturity except that up to
$105 million aggregate principal amount is redeemable, in whole or in part, at
the option of the Company from the proceeds of one or more public stock
offerings of the Company at 110% of the principal then outstanding, plus accrued
and unpaid interest, if redeemed at any time prior to February 1, 1996 (See Note
3).
11% Senior Subordinated Notes
The 11% Senior Subordinated Notes Due 2003 (the "11% Senior Subordinated
Notes") were issued by Holding (now the Company) and are unsecured. The 11%
Senior Subordinated Notes are redeemable in whole or in part, at the option of
the Company at any time after May 1, 1998, at prices commencing at 105.5% of par
of the then outstanding principal amount, plus accrued and unpaid interest,
declining ratably to par by May 1, 2000. In addition, up to $113.75 million
aggregate principal amount is redeemable in whole or in part at the option of
the Company from the proceeds of one or more public stock offerings of the
Company at 110% of the principal amount then outstanding, plus accrued and
unpaid interest, at any time prior to February 1, 1996 (See Note 3).
12% Subordinated Discount Notes
The 12% Subordinated Discount Notes Due 2005 (the "12% Subordinated Discount
Notes") were issued by Holding (now the Company), and after the Debt Repurchase,
have a final accreted value of $126.6 million at May 1, 1998 and are unsecured.
Beginning May 1, 1998, cash interest will accrue on these securities and will be
payable semiannually. The 12% Subordinated Discount Notes are redeemable in
whole or in part, at the option of the Company anytime after May 1, 1998, at
100% of their principal amount, plus accrued and unpaid interest. In addition,
an amount representing an aggregate of up to 35% of their principal amount at
maturity, in whole or in part, is redeemable at the option of the Company, from
the proceeds of one or more public stock offerings at a redemption price
(expressed as a percentage of accreted value as of the redemption date) plus
accrued and unpaid interest at 111%, if redeemed prior to February 1, 1996 (see
Note 3).
Upon a change in control (as defined in the related indentures), the Company
shall make an offer to purchase the New Notes at a purchase price equal to 101%
of the principal amounts (or accreted value), thereof, plus accrued and unpaid
interest.
UNIROYAL CHEMICAL DEBT
Uniroyal Chemical Refinancing
On September 1, 1993, Uniroyal Chemical completed a refinancing plan (the
"Uniroyal Chemical Refinancing") designed to further improve the Company's
operating and financial flexibility and enhance its opportunities for growth by
extending the maturity of a significant portion of its debt and
F-33
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--LONG-TERM DEBT--(CONTINUED)
enhancing its liquidity. The Uniroyal Chemical Refinancing consisted of proceeds
from the offering of $270 million principal amount of 9% Senior Notes Due 2000
(the "9% Senior Notes") which together with available cash was used to redeem
and repay $270 million aggregate principal amount of Uniroyal Chemical's Senior
Secured Notes due March 31, 1997 (the "Senior Secured Notes"). In connection
with the Uniroyal Chemical Refinancing, Uniroyal Chemical recognized an
extraordinary charge of $28.3 million comprised of redemption premiums $(27.3
million), the write-off of unamortized debt issue costs $(5.7 million), the
write-off of an unamortized deferred gain related to a previously settled
interest rate swap contract $(4.2 million) and other fees and expenses $(0.2
million), net of a related tax benefit of $0.7 million.
9% Senior Notes
The 9% Senior Notes were issued by Uniroyal Chemical and are unsecured. The
9% Senior Notes are not redeemable prior to maturity, except upon a change in
control (as defined in the related indenture) whereupon Uniroyal Chemical shall
make an offer to purchase the 9% Senior Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest. The 9% Senior Notes rate pari passu in right of payment with all
existing and future senior indebtedness of Uniroyal Chemical, including the 1993
Credit Facility.
Italian Financing
During the second quarter of fiscal 1995, Uniroyal Chemical's subsidiary in
Italy borrowed $56.7 million (the "Italian Financing") to purchase the worldwide
crop protection business of Solvay Duphar B.V. (the "Duphar Acquisition"). The
Italian Financing is comprised of a long-term amount of $44.8 million (the
"Loan") and a revolving credit facility amount of $11.9 million (the "Facility")
and terminates on March 31, 2000. The Loan requires ten semiannual principal
payments beginning on September 30, 1995 with the last payment due on March 31,
2000. The interest rate on the Loan is based on the Italian interbank rate
offered in Rome (RIBOR) or the interbank interest rate offered on London
(LIBOR), as set forth in the Italian Financing loan agreement, and resets at
each semiannual principal payment date. The interest rate on the Loan at October
1, 1995 was 12.8%. Cash advances under the Facility may be disbursed with one,
two, three or six month maturities determined by the Company's request. The
interest rate on each cash advance under the Facility is determined on the same
basis as the Loan and must be repaid at the maturity date. Outstanding
borrowings under the Facility at October 1, 1995 were $6.2 million with an
interest rate of 12.4%. The Italian Financing is secured by mortgages on certain
of the property, plant and equipment owned by Uniroyal Chemical's Italian
subsidiary.
Bahamian Financing
During the first fiscal quarter of 1993, Uniroyal Chemical's subsidiary in
the Bahamas borrowed $10.8 million under a financing arrangement (the "Bahamian
Financing") guaranteed by the Overseas Private Investment Corporation ("OPIC"),
a United States quasi-governmental agency. The proceeds of the Bahamian
Financing were used to repay Uniroyal Chemical in the United States for advances
made to the Bahamian subsidiary in connection with the 1991 purchase and
retrofitting of a manufacturing facility in that country. The Bahamian Financing
requires quarterly principal payments aggregating $2.5 million in fiscal year
1996 and $1.3 million in fiscal year 1997. These payments will be funded from
the operations of the Bahamian facility. The interest rate on the Bahamian
Financing is
F-34
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--LONG-TERM DEBT--(CONTINUED)
fixed at approximately 7.6% and interest is payable quarterly. The Bahamian
Financing is secured by a mortgage on certain of the property, plant and
equipment at the aforementioned facility.
Credit Commitments
During 1990, Uniroyal Chemical, together with a wholly-owned subsidiary,
Gustafson, Inc., entered into a $100 million credit agreement (the "Credit
Facility") with a syndicate of banks led by Citibank N.A., as agent. In
connection with the Uniroyal Chemical Refinancing, Uniroyal Chemical renewed and
extended the Credit Facility pursuant to an amended and restated credit
agreement (the "1993 Credit Facility"). Borrowings under the 1993 Credit
Facility are limited to the lesser of (i) a borrowing base related to the amount
of supporting collateral or (ii) $100 million and in each case reduced by
certain letters of credit, guarantees and collateral for interest rate swap
agreements. The borrowings are secured by domestic accounts receivable and
inventory. The borrowings under the 1993 Credit Facility at October 1, 1995 were
$17.6 million, however, Uniroyal Chemical could have borrowed up to $71.2
million from this facility. Uniroyal Chemical also has lines of credit, which
are principally unsecured, available to finance foreign operations. Unused
foreign lines of credit at October 1, 1995 aggregated $38.1 million. The average
amount of short-term borrowings outstanding during the periods ending October 1,
1995, October 2, 1994 and September 30, 1993 were $28.1 million, $10.2 million,
and $7.4 million, respectively. The weighted average interest rate on short-term
borrowings at October 1, 1995, October 2, 1994, and September 30, 1993 was 8.8%,
5.8% and 8.2%, respectively.
Debt Covenants
The Company's various debt agreements contain covenants which limit their
ability to incur additional debt, pay cash dividends or make certain other
payments. The 1993 Credit Facility requires Uniroyal Chemical to maintain
certain financial ratios and to maintain an agreed upon level of net worth.
Payments from Uniroyal Chemical to the Company (with certain exceptions) are
generally limited to funds needed to service debt, to pay dividends on the
Company's preferred stock and for certain other purposes. If the Company or any
of its subsidiaries is in default of payment or other provisions permitting
acceleration under any agreement governing debt with a principal amount in
excess of $5.0 million, Uniroyal Chemical would be prohibited from transferring
any funds to the Company.
Maturities
At October 1, 1995, the scheduled maturities of long-term debt during the
next five fiscal years were: 1996--$11.4 million; 1997--$9.9 million;
1998--$10.1 million; 1999--$11.6 million and 2000-- $271.2 million.
NOTE 9--FINANCIAL INSTRUMENTS
At October 1, 1995, the Company had an interest rate swap contract
outstanding with a major financial institution. Net receipts or payments on the
Swap are accrued and recognized as adjustments to interest expense. It is the
Company's practice to monitor the financial standing of the counterparties to
its interest rate swap contracts. The Company is exposed to credit losses in the
event of counterparty nonperformance, but does not anticipate such
nonperformance.
F-35
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--FINANCIAL INSTRUMENTS--(CONTINUED)
Effective on September 22, 1993, the Company entered into the Swap with a
notional principal amount of $270.0 million (which is equal to the principal
amount of the Uniroyal Chemical Senior Notes). The Swap required the Company to
make semiannual payments to its counterparty of an amount equal to six month
LIBOR and required the counterparty to make semiannual payments in an amount
equal to the lesser of (i) 5.24% or (ii) 10.23% less the six month LIBOR. The
interest rates on the Swap reset every six months in arrears, except for the
first two semiannual periods for which the Company received approximately $3.7
million in fiscal 1994. As a result of the increased interest rate environment
during fiscal 1994, the Company accrued $14.3 million in fiscal 1994,
representing the estimated cost of marking to market the option embedded in the
Swap.
During fiscal 1994, the Company amended the Swap which requires the Company
to make semiannual payments to its counterparty of an amount equal to a six
month LIBOR and requires the counterparty to make semiannual payments at a fixed
rate of 5.24%. The Company's floating interest rate resets every six months in
arrears beginning on March 22, 1995 with the last payment due on December 10,
1999. The Company paid approximately $2.6 million under the Swap in fiscal 1995.
The Company locked in LIBOR rates for the March 22, 1996 and September 22, 1996
settlement dates at weighted average interest rate of 6.43% and 6.23%,
respectively. These weighted average interest rates will result in net payments
to the counterparty of approximately $1.7 million at March 22, 1996 and $1.5
million at September 22, 1996. A settlement of the fair market value of the Swap
as of October 1, 1995, would require a payment to the counterparty of
approximately $12.8 million.
The company remains sensitive to changes in prevailing interest rates
because approximately $72.8 million of indebtedness of the Company at October 1,
1995 effectively bears interest at a floating rate. Accordingly, a 1.0% change
in prevailing interest rates would result in a $0.7 million change in annual
interest expense. Beyond fiscal 1996, an additional $270 million of notional
principal will effectively bear interest at a floating rate and therefore, a 1%
change in prevailing interest rates would result in an additional $2.7 million
change in annual interest expense.
The carrying amounts for cash and cash equivalents, accounts receivable,
short-term debt, accounts payable and other accrued liabilities approximate fair
value because of the short maturities of these instruments. The market values of
long-term debt (including current portion) were $935.1 million and $1,057.8
million at October 1, 1995 and October 2, 1994, respectively, and have been
determined based on quoted market prices. However, these securities are
generally not redeemable except upon a change in control (as defined in the
related indentures) or in the case of a public stock offering (See Note 3).
NOTE 10--STOCKHOLDERS' EQUITY (DEFICIT)
Series A and Series B Preferred Stock
During fiscal 1993, certain members of management (the "Management
Investors") sold all of their Series A and Series B Preferred Stock (including
those shares held in treasury) to an outside interest. In connection with such
sale, the Management Investors repaid $1.1 million of non-recourse secured
promissory notes (the "Management Notes") in their entirety. The effect of these
transactions was to reduce Redeemable Capital Stock of the Company by
approximately $3.1 million. The Company offset this reduction with a credit of
$4.2 million to stockholders' equity net of an increase in cash of $1.1 million
from the repayment of the Management Notes.
F-36
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
No dividends were paid by the Company on its Series A Preferred Stock and
Series B Preferred Stock during fiscal 1995 and 1994. During fiscal 1993, the
Company paid dividends on its Series A Preferred Stock and Series B Preferred
Stock for approximately $938,000 and $42,000, respectively. Cash dividends may
be restricted by the Companies various debt agreements (see Note 8).
The Series A Cumulative Redeemable Preferred Stock ("Series A Preferred
Stock") is redeemable at the option of the Company at any time at a per share
redemption price of $100 plus all accrued and unpaid dividends. Dividends accrue
at the prime interest rate (the "Dividend Rate") and are payable quarterly when,
as and if declared by the Board of Directors. Cash dividends may be restricted
by the Company's various debt agreements (see Note 8). Any unpaid dividends will
compound at the Dividend Rate. Following the registration of the Series A
Preferred Stock under the Securities Act of 1933, as amended, if dividends are
in arrears for four or more quarters (whether consecutive or not) subsequent to
October 31, 1994, the holders of Series A Preferred Stock voting as a class,
have the right to elect an additional director of the Company until all
dividends in arrears have been paid. The holders of the Series A Preferred Stock
have no other voting rights except as provided by law. The Series A Preferred
Stock ranks junior to the Series B Preferred Stock as to dividends and equal to
the Series B Preferred Stock as to liquidation. Dividends in arrears on the
Series A Preferred Stock at October 1, 1995 were $0.6 million.
The Series B Preferred Stock is redeemable at the option of the Company at
any time at a per share redemption price of $100 plus all accrued and unpaid
dividends. Dividends accrue at the prime interest rate and are payable
semiannually when, as and if declared by the Board of Directors. Cash dividend
payments may be restricted by Companies' various debt agreements (see Note 8).
The holders have no voting rights except as provided by law. Dividends in
arrears on the Series B Preferred Stock at October 1, 1995 were $0.2 million.
Rights Plan
On April 29, 1993, the Board of Directors of the Company declared a dividend
distribution of one right (the "Right") for each outstanding share of Common
Stock to stockholders of record. Each Right entitles the registered holder to
purchase from the Company a unit consisting of one-hundredth of a share (a
"Unit") of Series C Junior Participating Preferred Stock, par value $.01 per
share (the "Series C Preferred Stock"), at a purchase price of $60 per Unit,
subject to adjustment. Under certain circumstances and subject to certain
limitations, upon the occurrence of certain events, the Rights may become rights
to purchase Common Stock or common stock of an acquiring company. As of October
1, 1995, no Rights to purchase shares of the Series C Preferred Stock were
exercised and no Rights to purchase Common Stock were exercisable.
