AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
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 COPIES TO:
<TABLE>
<S> <C>
EDWARD D. HERLIHY, ESQ. JOSEPH A. COCO, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
51 WEST 52ND STREET 919 THIRD AVENUE
NEW YORK, NY 10019-6150 NEW YORK, NEW YORK 10022
(212) 403-1000 (212) 735-3000
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
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)................... 30,268,054 shares $11.80 $357,122,574.00 $123,145.72(3)
</TABLE>
(1) Includes one attached Preferred Share Purchase Right per share.
(2) Pursuant to Rule 457(f)(1), 457(f)(2) and 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 $357,122,574.00, which equals the sum of (x) the product of (A)
$13.09, the average of the high and low prices of the common stock, $.01 par
value, of Uniroyal Chemical Corporation (together with the attached
Preferred Stock Purchase Rights of Uniroyal Chemical Corporation
("Uniroyal"), "Uniroyal Common Stock") as reported on the Nasdaq National
Market on July 18, 1996, and (B) 26,963,367, the total number of shares of
Uniroyal Common Stock (including shares issuable pursuant to the exercise of
outstanding options, warrants and rights to purchase Uniroyal Common Stock)
expected to be exchanged in the merger of a subsidiary of Crompton & Knowles
Corporation ("Crompton") with and into Uniroyal (the "Merger"), (y) the
product of (A) $100, the book value per share of the Series A Cumulative
Redeemable Preferred Stock, $0.01 par value ("Series A Preferred Stock"), of
Uniroyal computed as of March 31, 1996, and (B) 29,721, the number of shares
of Series A Preferred Stock expected to be exchanged in the Merger, and (z)
the product of (A) $100, the book value per share of the Series B Preferred
Stock, $0.01 par value ("Series B Preferred Stock"), of Uniroyal computed as
of March 31, 1996, and (B) 12,000, the number of shares of Series B
Preferred Stock expected to be exchanged in the Merger. 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 the maximum number of shares of Crompton common stock, $0.10 par value,
that could be issued in the Merger based on the maximum share exchange ratio
of 1.1111.
(3) $85,769.03 of which was previously paid in connection with the filing by
Crompton and Uniroyal on May 24, 1996 of preliminary proxy materials on
Schedule 14A in connection with the Merger.
-------------------
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-4 ITEM JOINT PROXY STATEMENT/PROSPECTUS HEADING
- ------------------------------------------------- -------------------------------------------
<S> <C> <C>
INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page; Cross Reference Sheet; Outside
Front Cover Page of Joint Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Available Information; Incorporation of
Certain Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information............. Summary; Comparative Per Share Data; Market
Price and Dividend Data; The Merger;
Historical and Unaudited Pro Forma Combined
Capitalization; Unaudited Pro Forma
Combined Financial Information; The
Companies
4. Terms of Transaction....................... Summary; The Merger; The Merger Agreement;
Certain Federal Income Tax Consequences;
Recent Developments; Comparison of
Stockholder Rights; Description of Crompton
Capital Stock
5. Pro Forma Financial Information............ Summary; Historical and Unaudited Pro Forma
Combined Capitalization; Unaudited Pro
Forma Combined Financial Information
6. Material Contacts With the Company Being
Acquired................................... Summary; The Merger; The Merger Agreement;
Recent Developments
7. Additional Information Required For
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Named Experts and Counsel..... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3
Registrants................................ Not Applicable
11. Incorporation of Certain Information by
Reference.................................. Not Applicable
12. Information With Respect to S-2 or S-3
Registrants................................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants.......... Summary; Market Price and Dividend Data;
The Companies; 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 of Crompton & Knowles
Corporation
INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3
Companies.................................. Incorporation of Certain Documents by
Reference; Summary; The Merger; Recent
Developments
16. Information With Respect to S-2 or S-3
Companies.................................. Not Applicable
17. Information With Respect to Companies Other
Than S-2 or S-3 Companies.................. Not Applicable
VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents, or
Authorizations Are to be Solicited......... Incorporation of Certain Documents by
Reference; Summary; The Special Meetings;
The Merger; Rights of Dissenting
Stockholders; Directors and Executive
Officers of Crompton; Compensation of
Directors and Executive Officers of
Crompton; Principal Stockholders of
Crompton; Stockholder Proposals
19. Information if Proxies, Consents, or
Authorizations Are Not to be Solicited, or
in an Exchange Offer....................... Not Applicable
</TABLE>
<PAGE>
[Uniroyal Chemical Corporation Letterhead]
July , 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Uniroyal Chemical Corporation ("Uniroyal") to be held at the offices of Uniroyal
Chemical Company, Inc. at Benson Road, Middlebury, Connecticut, on ,
August , 1996, at 10:00 a.m., local time.
At the Special Meeting, you will be asked to vote on a proposal to approve
and adopt an Agreement and Plan of Merger, dated as of April 30, 1996 (the
"Merger Agreement"), providing for the merger (the "Merger") of a wholly owned
subsidiary of Crompton & Knowles Corporation ("Crompton") with and into
Uniroyal. Upon consummation of the Merger, Uniroyal will become a wholly owned
subsidiary of Crompton. The Board of Directors has fixed the close of business
on July 9, 1996 as the record date for determining the holders of Uniroyal
Common Stock entitled to notice of, and to vote at, the Special Meeting (the
"Record Date"). Only holders of record of Uniroyal Common Stock at the close of
business on the Record Date are entitled to notice of, and to vote at, the
Special Meeting.