Redeemable Capital Stock
As a result of the Offering, the Company decreased its stockholders' deficit
significantly. In addition, amounts previously presented as redeemable capital
stock were reclassified as part of stockholders' deficit. Upon consummation of
the Offering, the stock owned by management and included in redeemable capital
stock was no longer redeemable. In addition, all shares of Class A Common Stock
and Class B Common Stock were converted into an equal number of shares of Common
Stock concurrent with the completion of the Offering.
F-37
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
Stock Options, Warrants and Purchase Rights
<TABLE><CAPTION>
OCTOBER 2, OCTOBER 1,
1994 ADDITIONS REDUCTIONS 1995
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Warrants.......................................... 556,930 -- (335,000) 221,930
Purchase Right Plan............................... 757,030 -- (31,150) 725,880
1993 Stock Option Plan............................ 1,860,758 150,000 (154,780) 1,855,978
</TABLE>
In connection with the Acquisition, the Company issued warrants to purchase
up to 856,930 shares, subject to adjustment, of Class A Common Stock (now
"Common Stock") of the Company initially for $1 per share (the "Exercise
Price"). The holder may exercise these warrants, in whole or in part, until they
expire on October 30, 1999. The Exercise Price may be voluntarily reduced by the
Company's Board of Directors or otherwise adjusted in accordance the the terms
of the Warrant Agreement. During fiscal 1995, 335,000 warrants were exercised
while in each of fiscal years 1994 and 1993, 100,000 warrants were exercised.
On October 30, 1989, the Company approved a stock purchase plan (as amended,
the "Purchase Right Plan") pursuant to which rights to purchase (the "Purchase
Rights") up to 757,030 shares of Class B Common Stock may be granted to certain
participating senior members of management of the Company (the "Participants").
As of February 1, 1991, December 1, 1991, January 1, 1993, and September 30,
1994, the Board of Directors distributed Purchase Rights, of which Purchase
Rights for 133,356, 201,621, 34,343 and 356,560 shares of Common Stock,
respectively, are still outstanding. The exercise price for the Purchase Rights
distributed on February 1, 1991 is $3.00 per share, the exercise price for the
Purchase Rights distributed on January 1, 1993 and December 1, 1991 is $5.00 per
share and the exercise price for the Purchase Rights distributed on September
30, 1994 is $13.00. As of October 1, 1995, Purchase Rights for 725,880 shares
were outstanding under the Purchase Right Plan. Each Purchase Right is
non-transferable and is subject to expiration following termination of the
Participants employment under certain circumstances or fiscal year 2004, if
earlier.
The Company amended its Stock Appreciation Plan effective January 1, 1993,
with certain employees other than Management Investors. The Stock Appreciation
Plan provides for awards which, upon a triggering event (certain extraordinary
events, as defined, such as an initial public offering), entitle the
participant, for each vested stock appreciation unit held, the difference
between $1.00 and the fair market value of a share of Common Stock (defined as
the lesser of (i) $5.00 per share or (ii) the fair market value of a share of
Common Stock). Compensation expense related to outstanding stock appreciation
rights ("SAR's") equal to the difference between the lesser of $5.00 per share
or the fair market value of the Class B Common Stock and $1.00 was accrued over
the vesting period, which ended October 2, 1994. Compensation expense charged to
operations during fiscal years 1994 and 1993 related to outstanding SAR's was
$0.3 million for each year. As a result of the IPO, the Company paid
approximately $1.2 million as awards under the Stock Appreciation Plan. In
addition, pursuant to the 1993 Stock Option Plan (as described below), each plan
participant was granted a non-qualified stock option for each performance and
term unit held under the Stock Appreciation Plan. The exercise price of the
option is $5.00 per share.
Effective as of January 1, 1993, the Company adopted the 1993 Stock Option
Plan for officers, other key employees and non-employee directors of the Company
(the "Stock Option Plan"). The Stock Option Plan provides that the Company may
grant incentive stock options, non-qualified stock options or SAR's. The maximum
number of shares that may be issued or transferred pursuant to the options or
F-38
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--STOCKHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
SAR's is 3,500,000. The options are generally exercisable for a period of ten
years from the date of grant. The options generally will vest one-third on the
first anniversary of the date of grant and one-third of each of the following
two anniversaries of such date of grant. Options will otherwise vest upon the
first to occur of: (i) a change in control of ownership or (ii) involuntary
termination of the optionee's employment without cause. The Stock Option Plan
also allows for the grant of SAR's, which cover the same shares as covered by
the options. A SAR under the Stock Option Plan is exercisable to the extent the
related stock option is exercisable. Upon the exercise of such SAR, the related
stock option is cancelled and conversely, when an option is exercised, the
corresponding SAR is cancelled. As of October 1, 1995, 261,315 options under the
Stock Option Plan have been granted at $5.00 per share, 40,000 have been granted
at $11.25 per share and 12,000 have been granted at $13.00 per share of which
261,315 are to SAR holders (all at $5.00 per share) and are fully vested, and
52,000 to non-employee directors which vest as described above.
Pursuant to the Stock Option Plan, options to purchase an aggregate of
1,370,663 shares of Common Stock at a price of $11.25 per share were granted in
November 1993 and options to purchase 175,000 shares of Common Stock at a price
of $13.00 per share were granted in September 1994 and in both cases at the
estimated fair market value at the date of the grants. One half of these options
(the "Time Options") become exercisable on the third anniversary of the date of
the grant or upon a change of control of the Company, unless, in either case,
the employee is terminated for any reason in which case the Time Options will
terminate. The other half of these options (the "Performance Options") became
exercisable upon the completion of the Offering (see Note 3).
On November 8, 1995, the Company filed Registration Statements on Form S-8
to register 757,030 shares pursuant to the Purchase Rights Plan and 2,000,000
shares pursuant to the Stock Option Plan. On May 4, 1993 the Company also filed
a Registration Statement on Form S-8 to register 1,500,000 shares pursuant to
the Stock Option Plan.
In October 1993, the Company adopted the 1993 Uniroyal Chemical Corporation
Employee Incentive/Liquidity Plan (the "Incentive Plan") which was designed to
provide certain senior executives and other key personnel with an equity-based
incentive and to provide some immediate liquidity for the Management Investors
and participants in the Employee Stock Purchase Plan who desired to sell common
shares at that time. The Incentive Plan provided for a limited amount of
liquidity for participants and, during March 1994, 309,598 shares of Class B
Common Stock held by certain of the Management Investors and 34,877 shares of
Class B Common Stock held by participants in the Employee Stock Purchase Plan
(some of whom were also Management Investors), respectively, were sold pursuant
to the Incentive Plan. Such shares were reclassified as Class A Common Stock. In
addition, in connection with the Incentive Plan, certain members of senior
management agreed not to sell or otherwise transfer any shares of common stock
held by them for a three-year period, subject to certain exceptions.
F-39
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--INCOME TAXES
The provision (benefit) for income taxes on operations are as follows:
<TABLE><CAPTION>
FISCAL YEAR ENDED
----------------------------
1995 1994 1993
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................................ $ 2,427 $ 585 $4,153
Foreign........................................................ 9,234 6,895 6,158
State.......................................................... 1,326 5,030 4,226
-------- ------ ------
12,987 12,510 14,537
-------- ------ ------
Deferred:
Federal........................................................ (67,683) -- (5,584)
Foreign........................................................ (4,064) (2,447) (1,279)
State.......................................................... (6,300) (1,145) (1,141)
-------- ------ ------
(78,047) (3,592) (8,004)
-------- ------ ------
$(65,060) $8,918 $6,533
-------- ------ ------
-------- ------ ------
</TABLE>
Included in income from operations before taxes for the fiscal years 1995,
1994 and 1993 was $17.1 million, $11.0 million and $2.9 million, respectively,
of income from foreign operations.
The provision (benefit) for taxes on income differs from the United States
statutory rate for the following reasons:
<TABLE><CAPTION>
FISCAL YEAR ENDED
-------------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision (benefit) for income taxes at statutory tax rate.... $ 12,029 $(71,724) $(6,345)
Increase (decrease) resulting from the following:
Goodwill write-off (Note 7)................................. -- 42,718 --
Impact of valuation allowance............................... (78,880) 34,931 --
Foreign dividends and withholding taxes, net of federal
benefit....................................................... 2,367 2,136 3,602
Goodwill amortization....................................... 1,092 1,680 2,277
Other permanent differences................................. 348 978 937
Foreign income tax rate differential........................ (2,127) (1,786) 1,388
State income taxes, net of federal benefit.................. 555 (433) 2,133
Effect of tax rate changes.................................. -- -- 759
Other, net.................................................. (444) 418 1,782
Actual provision (benefit) for income taxes................. $(65,060) $ 8,918 $ 6,533
-------- -------- -------
-------- -------- -------
</TABLE>
F-40
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--INCOME TAXES--(CONTINUED)
The provision (benefit) for deferred income taxes, resulting from
differences in the amount of deferred tax assets and deferred tax liabilities
from period to period, were due to the following:
<TABLE><CAPTION>
FISCAL YEAR ENDED
-------------------------------
1995 1994 1993
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Impact of valuation allowance................................. $(78,880) $34,931 --
Intangible asset write-off (Note 7)........................... -- (28,496) --
Amortization (principally intangibles)........................ (5,456) (8,749) $(10,578)
Interest rate swap transactions............................... 1,074 (5,651) 593
Net operating loss ("NOL"), alternative minimum tax ("AMT")
and other tax credit carryforwards............................ 4,622 4,929 (2,069)
Excess of tax over book depreciation.......................... 66 1,841 4,521
Sale of product line.......................................... -- (1,599) --
Effect of tax rate changes.................................... -- 654 492
Deductible (nondeductible) accruals........................... (1,063) (464) (421)
Other, net.................................................... 1,590 (988) (542)
-------- ------- --------
$(78,047) $(3,592) $ (8,004)
-------- ------- --------
-------- ------- --------
</TABLE>
The components of total deferred tax assets and liabilities were as follows:
<TABLE><CAPTION>
1995 1994
---- ----
(IN
MILLIONS)
Deferred tax assets
<S> <C> <C>
Other postretirement benefits............................................... $ 70 $ 70
NOL carryforwards and AMT credit carryforwards.............................. 46 47
Accruals for environmental restoration...................................... 23 25
Pensions.................................................................... 15 18
Accrued liabilities--current................................................ 10 5
Other non-current liabilities............................................... 9 10
Inventories................................................................. 3 4
Other....................................................................... 3 5
---- ----
$179 $184
---- ----
---- ----
Deferred tax liabilities
Property, plant, and equipment--net......................................... $ 54 $ 55
Patents and unpatented technology--net...................................... 20 22
Deferred charges and other non-current assets--net.......................... 2 2
Investments in and advances to unconsolidated affiliates.................... 2 2
Other....................................................................... -- 2
---- ----
$ 78 $ 83
---- ----
---- ----
</TABLE>
The Company had established a valuation allowance of $99 million (of which
$94 million was in the United States) at October 2, 1994 against its deferred
tax assets primarily as a result of a significant net operating loss
carryforward position in the United States. The Company believes that due to the
Debt Repurchase (see Note 3) and expected future taxable income, it is more
likely than not that a significant portion of these deferred tax benefits will
be realized, and therefore, the valuation allowance
F-41
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--INCOME TAXES--(CONTINUED)
was reduced in fiscal 1995. Accordingly, the Company has included a benefit of
$78.9 million for this reduction in its tax provisions for fiscal 1995. At
October 1, 1995, the Company has a valuation allowance of $19 million (of which
$15 million is in the United States).
At October 1, 1995, the Company had NOL carryforwards of $100.5 million,
expiring in the year 2008, which can be used to reduce future Federal taxable
income, while certain of the Company's foreign subsidiaries had aggregate NOL
carryforwards of $20.8 million which can be used to reduce future taxable income
in those countries. As a result of the Offering (see Note 3), the Company has
undergone an "ownership change" within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended. Consequently, the Federal NOL
carryforward is subject to an annual limitation as prescribed thereunder.
At October 1, 1995, the Company had unremitted earnings of foreign
subsidiaries of $39.3 million for which a deferred tax liability had not been
recognized. Corporate laws in foreign countries limit the extent of the
repatriation of annual earnings for certain of the Company's foreign
subsidiaries while for others, the Company's intention is to permanently
reinvest these foreign earnings. A change in foreign corporate law and/or a
change in the Company's reinvestment policy would result in the recognition of a
deferred tax liability. In addition, the determination of the amount of the
unrecognized deferred tax liability for the temporary difference related to
investments in foreign subsidiaries and foreign corporate joint ventures that
are essentially permanent in duration is not practicable.
NOTE 12--POSTRETIREMENT BENEFITS OTHER THAN PENSION
Postretirement benefits other than pensions represent unfunded future
obligations of the Company and are comprised of the following:
1995 1994
-------- --------
(IN THOUSANDS)
Other postretirement benefits......................... $176,650 $176,800
Other postemployment benefits......................... 3,763 3,888
-------- --------
$180,413 $180,688
-------- --------
-------- --------
The Company provides certain health care and life insurance benefits for
substantially all retired associates and their beneficiaries and covered
dependents in the United States and Canada. Other posretirement benefits for
retired associates of the Company in other countries are covered by
government-sponsored plans. Effective October 1, 1992, the Company adopted
Statement of Financial Accounting Standards No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106") which requires the
Company to accrue, while associates are working, the expected cost of providing
such postretirement benefits to associates, their beneficiaries and covered
dependents.
In adopting SFAS 106, the Company recognized the transition obligation as a
one-time charge against earnings. The cumulative effect of this accounting
change resulted in a non-cash charge to earnings of $100.3 million (net of
related tax benefit of $28.9 million) effective October 1, 1992.
F-42
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--POSTRETIREMENT BENEFITS OTHER THAN PENSION--(CONTINUED)
The Company's net periodic postretirement benefit cost included the
following components:
<TABLE><CAPTION>
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period................... $1,303 $2,444 $ 3,912
Interest cost on accumulated postretirement benefit obligation... 9,878 11,303 13,418
Government contributions......................................... -- (1,414) (4,586)
Actual return on assets.......................................... (677) (365) (543)
Curtailment gain................................................. -- (448) --
Net amortization and deferral.................................... (5,718) (7,590) 319
------ ------ -------
Net periodic postretirement benefit cost......................... $4,786 $3,930 $12,520
------ ------ -------
------ ------ -------
</TABLE>
Postretirement benefits generally are not pre-funded, except for certain
plans funded by the United States government, and are paid by the Company as
incurred. A reconciliation of the funded status of the plans to the amounts
recorded in the Company's balance sheet is set forth below.
<TABLE><CAPTION>
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Fully eligible and other active plan participants.................... $ (39,059) $ (43,031)
Retirees............................................................. (96,688) (88,745)
--------- ---------
Accumulated postretirement benefit obligation........................ (135,747) (131,776)
Plan assets at fair value (primarily cash equivalents and marketable
securities).......................................................... 7,639 9,072
--------- ---------
Funded status........................................................ (128,108) (122,704)
Unrecognized prior service cost...................................... (48,679) (54,535)
Unrecognized net loss................................................ 137 439
--------- ---------
Accrued postretirement benefit cost recorded......................... $(176,650) $(176,800)
--------- ---------
--------- ---------
Assumptions used to calculate the net periodic postretirement benefit cost
and to measure the accumulated postretirement benefit obligation are as follows:
<CAPTION>
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Weighted-average Discount Rate..................................... 7.50% 8.00% 7.25%
Expected Long-term Rate of Return on Plan Assets................... 3.60% 3.60% 3.60%
</TABLE>
The decrease in the weighted-average discoutn rate at October 1, 1995, had
the effect of increasing the accumulated postretirement benefit obligation at
such date by $5.6 million.
The assumed health care cost trend rate used was approximately 12%
initially, decreasing gradually to approximately 6% in year 2020 and thereafter.
An increase in the assumed health care trend rates of 1% in each year would
increase the aggregate of service and interest cost for 1995 by $0.4 million and
would increase the October 1, 1995 accumulated postretirement benefit obligation
by $6.1 million.
In November 1992, the FASB issued Statement of Financial Accounting
Standards No. 112, "Employers Accounting for Postemployment Benefits" ("SFAS No.
112") which requires the Company
F-43
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--POSTRETIREMENT BENEFITS OTHER THAN PENSION--(CONTINUED)
to accrue for benefits payable to employees when they leave the Company other
than by reason of retirement. SFAS No. 112 was adopted by the Company in fiscal
1995 and did not have a material effect on the Company's financial position or
results of operation.
NOTE 13--PENSIONS
The Company has defined benefit plans covering substantially all associates
in the United States and Canada. The Company also has defined contribution plans
covering substantially all asociates in the United States and a portion of the
associates in Canada. Pension benefits for retired associates of the Company in
other countries are covered by government-sponsored plans. The defined benefit
plans provide retirement benefits based on the associates' years of service and
compensation during employment. The aggregate cost of all retirement plans
during fiscal years 1995, 1994 and 1993 was $13.0 million, $10.0 million and
$10.1` million, respectively. The Company will make contributions to the defined
benefit plans at least equal to the minimum amounts required by law, while
contributions to the defined contribution plans are determined as a percentage
of each covered associates' salary.
The Company's net periodic pension cost for the defined benefit plans
included the following components:
<TABLE><CAPTION>
FISCAL YEAR
-------------------------------
1995 1994 1993
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period................ $ 4,847 $ 4,102 $ 3,528
Interest cost on projected benefit obligation................. 11,885 10,116 10,384
Actual return on plan assets.................................. (13,442) (2,732) (10,973)
Net amortization and deferral................................. 6,389 (4,070) 4,666
-------- ------- --------
Net periodic pension cost..................................... $ 9,679 $ 7,416 $ 7,605
-------- ------- --------
-------- ------- --------
1995 1994 1993
----------- ----- -----
For plans in which accumulated benefits exceed assets:
Weighted-average Discount Rate.......................... 6.50%--7.50% 8.00% 7.25%
Expected Long-term Rate of Return....................... 6.75%--9.00% 9.00% 9.00%
Rate of Compensation Increase........................... 3.00%--5.50% 5.50% 5.50%
For plans in which assets exceed accumulteed benefits:
Weighted-average Discount Rate.......................... 8.00% 8.00% 8.00%
Expected Long-term Rate of Return....................... 8.00% 8.00% 8.00%
Rate of Compensation Increase........................... 6.00% 6.00% 6.00%
</TABLE>
The weighted average discount rate used in the determination of the
projected benefit obligation for plans in the United States for which
accumulated benefits exeed assets, at October 1, 1995, was decreased from 8.00%
to 7.50% which had the effect of increasing the projected benefit obligation and
accrued pension cost at such date by $8.8 million and $1.0 million,
respectively.
Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions," required the Company to recognize an additional pension liability
during 1995 and 1994 at least equal to each plan's unfunded accumulated benefit
obligation with an equal amount to be charged as either an
F-44
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--PENSIONS--(CONTINUED)
intangible asset or a reduction of equity. As of October 1, 1995, an additional
liability of $3.6 million and a charge to stockholders' equity of $3.6 million
have been recorded.
The funded status of the defined benefit pension plans and a reconciliation
of the funded status to the amounts recorded in the Company's balance sheet is
set forth below:
<TABLE><CAPTION>
1995 1994
-------------------------- --------------------------
ACCUMULATED ASSETS ACCUMULATED ASSETS
BENEFITS EXCEED BENEFITS EXCEED
EXCEED ACCUMULATED EXCEED ACCUMULATED
ASSETS BENEFITS ASSETS BENEFITS
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Vested benefit obligation.................... $(126,103) $ (15,128) $ (98,170) $ (14,335)
Non-vested benefit obligation................ (7,374) (6,944)
----------- ----------- ----------- -----------
Accumulated benefit obligation......... (133,477) (15,128) (105,114) (14,335)
----------- ----------- ----------- -----------
Excess of projected benefit obligation over
accumulated benefit obligation............... (15,109) (1,562) (15,410) (1,762)
----------- ----------- ----------- -----------
Projected benefit obligation........... (148,586) (16,690) (120,524) (16,097)
Plan assets at fair value (primarily cash
equivalents and marketable securities)....... 89,931 18,909 72,990 17,846
----------- ----------- ----------- -----------
Funded status.......................... (58,655) 2,219 (47,534) 1,749
Unrecognized prior service cost.............. 15,689 (691) 4,808 (744)
Unrecognized net (gain) loss................. (1,111) 370 (2,826) 932
Unrecognized net transition asset............ (542) (656)
Adjustment to recognize minimum liability.... (3,617) (1,903)
----------- ----------- ----------- -----------
Prepaid (accrued) pension cost
recorded..................................... $ (47,694) $ 1,356 $ (47,455) $ 1,281
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The data in the above table excludes amounts related to two domestic defined
benefit plans because the cost of such plans is reimbursed by the United States
government and any excess funding would revert to the government. As of the date
of the last actuarial valuation (January 1, 1994), the plan assets at fair value
exceeded the projected benefit obligation for both of these plans.
The Company's net periodic pension cost for defined contribution plans was
$3.3 million, $2.7 million and $2.8 million for the fiscal years 1995, 1994 and
1993, respectively.
The Company maintains a retirement plan for certain key executives which
provides for supplemental payments upon retirement, disability or death. The
obligations are not pre-funded. The Company charged $0.7 million, $0.8 million
and $0.8 million to expense for these benefits during the fiscal years 1995,
1994 and 1993, respectively.
F-45
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--LEASES
The Company leases manufacturing, warehouse, transportation and office
facilities and equipment. The leases generally provide that the Company pay the
taxes, insurance and maintenance expenses related to the leased assets.
At October 1, 1995, future minimum lease payments required under
non-cancelable operating leases are as follows:
FISCAL YEAR (IN THOUSANDS)
- -------------------------------------------------------------- --------------
1996 $ 7,403
1997 6,972
1998 6,408
1999 6,155
2000 5,585
Thereafter 1,597
--------------
$ 34,120
--------------
--------------
Rent expenses under operating leases for the fiscal years 1995, 1994 and
1993 was $6.6 million, $6.2 million and $6.0 million, respectively.
NOTE 15--COMMITMENTS
In connection with the Duphar Acquisition, the Company assumed an annual
commitment to purchase a certain raw material from a Japanese supplier through
December 31, 1996. The Company is required to purchase a certain minimum
quantity of this raw material at a guaranteed price (in Japanese yen), as
specified in the contract. For calendar year 1996, the Company's commitment is
approximately $9 million at current exchange rates, which approximates market.
The Company does not intend to renew this arrangement in its current "take or
pay" form.
NOTE 16--CONTINGENCIES
Chemical companies are subject to extensive environmental laws and
regulations concerning, among other things, emissions to the air, discharges to
land, surface, subsurface strata, and water and the generation, handling,
storage, transportation, treatment and disposal of waste and other materials and
are also subject to federal, state and local laws and regulations regarding
health and safety matters.
The ongoing operations of chemical manufacturing plants entail risks in
these areas, and there can be no assurance that material costs or liabilities
will not be incurred. In addition, future developments, such as increasingly
strict requirements of environmental and health and safety laws and regulations
and enforcement policies thereunder, could bring into question the handling,
manufacture, use, emission or disposal of substances or pollutants at facilities
owned, used or controlled by the Company or the manufacture, use, emission or
disposal of certain products or wastes by the Company and could involve
potentially material expenditures. To meet changing permitting and regulatory
standards, the Company may be required to make significant site or operational
modifications, potentially involving substantial expenditures and reductions or
suspension of certain operations.
F-46
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--CONTINGENCIES--(CONTINUED)
In November 1993, the Louisiana Department of Environmental Quality
("LaDEQ") instituted an enforcement action in the nature of a compliance order
("Order") against the Company's Geismar, Louisiana facility. Among other things,
the Order directs the Company to make a determination as to whether certain
waste streams are hazardous wastes, and if so, to cease using certain tanks and
injection wells for management of such streams until a hazardous waste permit is
obtained. In July 1995, the LaDEQ formally accepted the Company's determination
that such waste streams were non-hazardous, thus permitting continued use of the
injection wells. However, the Company will incur approximately $2.0 million to
$2.5 million of capital expenditures over the next few years to further the
management of these waste streams.
The Company is involved in claims, litigation, administrative proceedings
and investigations of various types in several jurisdictions. A number of such
matters involve claims for a material amount of damages and relate to or allege
environmental liabilities, including clean-up costs associated with hazardous
waste disposal sites, natural resource damages, property damage and personal
injury. The Company has been identified by the United States Environmental
Protection Agency (the "EPA"), state or local governmental agencies, and other
potentially responsible parties (each a "PRP"), as a PRP for costs associated
with waste disposal sites at various locations in the United States. Because
these regulations have been construed to authorize joint and several liability,
the EPA could seek to recover all costs involving a waste disposal site from any
one of the PRP's for such site, including the Company, despite the involvement
of other PRP's. In many cases, the Company is one of several hundred PRP's so
identified. In a few instances, the Company is one of only a handful of PRP's.
In certain instances, a number of other financially responsible PRP's are also
involved, and the Company expects that any ultimate liability resulting from
such matters will be apportioned between the Company and such other parties.
Each quarter, management, in cosultation with outside counsel, estimates the
range of the Company's liability based on current interpretation of
environmental laws and regulations. For each site in which the Company is
involved, a determination is made of the specific measures that are believed to
be required to remediate the site, the estimated total cost to carry out the
remediation plan, the portion of the total remediation costs to be borne by the
Company and the years in which the Company will make payments toward the
remediation plan. These estimates are then adjusted to include the estimated
effect of general and specific inflation on future environmental restoration
costs. Management estimated the likely range of environmental liabilities to be
from $43 million to $112 million in constant dollars for the costs associated
with the restoration of identified off-site ($16 million to $46 million) and
on-site ($27 million to $66 million) disposal sites. Based on management's
interpretation of current environmental laws and regulations, the Company
believes the most likely future amount for these environmental liabilities at
October 1, 1995, in constant dollars, is approximately $64 million and
recognizing inflation is approximately $72 million, the net present value of
which ($58.7 million) was recorded as an environmental liability at October 1,
1995. Such amount in constant dollars, is net of $3.8 million of expected
reimbursements pursuant to an agreement with the Ontario (Canada) Ministry of
the Environment. These estimates may change should additional sites be
identified, additional remediation measures be required or undertaken, the
interpretation of current laws and regulations be modified or additional
environmental laws and regulations be enacted.
In accordance with EITF Issue No. 93-5 and SAB No. 92, the Company changed
its method of accounting for environmental restoration liabilities effective
October 1, 1992, whereby the net present value of the liability is measured
using a discount rate equivalent to the rates on United States and
F-47
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--CONTINGENCIES--(CONTINUED)
Canadian Treasury Notes which have maturities comparable to that of the
estimated payment stream of the environmental obligations. Accordingly, the
discount rates used at October 1, 1995 range from 5.58% to 6.05% in the United
States and from 6.72% to 8.09% in Canada. Prior to October 1, 1992, the net
present value of its environmental restoration liabilities was discounted at
approximately 12%, based on the Company's weighted-average cost of borrowing at
that time. The change in the discount rate increased the environmental
restoration liability $16.4 million at October 1, 1992 and resulted in a non-
cash charge to earnings of $11.5 million (net of a related tax benefit of $4.9
million) during the first quarter of fiscal 1993.
At October 1, 1995, the expected future payments for environmental
restoration were as follows: 1996--$13 million; 1997--$11 million; 1998--$9
million; 1999--$6 million; 2000--$5 million and 2001 through 2004--$20 million.
The total estimated future remediation costs from October 2, 1994 to October
1, 1995 increased approximately $7.3 million after taking into consideration
remediation payments during the period. This increase was primarily due to
changes in requirements as promulgated by local authorities at the Company's
Canadian facility ($4.2 million). In addition, changes at domestic off-site
disposal sites were due to (i) updating of allocations (up $2.8 million); (ii)
previously unknown or unsuspected site conditions (up $1.9 million); and (iii)
increased legal costs related to class action suits (up $1.2 million), offset by
revisions of initial remediation plans (down $3.9 million). There were no other
material differences in the amounts or periods for which payments were
projected.
The Company intends to assert all meritorious legal defenses and all other
equitable factors which are available to it with respect to the above matters.
While the Company believes it is unlikely, the resolution of these matters could
have a material adverse effect on the Company's consolidated results of
operations if a significant number of these matters are resolved unfavorably.