On the terms and subject to the conditions of the Merger Agreement, each
share of Common Stock, $0.01 par value per share, of Uniroyal outstanding
immediately prior to the effective time of the Merger (other than shares held in
the treasury of Uniroyal or held by Crompton or any of its subsidiaries, which
will be cancelled) will be converted into of a share of Crompton Common
Stock. Each share of Series A Cumulative Redeemable Preferred Stock, $0.01 par
value per share, and Series B Preferred Stock, $0.01 par value per share, of
Uniroyal (the "Uniroyal Preferred Stock") issued and outstanding immediately
prior to the effective time of the Merger (other than shares held in the
treasury of Uniroyal or held by Crompton or any of its subsidiaries, which will
be cancelled) and other than shares of Uniroyal Preferred Stock as to which
dissenters' rights of appraisal have been asserted and perfected under Delaware
law will be converted into shares of Crompton Common Stock. Each share
of Crompton Common Stock so issued will include the corresponding right to
purchase shares of Series A Junior Participating Preferred Stock of Crompton.
Cash will be paid in lieu of any fractional share of Crompton Common Stock.
Crompton Common Stock is traded on the New York Stock Exchange under the
symbol "CNK." It is intended that Uniroyal stockholders will not recognize gain
or loss for federal income tax purposes to the extent Crompton Common Stock is
received in the Merger in exchange for Uniroyal stock, although the receipt of
cash in lieu of fractional shares will be taxable.
ADDITIONAL INFORMATION REGARDING THE MERGER AND THE MERGER AGREEMENT IS SET
FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES
THERETO, WHICH YOU ARE URGED TO READ CAREFULLY IN THEIR ENTIRETY.
Your Board of Directors has carefully considered the terms and conditions of
the proposed Merger. In addition, in connection with its approval of the
transaction with Crompton, the Board of Directors of Uniroyal has received the
written opinion dated April 30, 1996 of Morgan Stanley & Co. Incorporated
("Morgan Stanley"), to the effect that, as of the date of such opinion and based
upon and subject to certain matters stated therein, the consideration to be
received by the holders of shares of Uniroyal Common Stock pursuant to the
Merger Agreement is fair from a financial point of view to such holders. The
full text of the written opinion of Morgan Stanley, which sets forth a
description of the assumptions made, matters considered and limits of its
review, is attached to the accompanying Joint Proxy Statement/Prospectus as
Annex B and Uniroyal stockholders are urged to read carefully the opinion in its
entirety.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR
<PAGE>
TO, AND IN THE BEST INTERESTS OF, UNIROYAL AND ITS STOCKHOLDERS. ACCORDINGLY,
THE BOARD HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND RECOMMENDS THAT UNIROYAL STOCKHOLDERS VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
Approval of the Merger Agreement and the Merger requires the affirmative
vote of the holders of a majority of the outstanding shares of Uniroyal common
stock. Holders of Uniroyal Preferred Stock are not entitled to vote at the
Special Meeting.
In view of the importance of the action to be taken at this important
Special Meeting of Uniroyal Stockholders, we urge you to review carefully the
accompanying Notice of Special Meeting of Stockholders and the Joint Proxy
Statement/Prospectus, including the annexes thereto, which also include
information on Crompton and Uniroyal.
Your vote is important regardless of the number of shares you own.
Accordingly, on behalf of your Board of Directors, I urge you to complete, date
and sign the accompanying proxy and return it promptly in the enclosed
postage-paid envelope. This will not prevent you from attending the Special
Meeting or voting in person, but will assure that your vote is counted if you
are unable to attend the Special Meeting. You may revoke your proxy at any time
by filing a written notice of revocation with, or by delivering a duly executed
proxy bearing a later date to, the Secretary of Uniroyal, at Uniroyal's
headquarters prior to the Special Meeting or by attending the Special Meeting
and voting in person.
On behalf of the Board of Directors, I thank you for your past and
continuing support.
Sincerely,
ROBERT J. MAZAIKA
Chairman, President and
Chief Executive Officer
<PAGE>
UNIROYAL CHEMICAL CORPORATION
C/O UNIROYAL CHEMICAL COMPANY, INC.
BENSON ROAD
MIDDLEBURY, CONNECTICUT 06749
-------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST , 1996
-------------------
To the Stockholders of
Uniroyal Chemical Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Uniroyal
Chemical Corporation, a Delaware corporation ("Uniroyal"), will be held on
, August , 1996, at 10:00 a.m., local time, at the offices of Uniroyal
Chemical Company, Inc. at Benson Road, Middlebury, Connecticut, for the
following purposes:
1. To consider and vote on a proposal (the "Merger Proposal") to approve and
adopt the Agreement and Plan of Merger, dated as of April 30, 1996 (the "Merger
Agreement"), by and among Uniroyal, Crompton & Knowles Corporation, a
Massachusetts corporation ("Crompton"), and Tiger Merger Corp., a Delaware
corporation and a wholly owned subsidiary of Crompton ("Subcorp"), 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, par value $0.01 per share (together with
the attached preferred stock purchase rights of Uniroyal, "Uniroyal Common
Stock"), will be converted into (the "Exchange Ratio") shares of Crompton
common stock, par value $0.10 per share (together with the attached preferred
share purchase rights, "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 shares of Crompton Common Stock (with cash
in lieu of fractional shares). A copy of the Merger Agreement is attached as
Annex A to the accompanying Joint Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on July 9, 1996, as
the record date (the "Record Date") for the determination of the holders of
Uniroyal Common Stock entitled to notice of, and to vote at, the meeting and any
adjournments or postponements thereof. The Merger Proposal requires the
affirmative vote of the holders of a majority of the outstanding shares of
Uniroyal Common Stock entitled to vote at the meeting. The executive officers
and Directors of Uniroyal and certain of their affiliates have expressed an
intention to vote in favor of the Merger Proposal. Holders of Uniroyal Common
Stock will not be entitled to dissenters' appraisal rights under Delaware law or
any other statute in connection with the Merger.
Holders of Uniroyal Preferred Stock as of the Record Date are entitled to
notice of, but are not entitled to vote such shares at, the meeting. Dissenters'
appraisal rights will be available in connection with the Merger to those
holders of Uniroyal Preferred Stock who meet and comply with the requirements of
Section 262 of the Delaware General Corporation Law, a copy of which is attached
as
<PAGE>
Annex D to, and a summary of which is set forth under the caption "Rights of
Dissenting Stockholders" in, the accompanying Joint Proxy Statement/Prospectus.
Information regarding the Merger and related matters is contained in the
accompanying Joint Proxy Statement/Prospectus and the annexes thereto, which are
incorporated by reference herein and form a part of this Notice.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IT IS
IMPORTANT THAT YOUR INTERESTS BE REPRESENTED AT THE MEETING.
THE BOARD OF DIRECTORS OF UNIROYAL HAS DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN
THE BEST INTERESTS OF, UNIROYAL AND ITS STOCKHOLDERS. ACCORDINGLY, THE UNIROYAL
BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT.
In considering the Uniroyal Board's recommendation, certain members of the
Uniroyal Board may be deemed to have interests in addition to or potentially
different from the interests of stockholders of Uniroyal generally, as more
fully described under the caption "The Merger--Interests of Certain Persons in
the Merger" in the accompanying Joint Proxy Statement/Prospectus.
By Order of the Board of Directors
IRA J. KRAKOWER
Secretary
Middlebury, Connecticut
July , 1996
PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME.
<PAGE>
[Crompton & Knowles Corporation Letterhead]
July , 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Crompton & Knowles Corporation ("Crompton") to be held at Crompton's corporate
offices at One Station Place, Metro Center, Stamford, Connecticut, on ,
August , 1996, at 10:00 a.m., local time.
At the Special Meeting, you will be asked to vote on a proposal (the "Merger
Proposal") to approve and adopt an Agreement and Plan of Merger, dated as of
April 30, 1996 (the "Merger Agreement"), providing for the merger (the "Merger")
of a wholly owned subsidiary of Crompton with and into Uniroyal Chemical
Corporation ("Uniroyal"). Upon consummation of the Merger, Uniroyal will become
a wholly owned subsidiary of Crompton, and Uniroyal stockholders will be
entitled to receive (the "Exchange Ratio") shares of Crompton common
stock for each share of Uniroyal common stock held by them. As a result of the
Merger and the transactions contemplated thereby, it is currently contemplated
that Crompton will issue up to approximately additional shares of
Crompton common stock. Approval and adoption of the Merger Proposal will also
constitute approval of an amendment to Crompton's 1988 Long Term Incentive Plan
to increase the number of shares of Crompton common stock reserved for issuance
thereunder by 6,000,000 shares.
ADDITIONAL INFORMATION REGARDING THE MERGER AND THE MERGER AGREEMENT IS SET
FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES
THERETO, WHICH YOU ARE URGED TO READ CAREFULLY IN THEIR ENTIRETY.
Your Board of Directors has carefully considered the terms and conditions of
the proposed Merger. In addition, in connection with its approval of the
transaction with Uniroyal, the Board of Directors of Crompton has received a
written opinion dated April 30, 1996 from its financial advisor, Salomon
Brothers Inc ("Salomon Brothers"), to the effect that, as of the date of such
opinion and based upon and subject to certain matters stated therein, the
consideration to be paid to the stockholders of Uniroyal in connection with the
Merger is fair to Crompton from a financial point of view. The full text of the
written opinion of Salomon Brothers, which sets forth a description of the
assumptions made, matters considered and limits of its review, is attached to
the accompanying Joint Proxy Statement/Prospectus as Annex C and should be read
carefully in its entirety.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST
INTERESTS OF, CROMPTON AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD HAS APPROVED
THE MERGER AGREEMENT AND THE TRANSACTION CONTEMPLATED THEREBY AND RECOMMENDS
THAT CROMPTON STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
In view of the importance of the action to be taken at this important
Special Meeting of Crompton Stockholders, we urge you to review carefully the
accompanying Notice of Special Meeting of Stockholders and the Joint Proxy
Statement/Prospectus, including the annexes thereto, which also include
information on Crompton and Uniroyal. Whether or not you expect to attend the
Special Meeting, please complete, sign and date the enclosed proxy and return it
as promptly as possible in the enclosed envelope.