F-48
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--GEOGRAPHIC DATA
The Company and its subsidiaries operate in one industry segment, the
manufacture and sale of specialty chemicals and elastomers. Data by geographic
area is as follows:
<TABLE><CAPTION>
FISCAL YEAR
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales and transfers between geographic areas:
United States..................................... $ 942,635 $ 820,256 $ 787,056
Americas (excluding the U.S.)..................... 181,926 169,353 138,073
Europe / Africa................................... 135,805 97,015 94,717
Asia / Pacific.................................... 58,124 56,849 58,315
---------- ---------- ----------
1,318,490 1,143,473 1,078,161
---------- ---------- ----------
---------- ---------- ----------
Less transfers between geographic areas:
United States..................................... 141,063 123,386 110,226
Americas (excluding the U.S.)..................... 51,821 48,074 40,307
Europe / Africa................................... 45,285 22,892 18,438
Asia / Pacific.................................... 1,000 2,667 1,288
---------- ---------- ----------
239,169 197,019 170,299
---------- ---------- ----------
---------- ---------- ----------
Net sales from geographic areas to unaffiliated
customers:
United States..................................... 801,572 696,870 676,790
Americas (excluding the U.S.)..................... 130,105 121,279 97,766
Europe / Africa................................... 90,520 74,123 76,279
Asia / Pacific.................................... 57,124 54,182 57,027
---------- ---------- ----------
$1,079,321 $ 946,454 $ 907,862
---------- ---------- ----------
---------- ---------- ----------
Operating income (loss)
United States..................................... $ 119,131 $ (99,435)(a) $ 89,033
Americas (excluding the U.S.)..................... 19,036 15,689 8,449
Europe / Africa................................... 12,522 8,975 9,015
Asia / Pacific.................................... (2,612) (1,462) 3,158
Less corporate interest and other income/expense,
net and eliminations............................ (113,708) (128,692) (127,914)
---------- ---------- ----------
Income (loss) before provision (benefit) for income
taxes, extraordinary charges and cumulative effect
of accounting changes............................. $ 34,369 $ (204,925) $ (18,259)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Includes a $191 million write-off of intangible assets in the second quarter of fiscal
1994.
</TABLE>
F-49
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--GEOGRAPHIC DATA--(CONTINUED)
1995 1994
---------- ----------
(IN THOUSANDS)
Assets
United States................................... $ 897,702 $ 840,833
Europe / Africa................................. 140,809 85,014
Americas (excluding the U.S.)................... 99,064 94,781
Asia / Pacific.................................. 37,485 31,039
Total identifiable assets....................... 1,175,060 1,051,667
General corporate assets and eliminations....... (3,353) 4,350
---------- ----------
Total assets................................ $1,171,707 $1,056,017
---------- ----------
---------- ----------
Transfers between geographic areas are accounted for at market prices or a
negotiated price, with due consideration given to import and tax regulations in
effect in the country into which the buying entity is importing the goods as
well as the tax regulations in the exporting country.
Export sales from the United States were as follows:
FISCAL YEAR
--------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
Europe / Africa............................ $ 80,136 $ 57,611 $ 58,241
Americas................................... 30,300 23,938 35,374
Asia / Pacific............................. 51,380 38,610 35,674
-------- -------- --------
$161,816 $120,159 $129,289
-------- -------- --------
-------- -------- --------
NOTE 18--ACQUISITIONS AND DIVESTITURES
During fiscal 1995, the Company completed the Duphar Acquisition, along with
three smaller acquisitions, at an aggregate cost of $98.5 million. The estimated
annual sales from the Duphar Acquisition are approximately $60 million, while
the estimated annual sales from the three smaller acquisitions (including one in
specialty chemicals and two in crop protection), are approximately $20 million.
A substantial portion of the cost of the Duphar Acquisition was financed from
borrowings in Italy of $57 million ($45 million of long-term debt and $12
million of short-term borrowings).
F-50
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--ACQUISITIONS AND DIVESTITURES--(CONTINUED)
The allocation of the cost of these acquisitions was as follows:
(IN THOUSANDS)
--------------
Inventories................................................... $ 16,272
Property, plant and equipment................................. 33,763
Patents and other intangibles................................. 33,229
Excess of cost over net assets of business acquired........... 16,073
Deferred charges and other non-current assets................. 1,190
Pension liability............................................. (3,506)
Other, net.................................................... 1,476
--------------
$ 98,497
--------------
--------------
In the first quarter of fiscal 1994, the Company sold the foliar nutrients
product line of its Crop Protection Division for approximately $17.0 million and
recognized a pre-tax gain of approximately $6.4 million in the first quarter of
fiscal 1994 from this sale. In the fourth quarter of fiscal 1994, the Company
sold its interest in its Argentine affiliate for $9.0 million and recognized a
pre-tax loss of approximately $2.3 million from this sale.
NOTE 19--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE><CAPTION>
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AND
STOCK PRICE DATA)
<S> <C> <C> <C> <C> <C>
1995 Net Sales....................................... $ 211.6 $ 274.3 $ 298.6 $ 294.8
Gross profit.................................... 53.4 90.8 92.9 83.3
Income (loss) before extraordinary charge....... (10.5) 93.8(1) 12.4 3.7
Net income (loss)............................... (10.5) 85.5(1) 12.4 3.7
Per share data (2):
Income (loss) before extraordinary charge..... $ (0.92) $ 6.82 $ 0.50 $ 0.16
Net income (loss)............................. (0.92) 6.22 0.50 0.14
Common stock price range(3):
High.......................................... -- $12 1/4 $12 1/8 $12 1/4
Low........................................... -- 11 9 7/8 8 1/4
1994 Net Sales $ 180.2 $ 240.0 $ 262.5 $ 263.8
Gross profit.................................... 38.8 65.4 84.1 82.6
Net loss........................................ (15.7) (177.1)(4) (14.8) (6.2)
Net loss per share.............................. $ (1.35) $(15.39) $ (1.30) $ (0.57)
</TABLE>
- ------------
(1) Includes a gain of $78.9 million related to a deferred tax asset reserve
(see Note 11).
(2) Quarterly per share data may not equal annual amounts due to changes in the
weighted-average shares and share equivalents outstanding.
(3) The common stock commenced public trading on March 17, 1995 at the time of
the Offering.
(4) Includes a charge of $191.0 million for the write-off of intangible assets
(see Note 7).
F-51
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 20--PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data has been derived from the
audited consolidated statement of operations of the Company for the fiscal year
ended October 1, 1995 and adjusts such data to give effect to the Offering and
the Debt Repurchase as if they had occurred on October 3, 1994.
<TABLE><CAPTION>
ACTUAL PRO FORMA(1)
---------- ------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales..................................................... $1,079,321 $ 1,079,321
Operating income.............................................. 148,077 148,077
Interest expense.............................................. 114,034 103,634(2)
Income before extraordinary charge............................ 99,429 105,829(2)(3)
Income before extraordinary charge per share.................. $ 5.32 $ 4.27
Weighted average number of common shares outstanding.......... 18,607 24,695(4)
</TABLE>
NOTES TO PRO FORMA FINANCIAL DATA
(1) This pro forma financial data excludes a non-recurring charge which was
incurred in connection with the Offering and the Debt Repurchase for the
extraordinary loss on early debt extinguishment of $8.3 million (net of a
related tax benefit of $4.5 million).
(2) Adjustment reflects a reduction in interest expense of $10.4 million
resulting from the Debt Repurchase.
(3) The actual and pro forma financial data includes a credit related to a
deferred tax asset reserve of $78.9 million. Had such credit not occurred in
this period, pro forma net income and pro forma earnings per share would
have been $26.9 million and $1.07, respectively.
(4) Assumes shares of common stock issued in the Offering are outstanding for
the entire period presented.
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Stockholders and Board of Directors
Uniroyal Chemical Corporation
Middlebury, Connecticut
We have audited the consolidated balance sheets of Uniroyal Chemical
Corporation and its subsidiaries as of October 1, 1995 and October 2, 1994 and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years ended October 1, 1995, October 2, 1994
and September 30, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Uniroyal Chemical Corporation
and its subsidiaries at the dates indicated and the results of its operations
and its cash flows for the periods indicated in conformity with generally
accepted accounting principles.
As discussed in Notes 12 and 16 to the consolidated financial statements, in
fiscal 1993, the Company changed its method of accounting for postretirement
benefits other than pensions to conform with the Statement of Financial
Accounting Standards No. 106 and its method of accounting for environmental
restoration liabilities to conform with Emerging Issues Task Force No. 93-5 and
Staff Accounting Bulletin No. 92.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
November 17, 1995
F-53
<PAGE>
UNIROYAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED--IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- --------------------
JUNE 30, JULY 2, JUNE 30, JULY 2,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales........................................ $302,063 $298,604 $829,171 $784,567
Cost of products sold.......................... 194,260 195,837 558,005 519,206
Selling, general and administrative expenses... 56,313 55,241 159,301 150,172
-------- -------- -------- --------
Operating income........................... 51,490 47,526 111,865 115,189
Interest expense................................. 26,742 27,747 80,038 87,972
Other (income) expense........................... 161 (640) 1,712 (1,410)
-------- -------- -------- --------
Income before income taxes and
extraordinary charges.................... 24,587 20,419 30,115 28,627
Provision (benefit) for income taxes............. 9,923 8,025 12,133 (67,067)
-------- -------- -------- --------
Income before extraordinary charges........ 14,664 12,394 17,982 95,694
Extraordinary charges--early retirement of
debt............................................. (137) -- (441) (8,279)
-------- -------- -------- --------
Net income................................. 14,527 12,394 17,541 87,415
Preferred stock dividends earned................. 103 104 313 298
-------- -------- -------- --------
Net income applicable to common shares..... $ 14,424 $ 12,290 $ 17,228 $ 87,117
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common share:
Income before extraordinary charges............ $ 0.59 $ 0.50 $ 0.72 $ 5.80
Extraordinary charges.......................... (0.01) -- (0.02) (0.50)
-------- -------- -------- --------
Net income per common share...................... $ 0.58 $ 0.50 $ 0.70 $ 5.30
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding.............. 24,808 24,572 24,582 16,436
</TABLE>
See notes to unaudited consolidated financial statements.
F-54
<PAGE>
UNIROYAL CHEMICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE><CAPTION>
JUNE 30, OCTOBER 1,
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................ $ 31,243 $ 29,519
Accounts receivable.............................................. 153,411 159,254
Inventories...................................................... 196,468 177,647
Other current assets............................................. 44,072 39,114
---------- ----------
Total current assets......................................... 425,194 405,534
Property, plant and equipment, net................................. 378,223 394,472
Intangible assets.................................................. 228,701 241,710
Deferred income taxes.............................................. 65,727 63,890
Other assets....................................................... 63,202 66,101
---------- ----------
$1,161,047 $1,171,707
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................. $ 90,440 $ 94,826
Short-term debt.................................................. 42,245 33,305
Current portion of long-term debt................................ 11,122 11,434
Accrued liabilities.............................................. 109,168 119,077
---------- ----------
Total current liabilities.................................... 252,975 258,642
Long-term debt..................................................... 888,856 910,156
Accrued postretirement liability................................... 180,966 180,413
Other liabilities.................................................. 125,980 121,725
Stockholders' Equity (Deficit):
Preferred Stock.................................................. 4,172 4,172
Common Stock..................................................... 254 253
Additional paid-in capital....................................... 177,032 176,799
Accumulated deficit.............................................. (429,919) (447,460)
Pension liability adjustment..................................... (3,617) (3,617)
Cumulative translation adjustment................................ (25,008) (18,488)
Treasury stock................................................... (10,644) (10,888)
---------- ----------
Total stockholders' deficit.................................. (287,730) (299,229)
---------- ----------
$1,161,047 $1,171,707
---------- ----------
---------- ----------
</TABLE>
See notes to unaudited consolidated financial statements.
F-55
<PAGE>
UNIROYAL CHEMICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED--IN THOUSANDS)
<TABLE><CAPTION>
NINE MONTHS ENDED
---------------------
JUNE 30, JULY 2,
1996 1995
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 17,541 $ 87,415
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation...................................................... 34,541 32,761
Amortization...................................................... 16,338 15,213
Non-cash interest................................................. 12,114 14,928
Deferred income taxes............................................. (1,662) (77,236)
Extraordinary charge.............................................. 441 8,279
Other............................................................. 951 702
Changes in operating assets and liabilities:
Accounts receivable............................................. 5,316 (17,946)
Inventories..................................................... (19,525) (32,687)
Accounts payable................................................ (4,307) 10,962
Accrued liabilities............................................. (8,474) (13,747)
Other........................................................... (4,739) 5,311
-------- ---------
Net cash flows from operating activities...................... 48,535 33,955
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................ (21,582) (44,923)
Acquisitions........................................................ -- (94,666)
Other............................................................... (2,497) (6,879)
-------- ---------
Net cash flows used in investing activities................... (24,079) (146,468)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt........................................ (31,048) (189,858)
Proceeds from long-term debt........................................ 1,865 45,055
Short-term borrowings, net.......................................... 8,658 29,537
Debt issuance costs................................................. (1,345) (2,877)
Proceeds from issuance of stock..................................... 478 147,049
Other............................................................... -- (1,274)
-------- ---------
Net cash flows from (used in) financing activities............ (21,392) 27,632
Effects of exchange rate changes on cash............................ (1,340) (1,173)
-------- ---------
Net change in cash and cash equivalents............................. 1,724 (86,054)
Cash and cash equivalents, beginning of period...................... 29,519 121,344
-------- ---------
Cash and cash equivalents, end of period............................ $ 31,243 $ 35,290
-------- ---------
-------- ---------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid....................................................... $ 75,456 $ 82,933
Income taxes paid................................................... 15,191 5,561
</TABLE>
See notes to unaudited consolidated financial statements.
F-56
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Uniroyal Chemical Corporation ("UCC") and its wholly-owned subsidiary Uniroyal
Chemical Company, Inc. ("Uniroyal Chemical" and together with UCC and their
subsidiaries, the "Companies"). UCC is dependent on cash flow from Uniroyal
Chemical and its subsidiaries to service its debt and meet its other cash needs.
Accordingly, the consolidated financial statements of Uniroyal Chemical set
forth herein are presented on a basis of accounting which reflects substantially
all of the operations (primarily interest expense), assets and liabilities of
UCC.
The statements have been prepared by the Companies without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission and
according to generally accepted accounting principles, and reflect all
adjustments consisting of normal recurring accruals which, in the opinion of
management, are necessary for a fair statement of the results of the interim
periods presented. These financial statements do not include all disclosures
associated with annual financial statements and, accordingly, should be read in
conjunction with the notes contained in the Companies' audited consolidated
financial statements for the year ended October 1, 1995. Certain prior year
amounts have been reclassified to conform with the 1996 presentation.