Very truly yours,
VINCENT A. CALARCO
Chairman, President and
Chief Executive Officer
<PAGE>
CROMPTON & KNOWLES CORPORATION
ONE STATION PLACE, METRO CENTER
STAMFORD, CONNECTICUT 06902
-------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST , 1996
-------------------
To the Stockholders of
Crompton & Knowles Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Crompton &
Knowles Corporation, a Massachusetts corporation ("Crompton"), will be held on
, August , 1996, at 10:00 a.m., local time, at Crompton's corporate
offices at One Station Place, Metro Center, Stamford, Connecticut, for the
following purposes:
1. To consider and vote on a proposal (the "Merger Proposal") to approve and
adopt the Agreement and Plan of Merger, dated as of April 30, 1996 (the "Merger
Agreement"), by and among Crompton, Tiger Merger Corp., a Delaware corporation
and a wholly owned subsidiary of Crompton ("Subcorp"), and Uniroyal Chemical
Corporation, a Delaware corporation ("Uniroyal"), pursuant to which, among other
things, (i) Subcorp will be merged (the "Merger") 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, par value $0.01 per share (together with
the attached preferred stock purchase rights of Uniroyal), will be converted
into (the "Exchange Ratio") shares of Crompton common stock, par value $0.10
per share (together with the attached preferred share purchase rights, "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 shares of Crompton Common Stock (with cash
in lieu of fractional shares). Approval and adoption of the Merger Proposal will
also constitute approval of an amendment to Crompton's 1988 Long Term Incentive
Plan to increase the number of shares of Crompton Common Stock reserved for
issuance thereunder by 6,000,000 shares. The consummation of the Merger is a
condition to the effectiveness of such amendment. A copy of the Merger Agreement
is attached as Annex A to the accompanying Joint Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Crompton is seeking stockholder approval of the Merger Agreement to comply
with (i) certain requirements of the New York Stock Exchange, Inc. governing the
listing of Crompton Common Stock thereon and relating to the issuance of the
shares of Crompton Common Stock in the Merger and (ii) certain requirements of
the Securities Exchange Act of 1934, as amended, governing the qualification of
Crompton's 1988 Long Term Incentive Plan under certain provisions thereof. The
Board of Directors has fixed the close of business on July 9, 1996, as the
record date (the "Record Date") for the determination of the holders of Crompton
Common Stock entitled to notice of, and to vote at, the meeting and any
adjournments or postponements thereof. The Merger Proposal requires the
affirmative vote of the holders of a majority of the shares of Crompton Common
Stock present in person, or represented by proxy, and entitled to vote at the
Special Meeting, provided that the total votes cast
<PAGE>
represent over 50% of the shares of Crompton Common Stock issued and outstanding
on the Record Date. Crompton stockholders will not be entitled to dissenters'
appraisal rights under Massachusetts law or any other statute in connection with
the Merger.
Information regarding the Merger and related matters is contained in the
accompanying Joint Proxy Statement/Prospectus and the annexes thereto, which are
incorporated by reference herein and form a part of this Notice.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IT IS
IMPORTANT THAT YOUR INTERESTS BE REPRESENTED AT THE MEETING.
By Order of the Board of Directors
JOHN T. FERGUSON II
Secretary
Stamford, Connecticut
July , 1996
<PAGE>
CROMPTON & KNOWLES CORPORATION
AND
UNIROYAL CHEMICAL CORPORATION
JOINT PROXY STATEMENT
-------------------
CROMPTON & KNOWLES CORPORATION
PROSPECTUS
-------------------
This Joint Proxy Statement/Prospectus is being furnished to holders of
shares of common stock, par value $0.10 per share (together with the attached
preferred share purchase rights, "Crompton Common Stock"), of Crompton & Knowles
Corporation, a Massachusetts corporation ("Crompton"), in connection with the
solicitation of proxies by the Board of Directors of Crompton for use at the
Special Meeting of Crompton Stockholders to be held on , August ,
1996, at Crompton's corporate offices at One Station Place, Metro Center,
Stamford, Connecticut, commencing at 10:00 a.m., local time, and at any
adjournment or postponement thereof (the "Crompton Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to holders of
shares of common stock, par value $0.01 per share (together with the attached
preferred stock purchase rights, "Uniroyal Common Stock"), of Uniroyal Chemical
Corporation, a Delaware corporation ("Uniroyal"), in connection with the
solicitation of proxies by the Board of Directors of Uniroyal for use at the
Special Meeting of Uniroyal Stockholders to be held on , August ,
1996, at the offices of Uniroyal Chemical Company, Inc. at Benson Road,
Middlebury, Connecticut, commencing at 10:00 a.m., local time, and at any
adjournment or postponement thereof (the "Uniroyal Special Meeting").