2. INVENTORIES
A summary of inventory components is as follows (in thousands):
JUNE 30, OCTOBER 1,
1996 1995
-------- ----------
Finished goods........................................ $143,235 $ 129,263
Work in process....................................... 9,743 7,437
Raw materials......................................... 43,490 40,947
-------- ----------
$196,468 $ 177,647
-------- ----------
-------- ----------
3. CAPITAL STOCK
UCC has 50,000,000 shares of Series A and B Preferred Stock authorized at
$0.01 par value. As of June 30, 1996, UCC had issued and outstanding 29,721
shares of Series A Cumulative Redeemable Preferred Stock and 12,000 shares of
Series B Preferred stock. In addition, UCC has 2,050,000 shares of Series C
Junior Participating Preferred Stock authorized at $0.01 par value none of which
are issued.
UCC also has 205,000,000 shares of Common Stock authorized at $0.01 par
value. As of June 30, 1996, UCC had issued 25,422,631 shares, including
1,114,228 treasury shares. Uniroyal Chemical has 2,500 shares of common stock
authorized at no par value with 100 shares issued and outstanding.
4. INCOME TAXES
The provision for income taxes for the nine months ended June 30, 1996 and
July 2, 1995 includes foreign tax provisions of $14.6 million and $8.1 million,
respectively. The difference between the effective and statutory federal income
tax rate consists primarily of expenses that are not deductible for income tax
purposes, including goodwill amortization, as well as state income taxes and the
impact of foreign earnings subject to various foreign tax rates and withholding
taxes.
F-57
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The benefit for income taxes for the nine months ended July 2, 1995 reflects
a benefit of $78.9 million due to the reduction in the Companies' valuation
allowance recorded against the Companies' net operating loss carryforward
position in the United States. As a result of the debt repurchase concurrent
with UCC's initial public offering in March 1995, the Companies expect future
taxable income, and therefore it was more likely than not that a significant
portion of the loss carryforwards would be realized.
5. DEBT REPURCHASE
During April 1996, the Companies repurchased $7.2 million of their long-term
debt in the open market. As a result of this repurchase, the Companies
recognized an extraordinary charge of $0.1 million comprised of premiums and the
write-off of related unamortized fees, net of a related tax benefit of $0.1
million. The 1995 extraordinary charge relates to the debt repurchase concurrent
with UCC's initial public offering in March 1995.
6. CONTINGENCIES
The Companies' are involved in claims, litigation, administrative
proceedings and investigations of various types in several jurisdictions. A
number of such matters involve claims for a material amount of damages and
relate to or allege environmental liabilities, including clean-up costs
associated with hazardous waste disposal sites, natural resource damages,
property damage and personal injury. Uniroyal Chemical has been identified by
federal, state or local governmental agencies, and other potentially responsible
parties (each a "PRP"), as a PRP for costs associated with waste disposal sites
at various locations in the United States. In many cases, Uniroyal Chemical is
one of many PRP's so identified. In addition, the Companies are involved with
environmental remediation and compliance activities at some of their current and
former sites.
Each quarter, the Companies evaluate and review estimates for future
remediation and other costs to determine appropriate environmental reserve
amounts. For each site a determination is made of the specific measures that are
believed to be required to remediate the site, the estimated total cost to carry
out the remediation plan, the portion of the total remediation costs to be borne
by the Companies' and the anticipated time frame over which payments toward the
remediation plan will occur. As of June 30, 1996, the Companies' reserves for
environmental liabilities totaled $64.3 million. These estimates may
subsequently change should additional sites be identified, further remediation
measures be required or undertaken, the interpretation of current laws and
regulations be modified or additional environmental laws and regulations be
enacted.
The Companies intend to assert all meritorious legal defenses and all other
equitable factors which are available to them with respect to the above matters.
The Companies believe that the resolution of these environmental matters, which
may be over the next decade, will not have a material adverse effect on the
consolidated financial position of the Companies, but could have a material
adverse effect on the Companies' consolidated results of operations in any given
year if a significant number of these matters are resolved unfavorably which the
Companies believe to be unlikely.
7. MERGER AGREEMENT
UCC entered into an Agreement and Plan of Merger, dated as of April 30, 1996
(the "Merger Agreement"), with Crompton & Knowles Corporation ("Crompton") and
Tiger Merger Corp. ("Tiger"). The merger agreement provides, among other things,
pursuant to the terms and subject to
F-58
<PAGE>
UNIROYAL CHEMICAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the conditions therein, that Tiger, a wholly-owned subsidiary of Crompton, will
merge with and into UCC (the "Merger"). Under the terms of the Merger Agreement,
each share of UCC's common stock issued and outstanding immediately prior to the
consummation of the Merger will be converted into .9577 shares of Crompton
common stock (the "Exchange Ratio"). The Exchange Ratio is based on the average
closing price of Crompton's common stock on the New York Stock Exchange
Composite Tape for the twenty trading days ending July 18, 1996. Each share of
UCC's Series A Cumulative Redeemable Preferred Stock and Series B Preferred
Stock issued and outstanding immediately prior to the consummation of the Merger
will be converted into and represent a number of shares of Crompton common stock
equal to the Exchange Ratio multiplied by 6.667.
The Merger, which is intended to be tax free to UCC shareholders and
accounted for as a pooling of interests, is subject to approval by the
shareholders of both companies at special meetings of stockholders to be held on
August 21, 1996. Common stockholders of record on July 9, 1996 will be eligible
to vote at the special meeting.
F-59
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE 1,000,000 SHARES
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY AGENT. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CROMPTON & KNOWLES
CIRCUMSTANCES, CREATE ANY IMPLICATION CORPORATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE
DATES AS OF WHICH INFORMATION IS
GIVEN IN THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO
DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH SOLICITATION.
------------
TABLE OF CONTENTS COMMON STOCK
($0.10 PAR VALUE)
PAGE
----
Available Information.............. ii
Prospectus Summary................. 1
Risk Factors....................... 7
Use of Proceeds.................... 12
Market Price and Dividend Data..... 12 [LOGO]
The Company........................ 13
Recent Developments................ 19
Selected Historical Financial Data
of Crompton...................... 22
Management's Discussion and Analy-
sis of Financial Condition and
Results of Operations of Crompton.. 23
Historical and Unaudited Pro Forma
Combined Capitalization............ 30
Unaudited Pro Forma Combined
Financial Information.............. 32
Directors and Executive Officers of
Crompton........................... 41
Compensation of Directors and Exec-
utive Officers of Crompton......... 43
Principal Stockholders of
Crompton........................... 53
Description of Crompton Capital
Stock.............................. 54
Plan of Distribution............... 55
Legal Matters...................... 55 SALOMON BROTHERS INC
Experts............................ 55 Placement Agent
Index to Financial Statements...... F-1
------------
UNTIL , 1996 (25 DAYS AFTER THE
COMMENCEMENT OF THIS OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. DATED AUGUST , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than
discounts and commissions. All amounts are estimated except the Securities and
Exchange Commission (the "SEC") registration fee and the National Association of
Securities Dealers, Inc. ("NASD") registration fee.
PAYABLE BY
THE REGISTRANT
--------------
SEC registration fee.......................................... $ 5,045
NASD registration fee......................................... 1,963
Printing and engraving expenses............................... 75,000*
Miscellaneous fees and expenses............................... 1,000*
--------------
Total................................................... 83,008*
--------------
--------------
- -------------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of the Business Corporation Law of the Commonwealth of
Massachusetts (the "B.C.L.") sets forth conditions and limitations governing the
indemnification of officers, directors, and other persons.
The Registrant's By-laws provide that the Registrant shall, to the full
extent permitted by law, indemnify each of its directors and officers (including
persons who serve at its request as directors, officers, or trustees of another
organization in which it has any interest, direct or indirect, as a shareholder,
creditor, or otherwise or who serve at its request in any capacity with respect
to any employee benefit plan) against all liabilities and expenses, including
amounts paid in satisfaction of judgments, in compromise, or as fines and
penalties, and counsel fees, reasonably incurred by him in connection with the
defense or disposition of any action, suit, or other proceeding, whether civil
or criminal, in which he may be involved or with which he may be threatened,
while in office or thereafter, by reason of his being or having been such a
director, officer, or trustee, except with respect to any matter as to which he
shall have been adjudicated in any proceeding not to have acted in good faith in
the reasonable belief that his action was in the best interests of the
Registrant or, to the extent that such matter relates to service with respect to
an employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan; provided, however, that as to any
matter disposed of by a compromise payment by such director or officer, pursuant
to a consent decree or otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless such compromise shall be
approved as in the best interests of the Registrant, after notice that it
involves such indemnification: (a) by a disinterested majority of the directors
then in office; or (b) by a majority of the disinterested directors then in
office, provided that there has been obtained an opinion in writing of
independent legal counsel to the effect that such director or officer appears to
have acted in good faith in the reasonable belief that his action was in the
best interests of the Registrant; or (c) by the holders of a majority of the
outstanding stock at the time entitled to vote for directors, voting as a single
class, exclusive of any stock owned by any interested director of officer.
Expenses, including counsel fees, reasonably incurred by any director or
officer in connection with the defense or disposition of any such action, suit,
or other proceeding may be paid from time to time by the Registrant, at the
discretion of a majority of the disinterested directors then in office, in
advance of the final disposition thereof upon receipt of an undertaking by such
director or officer to repay the amount so paid to the Registrant if it is
ultimately determined that indemnification for such expenses is
II-1
<PAGE>
not authorized pursuant to the By-laws, which undertaking may be accepted
without reference to the financial ability of such director or officer to make
repayment.
The Registrant's Restated Articles of Organization provide that a director
shall not be personally liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director; provided, however,
that this shall not eliminate or limit the liability of a director to the extent
provided by applicable law (i) for any breach of the director's duty of loyalty
to the Registrant or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 61 or 62 of the B.C.L. (such sections relate generally to
the liability of directors for authorizing distributions to shareholders at a
time when the Registrant is insolvent or bankrupt and the liability of directors
for approving loans to officers or directors of the Registrant which are not
repaid and which were not approved or ratified by a majority of disinterested
directors or shareholders), or (iv) for any transactions from which the director
derived an improper personal benefit. No amendment to or repeal of this
provision shall apply to or have any effect on the liability or alleged
liability of any director of the Registrant for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
The Registrant has insurance to indemnify its directors and officers, within
the limits of the Registrant's insurance policies, for those liabilities in
respect of which such indemnification insurance is permitted under the laws of
the Commonwealth of Massachusetts.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are filed as part of this Registration
Statement.
<TABLE><CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Placement Agreement.
2.01 Agreement and Plan of Merger dated as of April 30, 1996, among the Registrant, Tiger
Merger Corp., and Uniroyal Chemical Corporation, included as Annex A in the Joint
Proxy Statement/Prospectus included as part of the Registrant's Registration
Statement on Form S-4 (Registration Statement No. 333-08539), and incorporated
herein by reference. The Registrant agrees to furnish supplementally a copy of any
omitted exhibit or schedule to the Commission upon Request.
3.01 Restated Articles of Organization of the Registrant filed with the Commonwealth of
Massachusetts on October 27, 1988, as amended on April 10, 1990 and on April 14,
1992, filed as Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 26, 1992 (Commission File No. 1-4663) and incorporated
herein by reference.
3.02 By-laws of the Registrant as amended to date, filed as Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1989
(Commission File No. 1-4663) and incorporated herein by reference.
4.01 Rights Agreement dated as of July 20, 1988, between the Registrant and The Chase
Manhattan Bank, N.A., as Rights Agent, filed as Exhibit 1 to the Registrant's
Current Report on Form 8-K dated July 29, 1988 (Commission File No. 1-4663) and
incorporated herein by reference.
4.02 Agreement dated as of March 28, 1991, amending Rights Agreement dated as of July 20,
1988, between the Registrant and The Chase Manhattan Bank, N.A., as Rights Agent,
filed as Exhibit 4(i)(i) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 1990 (Commission File No. 1-4663) and incorporated
herein by reference.
</TABLE>
II-2
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
4.03 Credit Agreement dated as of September 28, 1992, among the Registrant, five banks,
and Bankers Trust Company as Agent, filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-3 (Registration No. 33-52642) and incorporated
herein by reference.
4.04 First Amendment to Credit Agreement dated as of September 1, 1994, among the
Registrant, five banks, and Bankers Trust Company as Agent, filed as Exhibit 4(b)(2)
to the Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1994 (Commission File No. 1-4663) and incorporated herein by reference.
4.05 Second Amendment to Credit Agreement dated as of May 28, 1995, among the Registrant,
five banks, and Bankers Trust Company as Agent, filed as Exhibit 4(b)(3) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995
(Commission File No. 1-4663) and incorporated herein by reference.
5.01 Opinion of Wachtell, Lipton, Rosen & Katz as to the legality of the shares being
issued.*
10.01 1983 Stock Option Plan of Crompton & Knowles Corporation, as amended through April
14, 1987, filed as Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 28, 1987 (Commission File No. 1-4663) and incorporated
herein by reference.
10.02 Amendments to Crompton & Knowles Corporation Stock Option Plans adopted February 22,
1988, filed as Exhibit 10(d) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 26, 1987 (Commission File No. 1-4663) and incorporated
herein by reference.
10.03 Amended Annual Incentive Compensation Plan for "A" Group of Senior Executives dated
January 24, 1994, filed as Exhibit 10(d) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 25, 1993 (Commission File No. 1-4663) and
incorporated herein by reference.
10.04 Summary of Management Incentive Bonus Plan for selected key management personnel,
filed as Exhibit 10(m) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 27, 1980 (Commission File No. 1-4663) and incorporated herein by
reference.
10.05 Supplemental Medical Reimbursement Plan, filed as Exhibit 10(n) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 27, 1980 (Commission
File No. 1-4663) and incorporated herein by reference.
10.06 Supplemental Dental Reimbursement Plan, filed as Exhibit 10(o) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 27, 1980 (Commission
File No. 1-4663) and incorporated herein by reference.
10.07 Employment Agreement dated February 22, 1988, between the Registrant and Vincent A.
Calarco, filed as Exhibit 10(j) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 26, 1987 (Commission File No. 1-4663) and
incorporated herein by reference.