At the Crompton Special Meeting and the Uniroyal Special Meeting, holders of
Crompton Common Stock ("Crompton Stockholders") and holders of Uniroyal Common
Stock ("Uniroyal Stockholders") as of the close of business on the Crompton
Record Date and Uniroyal Record Date (each as hereinafter defined),
respectively, will be asked at their respective meetings to consider and vote on
the Merger Proposal (as hereinafter defined) to approve and adopt the Agreement
and Plan of Merger, dated as of April 30, 1996 (the "Merger Agreement"),
providing for the merger (the "Merger") of Tiger Merger Corp., a Delaware
corporation and a wholly owned subsidiary of Crompton ("Subcorp"), with and into
Uniroyal. The Merger will be consummated on the terms and subject to the
conditions set forth in the Merger Agreement, 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 (the "Exchange Ratio")
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 shares of Crompton Common Stock (with cash
in lieu of fractional shares). See "The Merger Agreement--Merger Consideration."
<PAGE>
Approval and adoption of the Merger Proposal by Crompton Stockholders will
also constitute approval of an amendment to Crompton's 1988 Long Term Incentive
Plan (the "Crompton 1988 LTI Plan") to increase the number of shares of Crompton
Common Stock reserved for issuance thereunder by 6,000,000 shares. The
consummation of the Merger is a condition to the effectiveness of such
amendment. See "The Special Meetings--Crompton 1988 LTI Plan Amendment."
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Crompton with respect to the shares of Crompton Common Stock to be issued by
Crompton in the Merger described herein in exchange for the issued and
outstanding shares of Uniroyal Common Stock and of Uniroyal Preferred Stock.
Crompton Common Stock is quoted on the New York Stock Exchange (the "NYSE")
under the symbol "CNK." On July , 1996, the closing price of Crompton Common
Stock on the NYSE Composite Tape was $ . Uniroyal Common Stock is quoted
on the Nasdaq National Market (the "NASDAQ/NM") under the symbol "UCHM." On
July , 1996, the last sale price of Uniroyal Common Stock on the NASDAQ/NM was
$ . Crompton Stockholders and Uniroyal Stockholders should obtain
current quotes for the Crompton Common Stock and Uniroyal Common Stock.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS 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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus with respect to Crompton has been supplied by Crompton. All
information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus with respect to Uniroyal has been supplied by Uniroyal.
This Joint Proxy Statement/Prospectus, the Letter to Crompton Stockholders,
the Notice of the Crompton Special Meeting and the form of proxy for use at the
Crompton Special Meeting are first being mailed to Crompton Stockholders on or
about July , 1996. This Joint Proxy Statement/Prospectus, the Letter to
Uniroyal Stockholders, the Notice of the Uniroyal Special Meeting and the form
of proxy for use at the Uniroyal Special Meeting are first being mailed to
Uniroyal Stockholders on or about July , 1996. Any stockholder who has given
his, her or its proxy may revoke it at any time prior to its use. See "The
Special Meetings--Voting of Proxies."
-------------------
The date of this Joint Proxy Statement/Prospectus is July , 1996.
ii
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
IN WHICH OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF CROMPTON COMMON STOCK MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF CROMPTON OR UNIROYAL SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS
OF ANY TIME AFTER THE DATE HEREOF.
AVAILABLE INFORMATION
Each of Crompton and Uniroyal 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 either Crompton or Uniroyal 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. Uniroyal Common Stock is quoted on the
NASDAQ/NM, and such reports, proxy statements and other information concerning
Uniroyal are available for inspection and copying at the Public Reference
Section of the NASDAQ/NM at 1737 K Street, N.W., Washington, D.C. 20006.
Crompton has filed with the Commission a Registration Statement on Form S-4
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 issued in the Merger (the "Registration
Statement"). This Joint Proxy Statement/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.
iii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Uniroyal with the Commission pursuant to
the Exchange Act (Commission File No. 0-25586) are hereby incorporated by
reference in this Joint Proxy Statement/Prospectus:
1. The description of Uniroyal Common Stock contained in Uniroyal's
Registration Statement on Form 8-A filed with the Commission on February 17,
1995, and any amendment or report filed for the purpose of updating such
description;
2. The description of Uniroyal Preferred Stock Purchase Rights (the
"Uniroyal Rights") contained in Uniroyal's Current Report on Form 8-K dated
April 13, 1993 and incorporated by reference in Uniroyal's Registration
Statement on Form 8-A filed with the Commission on February 17, 1995 (as amended
by Form 8-A/A No. 1 filed with the Commission on November 2, 1995, and by Form
8-A/A No. 2 filed with the Commission on May 8, 1996), and any amendment or
report filed for the purpose of updating such description;
3. Uniroyal's Annual Report on Form 10-K for the fiscal year ended October
1, 1995 (the "1995 Uniroyal Form 10-K");
4. Uniroyal's Quarterly Reports on Form 10-Q for the quarters ended December
31, 1995 and March 31, 1996; and
5. Uniroyal's Current Report on Form 8-K dated October 31, 1995.
All reports and other documents filed with the Commission by Uniroyal
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Joint Proxy Statement/Prospectus and prior to the Uniroyal Special
Meeting shall be deemed to be incorporated by reference herein and to be a part
hereof from the respective dates of filing of such reports and other documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained herein or in any other
subsequently filed document that is also incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WITH RESPECT TO UNIROYAL THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
COPIES OF THESE DOCUMENTS (NOT INCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS OR HEREIN)
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO UNIROYAL
CHEMICAL CORPORATION, C/O UNIROYAL CHEMICAL COMPANY, INC., BENSON ROAD,
MIDDLEBURY, CONNECTICUT 06749; ATTENTION: IRA J. KRAKOWER, SECRETARY; TELEPHONE:
(203) 573-2000. IN ORDER TO ENSURE TIMELY DELIVERY, ANY REQUEST FOR DOCUMENTS
SHOULD BE MADE BY AUGUST , 1996.