10.08 Form of Employment Agreement entered into in 1988, 1989, 1992, 1994 and 1996 between
the Registrant or one of its subsidiaries and nine of the executive officers of the
Registrant, filed as Exhibit 10(k) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 26, 1987 (Commission File No. 1-4663) and
incorporated herein by reference.
10.09 Amended Supplemental Retirement Agreement dated October 18, 1995 between the
Registrant and Vincent A. Calarco, filed as Exhibit 10(i) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995 (Commission File No.
1-4663) and incorporated herein by reference.
10.10 Form of Amended Supplemental Retirement Agreement dated October 18, 1995 between the
Registrant and three of its executive officers, filed as Exhibit 10(j) to the
Registrant's Annual Report on Form 10- K for the fiscal year ended December 30, 1995
(Commission File No. 1-4663) and incorporated herein by reference.
</TABLE>
II-3
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
10.11 Form of Supplemental Retirement Agreement dated October 18, 1995 between the
Registrant and five of its executive officers, filed as Exhibit 10(k) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995
(Commission File No. 1-4663) and incorporated herein by reference.
10.12 Supplemental Retirement Agreement Trust Agreement dated October 20, 1993 between the
Registrant and Shawmut Bank, N.A., filed as Exhibit 10(l) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 25, 1993 (Commission File No.
1-4663) and incorporated herein by reference.
10.13 Amended Benefit Equalization Plan dated October 20, 1993, filed as Exhibit 10(m) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25,
1993 (Commission File No. 1-4663) and incorporated herein by reference.
10.14 Amended Benefit Equalization Plan Trust Agreement dated October 20, 1993 between the
Registrant and Shawmut Bank, N.A., filed as Exhibit 10(n) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 25, 1993 (Commission File No.
1-4663) and incorporated herein by reference.
10.15 Amended 1988 Long Term Incentive Plan, filed as Exhibit 10(o) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 25, 1993 (Commission
File No. 1-4663) and incorporated herein by reference.
10.16 Trust Agreement dated as of May 15, 1989, between the Registrant and Shawmut
Worcester County Bank, N.A. and First Amendment thereto dated as of February 8,
1990, filed as Exhibit 10(w) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1989 (Commission File No. 1-4663) and incorporated
herein by reference.
10.17 Form of 1992-1994 Long Term Performance Award Agreement, filed as Exhibit 10(y) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28,
1991 (Commission File No. 1-4663) and incorporated herein by reference.
10.18 Crompton & Knowles Corporation Restricted Stock Plan for Directors approved by the
stockholders on April 9, 1991, filed as Exhibit 10(z) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28, 1991 (Commission File No.
1-4663) and incorporated herein by reference.
10.19 Amended 1933 Stock Option Plan for Non-Employee Directors, filed as Exhibit 10(s) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December 30,
1995 (Commission File No. 1-4663) and incorporated herein by reference.
11.01 Statement re computation of per share earnings, filed as Exhibit 11 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996
(Commission File No. 1-4663) and incorporated herein by reference.
21.01 Subsidiaries of the Registrant, filed as Exhibit 21 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995 (Commission File No.
1-4663) and incorporated herein by reference.
23.01 Consent of KPMG Peat Marwick LLP.
23.02 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5.01).
23.03 Consent of Deloitte & Touche LLP.
24.01 Power of Attorney.*
</TABLE>
- ------------
* Filed previously.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts of the Registrant
(incorporated by reference from the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995 (Commission File No. 1-4663), as amended
by Form 10-K/A filed with the Commission on July 9, 1996).
II-4
<PAGE>
Schedule I and Schedule II of Uniroyal Chemical Corporation (incorporated by
reference from Uniroyal Chemical Corporation's Annual Report on Form 10-K for
the fiscal year ended October 1, 1995 (Commission File No. 0-25586)).
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut, on August 12, 1996.
CROMPTON & KNOWLES CORPORATION
By: /s/ VINCENT A. CALARCO
..................................
Vincent A. Calarco
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 12, 1996.
<TABLE><CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
/s/ VINCENT A. CALARCO Chairman, President and Chief Executive
............................................. Officer (principal executive officer)
Vincent A. Calarco
/s/ CHARLES J. MARSDEN Vice President-Finance, Chief Financial
............................................. Officer and Director (principal financial
Charles J. Marsden officer)
/s/ PETER BARNA Treasurer (principal accounting officer)
.............................................
Peter Barna
* Director
.............................................
James A. Bitonti
* Director
.............................................
Robert A. Fox
* Director
.............................................
Roger L. Headrick
............................................. Director
Leo I. Higdon, Jr.
* Director
.............................................
Michael W. Huber
* Director
.............................................
C.A. Piccolo
* Director
.............................................
Patricia K. Woolf, Ph.D
</TABLE>
*By: /s/ JOHN T. FERGUSON II
........................................
John T. Ferguson II
Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
Exhibits required by S-K item 601:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
1.01 Form of Placement Agreement.
2.01 Agreement and Plan of Merger dated as of April 30, 1996, among the Registrant, Tiger
Merger Corp., and Uniroyal Chemical Corporation, included as Annex A in the Joint
Proxy Statement/Prospectus included as part of the Registrant's Registration
Statement on Form S-4 (Registration Statement No. 333-08539), and incorporated
herein by reference. The Registrant agrees to furnish supplementally a copy of any
omitted exhibit or schedule to the Commission upon Request.
3.01 Restated Articles of Organization of the Registrant filed with the Commonwealth of
Massachusetts on October 27, 1988, as amended on April 10, 1990 and on April 14,
1992, filed as Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 26, 1992 (Commission File No. 1-4663) and incorporated
herein by reference.
3.02 By-laws of the Registrant as amended to date, filed as Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1989
(Commission File No. 1-4663) and incorporated herein by reference.
4.01 Rights Agreement dated as of July 20, 1988, between the Registrant and The Chase
Manhattan Bank, N.A., as Rights Agent, filed as Exhibit 1 to the Registrant's
Current Report on Form 8-K dated July 29, 1988 (Commission File No. 1-4663) and
incorporated herein by reference.
4.02 Agreement dated as of March 28, 1991, amending Rights Agreement dated as of July 20,
1988, between the Registrant and The Chase Manhattan Bank, N.A., as Rights Agent,
filed as Exhibit 4(i)(i) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 29, 1990 (Commission File No. 1-4663) and incorporated
herein by reference.
4.03 Credit Agreement dated as of September 28, 1992, among the Registrant, five banks,
and Bankers Trust Company as Agent, filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-3 (Registration No. 33-52642) and incorporated
herein by reference.
4.04 First Amendment to Credit Agreement dated as of September 1, 1994, among the
Registrant, five banks, and Bankers Trust Company as Agent, filed as Exhibit 4(b)(2)
to the Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1994 (Commission File No. 1-4663) and incorporated herein by reference.
4.05 Second Amendment to Credit Agreement dated as of May 28, 1995, among the Registrant,
five banks, and Bankers Trust Company as Agent, filed as Exhibit 4(b)(3) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995
(Commission File No. 1-4663) and incorporated herein by reference.
5.01 Opinion of Wachtell, Lipton, Rosen & Katz as to the legality of the shares being
issued.*
10.01 1983 Stock Option Plan of Crompton & Knowles Corporation, as amended through April
14, 1987, filed as Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 28, 1987 (Commission File No. 1-4663) and incorporated
herein by reference.
10.02 Amendments to Crompton & Knowles Corporation Stock Option Plans adopted February 22,
1988, filed as Exhibit 10(d) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 26, 1987 (Commission File No. 1-4663) and incorporated
herein by reference.
</TABLE>
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.03 Amended Annual Incentive Compensation Plan for "A" Group of Senior Executives dated
January 24, 1994, filed as Exhibit 10(d) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 25, 1993 (Commission File No. 1-4663) and
incorporated herein by reference.
10.04 Summary of Management Incentive Bonus Plan for selected key management personnel,
filed as Exhibit 10(m) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 27, 1980 (Commission File No. 1-4663) and incorporated herein by
reference.
10.05 Supplemental Medical Reimbursement Plan, filed as Exhibit 10(n) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 27, 1980 (Commission
File No. 1-4663) and incorporated herein by reference.
10.06 Supplemental Dental Reimbursement Plan, filed as Exhibit 10(o) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 27, 1980 (Commission
File No. 1-4663) and incorporated herein by reference.
10.07 Employment Agreement dated February 22, 1988, between the Registrant and Vincent A.
Calarco, filed as Exhibit 10(j) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 26, 1987 (Commission File No. 1-4663) and
incorporated herein by reference.
10.08 Form of Employment Agreement entered into in 1988, 1989, 1992, 1994 and 1996 between
the Registrant or one of its subsidiaries and nine of the executive officers of the
Registrant, filed as Exhibit 10(k) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 26, 1987 (Commission File No. 1-4663) and
incorporated herein by reference.
10.09 Amended Supplemental Retirement Agreement dated October 18, 1995 between the
Registrant and Vincent A. Calarco, filed as Exhibit 10(i) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995 (Commission File No.
1-4663) and incorporated herein by reference.
10.10 Form of Amended Supplemental Retirement Agreement dated October 18, 1995 between the
Registrant and three of its executive officers, filed as Exhibit 10(j) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995
(Commission File No. 1-4663) and incorporated herein by reference.
10.11 Form of Supplemental Retirement Agreement dated October 18, 1995 between the
Registrant and five of its executive officers, filed as Exhibit 10(k) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995
(Commission File No. 1-4663) and incorporated herein by reference.
10.12 Supplemental Retirement Agreement Trust Agreement dated October 20, 1993 between the
Registrant and Shawmut Bank, N.A., filed as Exhibit 10(l) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 25, 1993 (Commission File No.
1-4663) and incorporated herein by reference.
10.13 Amended Benefit Equalization Plan dated October 20, 1993, filed as Exhibit 10(m) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December 25,
1993 (Commission File No. 1-4663) and incorporated herein by reference.
10.14 Amended Benefit Equalization Plan Trust Agreement dated October 20, 1993 between the
Registrant and Shawmut Bank, N.A., filed as Exhibit 10(n) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 25, 1993 (Commission File No.
1-4663) and incorporated herein by reference.
10.15 Amended 1988 Long Term Incentive Plan, filed as Exhibit 10(o) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 25, 1993 (Commission
File No. 1-4663) and incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.16 Trust Agreement dated as of May 15, 1989, between the Registrant and Shawmut
Worcester County Bank, N.A. and First Amendment thereto dated as of February 8,
1990, filed as Exhibit 10(w) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1989 (Commission File No. 1-4663) and incorporated
herein by reference.
10.17 Form of 1992-1994 Long Term Performance Award Agreement, filed as Exhibit 10(y) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28,
1991 (Commission File No. 1-4663) and incorporated herein by reference.
10.18 Crompton & Knowles Corporation Restricted Stock Plan for Directors approved by the
stockholders on April 9, 1991, filed as Exhibit 10(z) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28, 1991 (Commission File No.
1-4663) and incorporated herein by reference.
10.19 Amended 1933 Stock Option Plan for Non-Employee Directors, filed as Exhibit 10(s) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December 30,
1995 (Commission File No. 1-4663) and incorporated herein by reference.
11.01 Statement re computation of per share earnings, filed as Exhibit 11 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996
(Commission File No. 1-4663) and incorporated herein by reference.
21.01 Subsidiaries of the Registrant, filed as Exhibit 21 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995 (Commission File No.
1-4663) and incorporated herein by reference.
23.01 Consent of KPMG Peat Marwick LLP.
23.02 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5.01).
23.03 Consent of Deloitte & Touche LLP.
24.01 Power of Attorney.*
</TABLE>
- ------------
* Filed previously.
Exhibit 1.01
CROMPTON & KNOWLES CORPORATION
1,000,000 Shares
Common Stock
($0.10 par value)
PLACEMENT AGENT AGREEMENT
New York, New York
August , 1996
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Crompton & Knowles Corporation, a Massachusetts corporation (the
"Company"), hereby confirms its agreement with you (the "Placement Agent") with
respect to the issuance and sale by the Company of 1,000,000 shares (the
"Securities") of Common Stock, $0.10 par value, of the Company ("Common Stock").
Subject to the terms and conditions set forth herein, the Placement Agent will
act as exclusive placement agent for the Securities.
1. Representations and Warranties. The Company represents and
-------------------------------
warrants to, and agrees with, the Placement Agent as set forth below in this
Section 1. Certain terms used in this Section 1 are defined in paragraph (c)
hereof.
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement (file number 333-09337) on
Form S-1, including a related preliminary prospectus, for the registration
under the Securities Act of 1933, as amended (the "Act") of the offering
and sale of the Securities. The Company may have filed one or more amend-
ments thereto, including the related preliminary prospectus, each of which
has previously been furnished to you. The Company will next file with the
Commission either (A) prior to the effectiveness of such registration
statement, a further amendment to such registration statement (including
the form of final prospectus) or (B) after the effectiveness of such
registration statement, a final prospectus in accor-
<PAGE>
2
dance with Rules 430A and 424(b)(1) or (4). In the case of clause (B), the
Company has included in such registration statement, as amended at the
Effective Date, all information (other than Rule 430A Information) required
by the Act and the rules thereunder to be included in the Prospectus with
respect to the Securities and the offering thereof. As filed, such
amendment and form of final prospectus, or such final prospectus, shall
contain all Rule 430A Information, together with all other such required
information, with respect to the Securities and the offering thereof and,
except to the extent the Placement Agent shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to
you prior to the Execution Time or, to the extent not completed at the
Execution Time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary Prospectus)
as the Company has advised you, prior to the Execution Time, will be
included or made therein.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with
Rule 424(b) and on the Closing Date, the Prospectus (and any supplements
thereto) will, comply in all material respects with the applicable require-
ments of the Act and the rules thereunder; on the Effective Date, the
Registration Statement did not or will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), did not or will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date, the Prospectus (together
with any supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
-------- -------
representations or warranties as to the information contained in or omitted
from the Registration Statement, or the Prospectus (or any supplement
thereto) in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of the Placement Agent specifically
for inclusion in the Registration
<PAGE>
3
Statement or the Prospectus (or any supplement thereto).
(c) The terms that follow, when used in this Agreement, shall have
the meanings indicated. The term "the Effective Date" shall mean each date
that the Registration Statement, any post-effective amendment or amendments
thereof, and any Rule 462(b) Registration Statement became or become
effective. "Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto. "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in
paragraph (a) above and any preliminary prospectus included in the
Registration Statement at the Effective Date that omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the Execution
Time or, if no filing pursuant to Rule 424(b) is required, shall mean the
form of final prospectus relating to the Securities included in the
Registration Statement at the Effective Date. "Registration Statement"
shall mean the registration statement referred to in paragraph (a) above,
including exhibits and financial statements, as amended at the Execution
Time (or, if not effective at the Execution Time, in the form in which it
shall become effective) and, in the event any post-effective amendment
thereof or any Rule 462(b) Registration Statement becomes effective prior
to the Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended or such Rule 462(b) Registration
Statement, as the case may be. Such term shall include any Rule 430A
Information deemed to be included therein at the Effective Date as provided
by Rule 430A. "Rule 424", "Rule 430A" and "Rule 462" refer to such rules
under the Act. "Rule 430A Information" means information with respect to
the Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration statement
and any amendments thereto filed pursuant to Rule 462(b) relating to the
offering covered by the initial registration statement (file number 333-
09337).
(d) The Company's authorized equity capitalization is as set forth
under the heading "Description of Crompton Capital Stock" in the
<PAGE>
4
Prospectus; all the issued and outstanding shares of capital stock,
including Common Stock, of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable; the Company has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction in which it is organized, with
full power and authority to own its properties and conduct its business as
described in the Prospectus, and the Company has full corporate power and
authority to execute and deliver this Agreement and to issue and sell the
Securities as herein contemplated.
(e) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of material property or the conduct of material business, and the
Company is in compliance in all material respects with the laws, orders,
rules and regulations issued or administered by such jurisdictions.
(f) Each material subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or organized
with full power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement and the
Prospectus and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
material property or the conduct of material business; and all of the
issued and outstanding capital stock of each material subsidiary of the
Company has been duly authorized and validly issued, is fully paid and
nonassessable and the shares of such capital stock owned by the Company are
owned, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(g) Neither the Company nor any of its material subsidiaries is in
breach of, or in default under (nor has any event occurred which with
notice, lapse of time, or both would constitute a breach of, or default
under), its charter or by-laws or in the performance or
<PAGE>
5
observance of any obligation, agreement, covenant or condition contained in
any material indenture or other material agreement or material instrument
to which the Company or such subsidiary is a party or by which it is bound,
and the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in any
breach of or constitute a default under (nor constitute any event which
with notice, lapse of time, or both would constitute a breach of, or
default under), any provisions of the charter or by-laws of the Company or
any of its material subsidiaries or under any provision of any material
indenture or other material agreement or material instrument to which the
Company or such subsidiary is a party or by which it or its properties may
be bound or affected, or under any Federal, state, local or foreign law,
regulation or rule or any decree, judgment or order applicable to the
Company or any of its material subsidiaries.
(h) This Agreement has been duly authorized, executed, and delivered
by the Company and is a legal, valid and binding agreement of the Company
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, or similar laws relating to creditors' rights and
general principles of equity.
(i) The capital stock of the Company, including the Securities,
conforms in all material respects to the description thereof contained in
the Prospectus and the certificates for the Securities are in due and
proper form as required under Massachusetts law.
(j) No approval, authorization, consent or order of or filing with
any national, state or local governmental or regulatory commission, board,
body, authority or agency is required in connection with the issuance and
sale of the Securities as contemplated hereby other than registration of
the Securities under the Act and any necessary qualification as may be
required by the National Association of Securities Dealers, Inc. ("NASD")
rules or under the securities or blue sky laws of the various jurisdictions
in which the Securities are being offered.
(k) Except as is set forth in the Registration Statement or
Prospectus, no person has the right,
<PAGE>
6
contractual or otherwise, to cause the Company to issue to it, or register
pursuant to the Act, any shares of capital stock of the Company upon the
issue and sale of the Securities as contemplated hereby, nor does any
person have preemptive rights, rights of first refusal or other rights to
purchase any of the Securities, which rights have not been waived.
(l) KPMG Peat Marwick LLP whose reports on the consolidated financial
statements of the Company are filed with the Commission as part of the
Registration Statement and Prospectus, are independent accountants within
the meaning of the Act and the applicable published rules and regulation
thereunder.
(m) The Company and each of its material subsidiaries has all
necessary licenses, authorizations, consents and approvals and has made all
necessary filings required under any Federal, state, local or foreign law,
regulation or rule, and has obtained all necessary material authorizations,
consents and approvals from other persons, in order to conduct its
business; neither the Company nor any of its material subsidiaries is in
violation of, or in default under, any such license, authorization, consent
or approval or any Federal, state, local or foreign law, regulation or rule
or any decree, order or judgment applicable to the Company or such
subsidiary.
(n) All legal or governmental proceedings, contracts or documents of
a character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement have
been so described or filed as required.
(o) Except as disclosed in the Prospectus, there are no actions,
suits or proceedings pending or, to the Company's knowledge, threatened
against the Company or any of its subsidiaries or any of its properties, at
law or in equity, or before or by any Federal, state, local or foreign
governmental or regulatory commission, board, body, authority or agency
which, individually or in the aggregate, are reasonably likely to result in
a judgment, decree or order.
(p) The financial statements included in the Registration Statement
and the Prospectus present
<PAGE>
7
fairly the consolidated financial position of the Company as of the dates
indicated and the consolidated results of operations and changes in
financial position of the Company for the periods specified; such financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
involved.
(q) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may be
otherwise stated in the Registration Statement or Prospectus, there has not
been (i) to the knowledge of the Company, any material adverse change, or
any development which reasonably may result in a material adverse change,
in the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries taken as a whole, (ii) any
transaction, which is material to the Company and its subsidiaries taken as
a whole, contemplated or entered into by the Company or (iii) any
obligation, contingent or otherwise, directly or indirectly incurred by the
Company or any of its subsidiaries which is material to the Company and its
subsidiaries taken as a whole.
2. Appointment of Placement Agent; Placement of the Securities.
------------------------------------------------------------
(a) Subject to the terms and conditions set forth herein, the Company
hereby authorizes the Placement Agent to act as its exclusive agent to solicit
offers for the purchase of all or part of the Securities from the Company. So
long as this Agreement shall remain in effect, the Company shall not, without
the prior consent of the Placement Agent, solicit or accept offers to purchase
Securities otherwise than through the Placement Agent.
(b) On the basis of the representations and warranties, and subject
to the terms and conditions set forth herein, the Placement Agent agrees, as
agent of the Company, to use its best efforts to solicit offers to purchase the
Securities from the Company on the terms and subject to the conditions set forth
in the Prospectus. The Placement Agent shall make reasonable efforts to assist
the Company in obtaining performance by each purchaser whose offer to purchase
Securities has been solicited by the Placement Agent and accepted by the
Company, but the Placement Agent shall not, except as otherwise provided in this
Agreement, be obligated to disclose the identity of any
<PAGE>
8
purchaser or have any liability to the Company in the event any such purchase is
not consummated for any reason. Under no circumstances will the Placement Agent
be obligated to purchase any Securities for its own account, and, in soliciting
purchases of Securities, the Placement Agent shall act solely as the Company's
agent and not as principal. Notwithstanding the foregoing and except as
otherwise provided in Section 2(c), it is understood and agreed that the
Placement Agent may, solely at its discretion and without any obligation to do
so, purchase Securities as principal.
(c) Subject to the provisions of this Section 2, offers for the
purchase of Securities may be solicited by the Placement Agent as agent for the
Company at such times and in such amounts as the Placement Agent deems
advisable. The Placement Agent shall communicate to the Company, orally or in
writing, each reasonable offer to purchase Securities received by it as agent of
the Company. The Company shall have the sole right to accept offers to purchase
the Securities and may reject any such offer, in whole or in part. The
Placement Agent shall have the right, in its discretion reasonably exercised,
without notice to the Company, to reject any offer to purchase Securities
received by it, in whole or in part, and any such rejection shall not be deemed
a breach of its agreement contained herein.
(d) At the time of delivery of, and payment for, any Securities sold
by the Company as a result of a solicitation made by, or offer to purchase
received by, the Placement Agent, acting on an agency basis, whether the
Securities are placed by the Placement Agent or otherwise, the Company agrees to
pay the Placement Agent a placement fee equal to [ ]. Payment shall be made to
or upon the order of the Placement Agent by wire transfer in federal (same-day)
funds to an account designated by the Placement Agent prior to the Closing Date.
The Company agrees that the Placement Agent, when purchasing Securities as
principal for resale, shall receive compensation in the form of a discount in an
aggregate amount equal to [ ].
(e) No Security which the Company has agreed to sell pursuant to this
Agreement shall be deemed to have been purchased and paid for, or sold by the
Company, until such Security shall have been delivered to the purchaser thereof
against payment by such purchaser. If the Company shall default in its
obligations to deliver Securities to a purchaser whose offer it has accepted,
the Company shall
<PAGE>
9
indemnify and hold the Placement Agent harmless against any loss, claim or
damage arising from or as a result of such default by the Company.
3. The Closing. The documents required to be delivered by Section 5
------------
hereof shall be delivered to the Placement Agent at the office of Cravath,
Swaine & Moore, counsel for the Placement Agent, at Worldwide Plaza, 825 Eighth
Avenue, New York, New York, on , 1996 (the "Closing Date").
4. Agreements. The Company agrees with the Placement Agent that:
-----------
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus without the prior consent of the
Placement Agent, which consent may not be unreasonably withheld. Subject
to the foregoing sentence, if the Registration Statement has become or
becomes effective pursuant to Rule 430A, or filing of the Prospectus is
otherwise required under Rule 424(b), the Company will cause the
Prospectus, properly completed, and any supplement thereto to be filed with
the Commission pursuant to the applicable paragraph of Rule 424(b) within
the time period prescribed and will provide evidence satisfactory to the
Placement Agent of such timely filing. The Company will promptly advise
the Placement Agent (i) when the Registration Statement, if not effective
at the Execution Time, and any amendment thereto, shall have become
effective, (ii) when the Prospectus, and any supplement thereto, shall have
been filed (if required) with the Commission pursuant to Rule 424(b),
(iii) when, prior to termination of the offering of the Securities, any
amendment to the Registration Statement shall have been filed or become
effective, (iv) of any request by the Commission for any amendment of the
Registration Statement or supplement to the Prospectus or for any
additional information, (v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (vi) of
the receipt by the Company of any notification with respect
<PAGE>
10
to the suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Prospectus to comply with the
Act or the rules thereunder, the Company promptly will (i) prepare and file
with the Commission, subject to the second sentence of paragraph (a) of
this Section 4, an amendment or supplement which will correct such state-
ment or omission or effect such compliance and (ii) supply any supplemented
Prospectus to you in such quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally available
to its security holders and to the Placement Agent an earnings statement or
statements of the Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act and which
covers a 12-month period following the Effective Date of the Registration
Statement.
(d) The Company will furnish to the Placement Agent and counsel for
the Placement Agent, without charge, signed copies of the Registration
Statement (including exhibits thereto) and as many copies of each
Preliminary Prospectus and the Prospectus and any supplement thereto as the
Placement Agent may reasonably request. The Company will pay the expenses
of printing or other production of all documents relating to the offering.
(e) The Company will arrange for the qualification of the Securities
for sale under the laws of such jurisdictions as the Placement Agent may
designate, and will maintain such qualifications in effect so long as
<PAGE>
11
required for the distribution of the Securities and will pay the fee of the
National Association of Securities Dealers, Inc., in connection with its
review of the offering. The Company will arrange for the listing of the
Shares on each exchange on which the Common Stock is currently listed.
(f) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-
198, An Act Relating to Disclosure of Doing Business with Cuba, and the
---------------------------------------------------------
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Securities and Exchange Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information reported in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes
in any material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
5. Conditions to the Obligations of the Placement Agent. The
-----------------------------------------------------
obligations of the Placement Agent to solicit offers to purchase the Securities
as agent of the Company shall be subject to the accuracy of the representations
and warranties on the part of the Company contained herein as of the Execution
Time and the Closing Date, to the accuracy of the statements of the Company made
in any certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Placement Agent agrees in writing to a later
time, the Registration Statement will become effective not later than
(i) 6:00 PM New York City time on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 12:00 Noon on the business day
following the day on which the public offering price was determined, if
such determination occurred after 3:00 PM New York City time on such date;
if filing of the Prospectus, or any supplement thereto,
<PAGE>
12
is required pursuant to Rule 424(b), the Prospectus, and any such
supplement, will be filed in the manner and within the time period required
by Rule 424(b); and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened.
(b) The Company shall have furnished to the Placement Agent the
opinion of John T. Ferguson, II, General Counsel of the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Massachusetts with full corporate power and authority to own its
properties and conduct its business as described in the Prospectus,
and is duly qualified to do business as a foreign corporation and is
in good standing under the laws of each jurisdiction which requires
such qualification wherein it owns or leases material properties or
conducts material business;
(ii) each material subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized with full power and authority to own, lease and operate its
properties and conduct its business as described in the Registration
Statement and the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of material property or the conduct
of material business; and all of the issued and outstanding capital
stock of each material subsidiary of the Company has been duly
authorized and validly issued, is fully paid and nonassessable and the
shares of such capital stock owned by the Company are owned, directly
or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity;
<PAGE>
13
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectus as of the date set forth therein; the capital
stock of the Company conforms to the description thereof contained in
the Prospectus; the outstanding shares of Common Stock have been duly
and validly authorized and issued and are fully paid and
nonassessable; the Securities have been duly and validly authorized,
and, when issued and delivered to and paid for by the purchasers
thereof as contemplated by this Agreement, will be fully paid and
nonassessable; the Securities are duly authorized for listing, on the
New York Stock Exchange; the certificates for the Securities are in
valid and proper form as required under Massachusetts law; and the
holders of outstanding shares of capital stock of the Company are not
entitled to statutory or contractual preemptive rights or other
similar rights to subscribe for the Securities;
(iv) to the best knowledge of such counsel, there is no pending
or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries of a character required to be dis-
closed in the Registration Statement which is not adequately disclosed
in the Prospectus, and there is no franchise, contract, agreement or
other document of a character required to be described in the
Registration Statement or Prospectus, or to be filed as an exhibit,
which is not described or filed as required; and the statements in the
Prospectus under the headings "Risk Factors--Litigation Relating to
Merger" and "Recent Developments--Certain Litigation" fairly summarize
the matters therein described;
(v) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the best knowledge
of such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have
<PAGE>
14
been instituted or threatened and the Registration Statement and the
Prospectus (other than the financial statements and other financial
and statistical information contained therein as to which such counsel
need express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the rules thereunder;
and such counsel has no reason to believe that at the Effective Date
the Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus includes any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) no consents, approvals, authorizations or orders of any
court or governmental agency or body are required for the consummation
by the Company of the transactions contemplated herein, except such as
have been obtained under the Act and such as may be required under
NASD rules or the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities as contemplated by
this Agreement and such other approvals (specified in such opinion) as
have been obtained;
(viii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of, or constitute a default under any law or the
charter or by-laws of the Company or any of its material subsidiaries
or the terms of any material indenture or other material agreement or
material instrument known to such counsel and to which the Company or
any of its material subsidiaries is a party or bound or any judgment,
order or decree known to such counsel to be applicable to the
<PAGE>
15
Company or any of its material subsidiaries of any court, regulatory
body, administrative agency, governmental body or arbitrator having
jurisdiction over the Company or any of its material subsidiaries; and
(ix) no holders of securities of the Company have rights to the
registration of such securities under the Registration Statement,
which rights have not been waived.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the laws
of the State of Massachusetts, the General Corporation Law of the State of
Delaware or the federal laws of the United States, to the extent they deem
proper and specified in such opinion, upon the opinion of other counsel of
good standing whom they believe to be reliable and who are reasonably
satisfactory to counsel for the Placement Agent and (B) as to matters of
fact, to the extent deemed proper by such counsel, on certificates of
responsible officers of the Company and public officials. References to
the Prospectus in this paragraph (b) include any supplements thereto at the
Closing Date.