iv
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION................ iii
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.......................... iv
SUMMARY.............................. 1
The Companies...................... 1
The Special Meetings............... 1
The Merger......................... 4
Certain Federal Income Tax
Consequences..................... 9
Comparison of Stockholder Rights... 10
Selected Historical and Unaudited
Pro Forma Combined Financial
Data............................. 11
Unaudited Selected Pro Forma
Combined Financial Data.......... 13
COMPARATIVE PER SHARE DATA........... 15
MARKET PRICE AND DIVIDEND DATA....... 18
THE SPECIAL MEETINGS................. 19
General............................ 19
Matters to Be Considered at the
Special Meetings................. 19
The Crompton 1988 LTI Plan
Amendment........................ 20
Record Date; Vote Required; Voting
at the Meetings.................. 25
Voting of Proxies.................. 26
Solicitation of Proxies............ 27
Recommendations of the Boards of
Directors........................ 27
Appraisal Rights................... 28
THE MERGER........................... 28
Background of the Merger........... 28
Reasons for the Merger;
Recommendations of the Boards of
Directors........................ 30
Opinion of Uniroyal's Financial
Advisor.......................... 33
Opinion of Crompton's Financial
Advisor.......................... 39
Interests of Certain Persons in the
Merger........................... 44
Accounting Treatment............... 46
Regulatory Approvals............... 47
Federal Securities Law
Consequences..................... 47
Uniroyal Rights Agreement
Amendment........................ 48
Certain Litigation................. 48
THE MERGER AGREEMENT................. 49
The Merger......................... 49
Merger Consideration............... 49
Exchange Procedures................ 50
Representations, Warranties and
Covenants........................ 50
No Negotiation or Solicitation..... 54
Conditions......................... 55
PAGE
----
Uniroyal Stock Options and
Warrants......................... 56
Employee Benefits.................. 57
Termination; Effect of
Termination...................... 57
Amendment and Waiver............... 59
Expenses........................... 59
RIGHTS OF DISSENTING STOCKHOLDERS.... 59
Crompton Stockholders.............. 59
Uniroyal Stockholders; Holders of
Uniroyal Preferred Stock......... 59
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES....................... 62
THE COMPANIES........................ 63
Business of Uniroyal............... 63
Business of Crompton............... 63
RECENT DEVELOPMENTS.................. 69
Issuance of Crompton Common
Stock............................ 69
Description of Certain
Indebtedness..................... 69
Crompton Second Quarter Earnings... 70
SELECTED HISTORICAL FINANCIAL DATA OF
CROMPTON........................... 71
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CROMPTON.......... 72
Financial Condition and
Liquidity........................ 72
Operating Results--1995 as Compared
to 1994.......................... 73
Operating Results--1994 as Compared
to 1993.......................... 74
First Quarter Results.............. 75
HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CAPITALIZATION............ 77
Notes to Historical and Unaudited
Pro Forma Combined
Capitalization................... 78
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION.............. 79
Unaudited Pro Forma Combined
Balance Sheet.................... 80
Unaudited Pro Forma Combined
Statement of Operations.......... 81
Notes to Unaudited Pro Forma
Combined Financial Information... 86
DIRECTORS AND EXECUTIVE OFFICERS OF
CROMPTON........................... 88
Directors of Crompton.............. 88
Board Meetings and Committees...... 89
Executive Officers of Crompton..... 89
COMPENSATION OF DIRECTORS AND
EXECUTIVE OFFICERS OF CROMPTON..... 90
Compensation of Directors.......... 90
v
<PAGE>
PAGE
----
Report of the Committee on
Executive Compensation........... 91
Performance Graphs................. 94
Executive Compensation............. 96
PRINCIPAL STOCKHOLDERS OF CROMPTON... 100
COMPARISON OF STOCKHOLDER RIGHTS..... 101
Action by Written Consent of
Stockholders..................... 101
Amendment of Charter Documents..... 101
Voting Rights of Preferred
Stockholders..................... 102
Stockholder Voting................. 102
Control Share Statutes............. 102
Stockholder Approval of Certain
Business Combinations............ 103
Appraisal Rights................... 104
Amendment of By-Laws............... 104
Limitation on Directors' Liability;
Indemnification of Officers and
Directors........................ 105
Classified Board of Directors...... 105
Cumulative Voting for Directors.... 106
Removal of Directors............... 106
Newly Created Directorships and
Vacancies........................ 106
Special Meetings................... 107
Inspection Rights.................. 107
[CAPTION]
PAGE
----
[S] [C]
Election of Directors.............. 108
Dividends.......................... 108
Stockholder Rights Plan............ 108
DESCRIPTION OF CROMPTON CAPITAL
STOCK.............................. 110
Crompton Common Stock.............. 110
Preferred Share Purchase Rights.... 110
Certain Charter and By-Law
Provisions....................... 111
LEGAL MATTERS........................ 111
EXPERTS.............................. 111
STOCKHOLDER PROPOSALS................ 111
INDEX TO FINANCIAL STATEMENTS OF
CROMPTON & KNOWLES CORPORATION..... F-1
ANNEXES:
A--Agreement and Plan of Merger,
dated as of April 30, 1996, by
and among Crompton & Knowles
Corporation, Tiger Merger Corp.
and Uniroyal Chemical
Corporation..................... A-1
B--Opinion of Morgan Stanley & Co.