(c) The Company shall have furnished to the Placement Agent a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate
have carefully examined the Registration Statement, the Prospectus, any
supplement to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been
<PAGE>
16
instituted or, to the Company's knowledge, threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), to
the knowledge of such officers, there has been no material adverse
change in the condition (financial or other), earnings, business or
properties of the Company and its subsidiaries, whether or not arising
from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(d) At the Execution Time and at the Closing Date, KPMG Peat Marwick
LLP, shall have furnished to the Placement Agent a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form
and substance reasonably satisfactory to the Placement Agent, confirming
that they are independent accountants within the meaning of the Act and the
applicable published rules and regulations thereunder and stating in effect
that:
(i) in their opinion the audited financial statements and
financial statement schedules and any pro forma financial statements
included in the Registration Statement and the Prospectus and reported
on by them comply in form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company and its subsidiaries; their
limited review in accordance with standards established by the
American Institute of Certified Public Accountants of the unaudited
interim financial information for the quarters ended March 30, 1996
and April 1, 1995, and as at March 30, 1996, as indicated in their
report dated , 1996; carrying out certain specified procedures
(but not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance
with respect to the comments set forth in such letter;
<PAGE>
17
a reading of the minutes of the meetings of the stockholders and board
of directors (and committees thereof) of the Company and its
subsidiaries; and inquiries of certain officials of the Company who
have responsibility for financial and accounting matters of the
Company and its subsidiaries as to transactions and events subsequent
to March 30, 1996, nothing came to their attention which caused them
to believe that:
(1) any unaudited financial statements included in the
Registration Statement and the Prospectus do not comply in
form in all material respects with applicable accounting
requirements of the Act and with the published rules and
regulations of the Commission with respect to registration
statements on Form S-1; or said unaudited financial
statements are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited financial statements
included in the Registration Statement and the Prospectus;
(2) with respect to the period subsequent to March 30,
1996, there were any changes, at a specified date not more
than five business days prior to the date of the letter, in
the long-term debt of the Company and its subsidiaries or
capital stock of the Company or decreases in the
stockholders' equity of the Company or net assets of the
Company or decreases in working capital of the Company and
its subsidiaries, in each case as compared with the amounts
shown on the March 30, 1996, consolidated balance sheet
included in the Registration Statement and the Prospectus,
or for the period from April 1, 1996, to such specified date
there were any decreases, as compared with the corresponding
period in the preceding year; in net sales or earnings
before income taxes or in total or per share
<PAGE>
18
amounts of net earnings of the Company and its subsidiaries,
except in all instances for changes or decreases set forth
in such letter, in which case the letter shall be
accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed
necessary by the Placement Agent; or
(3) the information included or incorporated by
reference in the Registration Statement and the Prospectus
in response to Regulation S-K, Item 301 (Selected Financial
Data), Item 302 (Supplementary Financial Information) and
Item 402 (Executive Compensation) is not in conformity with
the applicable disclosure requirements of Regulation S-K;
and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Registration Statement and the Prospectus, including the
information set forth under the captions "Selected Historical
Financial Data of Crompton", "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Crompton",
"Historical and Unaudited Pro Forma Combined Capitalization" and
"Unaudited Pro Forma Combined Financial Information" in the
Prospectus, agrees with the accounting records of the Company and its
subsidiaries, excluding any questions of legal interpretation; and
(iv) on the basis of a reading of the unaudited pro forma
financial statements included in the Registration Statement and the
Prospectus (the "pro forma financial statements"); carrying out
certain specified procedures; inquiries of certain officials of the
Company who have responsibility for financial and accounting
<PAGE>
19
matters; and proving the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in the pro forma
financial statements, nothing came to their attention which caused
them to believe that the pro forma financial statements do not comply
in form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts
in the compilation of such statements.
References to the Prospectus in this paragraph (d) include any
supplement thereto at the date of the letter.
(e) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (d) of this Section 4 or
(ii) any change, or any development involving a prospective change, in or
affecting the business or properties of the Company and its subsidiaries
the effect of which, in any case referred to in clause (i) or (ii) above,
is, in the judgment of the Placement Agent, so material and adverse as to
make it impractical or inadvisable to proceed with the offering or delivery
of the Securities as contemplated by the Registration Statement (exclusive
of any amendment thereof) and the Prospectus (exclusive of any supplement
thereto).
(f) There shall not have occurred (i) any downgrading in the rating
of any debt securities of the Company by any nationally recognized
statistical rating organization, or any public announcement that any such
organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (ii) any suspension or limitation of trading
in securities generally on the New York Stock Exchange, or any setting of
minimum prices for trading on such exchange, or any suspension of trading
of any securities of the Company on any
<PAGE>
20
exchange or in the over-the-counter market; (iii) any banking moratorium
declared by United States Federal or New York authorities; or (iv) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the Placement
Agent's judgment, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
solicitations of offers to purchase, or sales of the Securities.
(g) Prior to the Closing Date, the Company shall have furnished to
the Placement Agent such further information, certificates and documents as
the Placement Agent may reasonably request.
If any of the conditions specified in this Section 5 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Placement Agent and counsel for the Placement Agent, this
Agreement and all obligations of the Placement Agent hereunder may be canceled
at, or at any time prior to, the Closing Date by the Placement Agent. Notice of
such cancelation shall be given to the Company in writing or by telephone or
telegraph confirmed in writing.
6. Additional Covenants of the Company. The Company covenants and
------------------------------------
agrees with you that:
(a) Each acceptance by the Company of an offer for the purchase of
Securities solicited by you in your capacity as Placement Agent, and each sale
of Securities to you as principal, shall be deemed to be an affirmation that the
representations and warranties of the Company contained in this Agreement and in
any certificate of the Company delivered to you pursuant hereto are true and
correct at the time of such acceptance or sale, as the case may be, and an
undertaking that such representations and warranties will be true and correct at
the time of delivery to the purchaser or his agent, or you, of the Securities
relating to such acceptance or sale, as the case may be, as though made at and
as of each such time (and it is understood that such representations and
warranties shall relate to the Prospectus as amended or supplemented to each
such time).
<PAGE>
21
(b) Each time that the Prospectus shall be amended or supplemented,
unless otherwise advised by the Placement Agent, the Company shall furnish or
cause to be furnished to you forthwith (i) a certificate of the Chief Financial
Officer and the Treasurer or the Assistant Treasurer of the Company, (ii) the
legal opinion of John T. Ferguson, General Counsel of the Company, and (iii) the
letter of KPMG Peat Marwick LLP, in forms reasonably satisfactory to you to the
effect that the statements contained in the certificate referred to in
Section 5(c) hereof, the legal opinions referred to in Sections 5(b) hereof, and
the letter referred to in Section 5(d) hereof, as the case may be, which was
last furnished to you are true and correct at the time of such amendment or
supplement or sale, as the case may be, as though made at and as of such time
(except that such statements shall be deemed to relate to the Prospectus as
amended and supplemented to such time) or, in lieu of such certificate, legal
opinions, and letter, as the case may be, a certificate, legal opinions, and
letter, as the case may be, of the same tenor as the certificate, legal opinions
or letter, as the case may be, referred to in said Section 5(b), (c) or (d), as
the case may be, modified as necessary to relate to the Prospectus as amended
and supplemented to the time of delivery of such certificate, legal opinions or
letter, as the case may be.
(c) The Company agrees that any obligation of any person who has
agreed to purchase Securities to make payment for and take delivery of Security
on the applicable settlement date therefor shall be subject to (i) the accuracy
of the Company's representations and warranties deemed to be made to the
Placement Agent pursuant to Section 6(a) and (ii) satisfaction of the conditions
set forth in Sections 5(a) and 5(f), it being understood that under no
circumstances shall the Placement Agent have any duty or obligation to exercise
the judgment permitted under Section 5(f) on behalf of any such purchaser.
7. Reimbursement of Placement Agent's Expenses. If the sale of the
--------------------------------------------
Securities provided for herein is not consummated because any condition to the
obligations of the Placement Agent set forth in Section 5 hereof is not
satisfied, because of any termination pursuant to Section 9 hereof or because of
any refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by the Placement Agent, the Company will reimburse the Placement Agent
upon demand for all out-of-pocket
<PAGE>
22
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by the Placement Agent in connection with the proposed
purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees to
---------------------------------
indemnify and hold harmless the Placement Agent, the directors, officers,
employees and agents of the Placement Agent and each person who controls the
Placement Agent within the meaning of either the Act or the Securities Exchange
Act of 1934 (the "Exchange Act") against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement for the registration of the Securities as originally
filed or in any amendment thereof, or in any Preliminary Prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
-------- -------
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Placement Agent specifically for inclusion therein. This indemnity agree-
ment will be in addition to any liability which the Company may otherwise have.
(b) The Placement Agent severally agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity from the Company to the Placement Agent, but only with
reference to written information relating to the Placement Agent furnished to
the Company by or on behalf of the Placement Agent specifically
<PAGE>
23
for inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which the Placement
Agent may otherwise have. The Company acknowledges that the statements set
forth in the last paragraph of the cover page and under the heading "Plan of
Distribution" in any Preliminary Prospectus and the Prospectus constitute the
only information furnished in writing by or on behalf of the Placement Agent for
inclusion in any Preliminary Prospectus or the Prospectus, and you, as the
Placement Agent, confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party
(i) will not relieve it from liability under paragraph (a) or (b) above unless
and to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party shall
be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below); provid-
-------
ed, however, that such counsel shall be satisfactory to the indemnified party.
- -- -------
Notwithstanding the indemnifying party's election to appoint counsel to repre-
sent the indemnified party in an action, the indemnified party shall have the
right to employ separate counsel (including local counsel), and the indemnifying
party shall bear the reasonable fees, costs and expenses of such separate
counsel if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the indem-
nified party shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to
<PAGE>
24
the indemnifying party, (iii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of the institution of such action or
(iv) the indemnifying party shall authorize the indemnified party to employ
separate counsel at the expense of the indemnifying party. An indemnifying
party will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Placement Agent agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and the Placement
Agent may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company and by the Placement Agent from the
offering of the Securities; provided, however, that in no case shall the
-------- -------
Placement Agent be responsible for any amount in excess of the placement fee,
discount or commission applicable to the Securities placed or purchased by the
Placement Agent hereunder. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Company and the Placement
Agent shall contribute in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and of the
Placement Agent in connection with the statements or omissions which resulted in
such Losses as well as any other relevant equitable considerations. Benefits
received by the Company shall be deemed to be equal to the total net proceeds
from the offering (before deducting expenses), and benefits received by the
Placement Agent shall be deemed to be equal to the total placement fees,
discounts and commissions, in each case as set forth on the cover page of the
Prospectus. Relative fault shall be determined by reference to whether any
alleged untrue statement or
<PAGE>
25
omission relates to information provided by the Company or the Placement Agent.
The Company and the Placement Agent agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (d), no
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
Section 8, each person who controls the Placement Agent within the meaning of
either the Act or the Exchange Act and each director, officer, employee and
agent of the Placement Agent shall have the same rights to contribution as the
Placement Agent, and each person who controls the Company within the meaning of
either the Act or the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).
9. Termination. The Placement Agent's engagement hereunder may be
------------
terminated by either the Company or the Placement Agent at any time, with or
without cause, upon 5 days' written advice to the other party; provided,
--------
however, that the Placement Agent will be entitled to reimbursement of expenses
- -------
as provided in Section 7 hereof.
10. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Placement Agent set forth in or made pursuant
to this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Placement Agent or the Company or any
of the officers, directors or controlling persons referred to in Section 8
hereof, and will survive delivery of and payment for the Securities. The
provisions of Section 7 and 8 hereof shall survive the termination or
cancelation of this Agreement.
11. Notices. All communications hereunder will be in writing and
--------
effective only on receipt, and, if sent to the Placement Agent, will be mailed,
delivered or faxed (212-783-7000) and confirmed to it at Salomon Brothers Inc,
at Seven World Trade Center, New York, New York, 10048; or, if sent to the
Company, will be mailed, delivered or faxed
<PAGE>
26
(203- ) and confirmed to it at One Station Place, Metro Center, Stamford,
Connecticut 06902, attention: President.
12. Successors. This Agreement will inure to the benefit of and be
-----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
13. Applicable Law. This Agreement will be governed by and construed
---------------
in accordance with the laws of the State of New York.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the Placement Agent.
Very truly yours,
CROMPTON & KNOWLES CORPORATION,
By:
----------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON BROTHERS INC,
By:
---------------------
Name:
Title:
Exhibit 23.01
The Board of Directors
Crompton & Knowles Corporation
One Station Place, Metro Center
Stamford, CT 06902
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Registration Statement/Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Stamford, Connecticut
August 9, 1996
EXHIBIT 23.03
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-09337 of Crompton & Knowles Corporation on Form S-1 of our report dated
November 17, 1995, relating to the financial statements of Uniroyal Chemical
Corporation appearing in the Prospectus, which is a part of this Registration
Statement. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
August 12, 1996