Incorporated, dated April 30,
1996............................ B-1
C--Opinion of Salomon Brothers
Inc, dated April 30, 1996....... C-1
D--Section 262 of the Delaware
General Corporation Law......... D-1
vi
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus and the Annexes hereto (the "Joint Proxy
Statement/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 or incorporated by reference in this Joint Proxy
Statement/Prospectus. Crompton Stockholders and Uniroyal Stockholders are urged
to read and consider carefully all of the information contained or incorporated
by reference in this Joint Proxy Statement/Prospectus.
THE COMPANIES
UNIROYAL
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. The principal executive
offices of Uniroyal are located at Benson Road, Middlebury, Connecticut 06749,
and its telephone number is (203) 573-2000. See "The Companies--Business of
Uniroyal."
CROMPTON
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 Companies--Business of Crompton."
THE SPECIAL MEETINGS
CROMPTON SPECIAL MEETING
Date, Time and Place of Crompton Special Meeting. The Crompton Special
Meeting will be held at Crompton's corporate offices at One Station Place, Metro
Center, Stamford, Connecticut 06902, on , August , 1996, at 10:00
a.m., local time, for the following purposes:
1. To consider and vote on a proposal (the "Merger Proposal") to approve
and adopt the Merger Agreement 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 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 shares of Crompton Common Stock (with cash in lieu of fractional
shares). Approval and adoption of the Merger Proposal will also constitute
approval of an amendment to the Crompton 1988 LTI Plan to increase the
number of shares of Crompton Common Stock reserved for issuance thereunder
by 6,000,000 shares. The consummation of the Merger is a condition to the
effectiveness of such amendment. A copy of the Merger Agreement is attached
as Annex A to this Joint Proxy Statement/Prospectus. For additional
information with respect to the amendment of the Crompton 1988 LTI Plan, see
"The Special Meeting--The Crompton 1988 LTI Plan Amendment."
2. To transact such other business as may properly come before the
Crompton Special Meeting.
1
<PAGE>
Reasons For Seeking Stockholder Approval. Crompton is seeking stockholder
approval of the Merger Proposal to comply with (i) certain requirements of the
NYSE governing the listing of Crompton Common Stock thereon and relating to the
issuance of the shares of Crompton Common Stock in the Merger and (ii) certain
requirements of the Exchange Act governing the qualification of the Crompton
1988 LTI Plan under certain provisions thereof. Approval of the Merger Proposal
is not required by Massachusetts law or the Articles of Organization, as amended
and restated (the "Crompton Articles"), or By-Laws (the "Crompton By-Laws") of
Crompton. If Crompton were to consummate the Merger without stockholder
approval, the Crompton Common Stock could not remain listed on the NYSE. See
"The Special Meetings--Record Date; Vote Required; Voting at the
Meetings--Crompton" and "The Special Meetings--The Crompton 1988 LTI Plan
Amendment."
Record Date. Only Crompton Stockholders of record at the close of business
on July 9, 1996 (the "Crompton Record Date"), will be entitled to notice of and
to vote at the Crompton Special Meeting. As of the Crompton Record Date, there
were approximately 48,039,309 shares of Crompton Common Stock outstanding held
by approximately 4,474 holders of record. Each holder of record of Crompton
Common Stock on the Crompton Record Date is entitled to cast one vote per share,
exercisable in person or by a properly executed proxy, at the Crompton Special
Meeting. See "The Special Meetings--Record Date; Vote Required; Voting at the
Meetings--Crompton."
Required Vote. Approval of the Merger Proposal requires the affirmative vote
of the holders of a majority of the shares of Crompton Common Stock present in
person, or represented by proxy, and entitled to vote at the Crompton Special
Meeting, provided that the total votes cast represent over 50% of the shares of
Crompton Common Stock issued and outstanding on the Crompton Record Date. As of
the Crompton Record Date, the directors and executive officers of Crompton and
certain of their affiliates owned approximately 4% of the outstanding Crompton
Common Stock and each such person has advised Crompton that such person intends
to vote in favor of the Merger Proposal. See "The Special Meetings--Record Date;
Vote Required; Voting at the Meetings--Crompton."
Revocability of Proxies. Any proxy given pursuant to this solicitation may
be revoked by (i) filing with the Secretary of Crompton, before the taking of
the vote at the Crompton Special Meeting, a written notice of revocation bearing
a later date than the date of the proxy or any later-dated proxy relating to the
same shares, or (ii) attending the Crompton Special Meeting and voting in
person.
Recommendation of the Board of Directors. The Board of Directors of Crompton
(sometimes hereinafter referred to as the "Crompton Board") has determined that
the terms of the Merger Agreement and the transactions contemplated thereby are
fair to, and in the best interests of, Crompton and the Crompton Stockholders.
Accordingly, the Crompton Board has approved the Merger Agreement and the
transactions contemplated thereby and recommends that Crompton Stockholders vote
FOR the approval and adoption of the Merger Agreement.
Appraisal Rights. Crompton Stockholders will not be entitled to dissenters'
appraisal rights under Massachusetts law or any other statute in connection with
the Merger. See "Rights of Dissenting Stockholders--Crompton Stockholders" and
"Comparison of Stockholder Rights--Appraisal Rights."
UNIROYAL SPECIAL MEETING
Date, Time and Place of Uniroyal Special Meeting. The Uniroyal Special
Meeting will be held at the offices of Uniroyal Chemical Company, Inc. at Benson
Road, Middlebury, Connecticut 06749, on , August , 1996, at 10:00
a.m., local time, for the following purposes:
1. To consider and vote on the Merger Proposal. A copy of the Merger
Agreement is attached as Annex A to this Joint Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the
Uniroyal Special Meeting.
Record Date. Only Uniroyal Stockholders of record at the close of business
on July 9, 1996 (the "Uniroyal Record Date"), will be entitled to notice of and
to vote at the Uniroyal Special Meeting. As of the Uniroyal Record Date, there
were approximately 24,308,403 shares of Uniroyal Common Stock outstanding held
by approximately 358 holders of record. Each holder of record of Uniroyal
2
<PAGE>
Common Stock on the Uniroyal Record Date is entitled to cast one vote per share,
exercisable in person or by a properly executed proxy, at the Uniroyal Special
Meeting. Holders of Uniroyal Preferred Stock as of the Uniroyal Record Date are
entitled to notice of, but are not entitled to vote such shares at, the Uniroyal
Special Meeting. See "The Special Meetings--Record Date; Vote Required; Voting
at the Meetings--Uniroyal."
Required Vote. Approval of the Merger Proposal requires the affirmative vote
of the holders of a majority of the shares of Uniroyal Common Stock outstanding
and entitled to vote thereon. A vote of the holders of outstanding shares of
Uniroyal Preferred Stock is not required to approve and adopt the Merger
Proposal. As of the Uniroyal Record Date, the directors and executive officers
of Uniroyal and certain of their affiliates owned approximately 4% of the
outstanding Uniroyal Common Stock and each such person has advised Uniroyal
that such person intends to vote in favor of the Merger Proposal. See "The
Special Meetings--Record Date; Vote Required; Voting at the Meetings--Uniroyal."
Revocability of Proxies. Any proxy given pursuant to this solicitation may
be revoked by (i) filing with the Secretary of Uniroyal, before the taking of
the vote at the Uniroyal Special Meeting, a written notice of revocation bearing
a later date than the date of the proxy or any later-dated proxy relating to the
same shares, or (ii) attending the Uniroyal Special Meeting and voting in
person.
Recommendation of the Board of Directors. The Board of Directors of Uniroyal
(sometimes hereinafter referred to as the "Uniroyal Board") has determined that
the terms of the Merger Agreement and the transactions contemplated thereby are
fair to, and in the best interests of, Uniroyal and the Uniroyal Stockholders.
Accordingly, the Uniroyal Board has approved the Merger Agreement and the
transactions contemplated thereby and recommends that Uniroyal Stockholders vote
FOR the approval and adoption of the Merger Agreement. In considering the
Uniroyal Board's recommendation, certain members of the Uniroyal Board may be
deemed to have interests in addition to or potentially different from the
interests of stockholders of Uniroyal generally. See "The Merger--Interests of
Certain Persons in the Merger."
Appraisal Rights. Uniroyal Stockholders will not be entitled to dissenters'
appraisal rights under Delaware law or any other statute in connection with the
Merger. Dissenters' appraisal rights will be available in connection with the
Merger to those holders of Uniroyal Preferred Stock who meet and comply with the
requirements of Section 262 of the Delaware General Corporation Law (the
"DGCL"). Such holders who comply with the procedural requirements of Section 262
of the DGCL will have the right to obtain a cash payment for the "fair value" of
their shares of Uniroyal Preferred Stock (excluding any element of value arising
from the accomplishment or expectation of the Merger) if the Merger is
consummated.
In order to comply with the requirements of Section 262 of the DGCL, among
other things, a holder of shares of Uniroyal Preferred Stock must deliver to
Uniroyal, prior to the vote on the Merger Proposal at the Uniroyal Special
Meeting, a written demand for appraisal of his shares of Uniroyal Preferred
Stock. A proxy or vote against the Merger will not constitute such a demand.
Further, such a holder wishing to exercise his dissenters' appraisal rights must
hold of record such shares on the date the written demand for appraisal is made,
must continue to hold such shares until the date of consummation of the Merger
and must not vote in favor of the Merger Proposal. In addition, within 120 days
after the consummation of the Merger, but not thereafter, Uniroyal or any
stockholder entitled to dissenters' appraisal rights under Section 262 may file
a petition in the Delaware Court of Chancery demanding a determination of the
"fair value" of the shares of Uniroyal Preferred Stock held by any such
stockholders. Uniroyal is under no obligation to and has no present intention to
file such a petition. Accordingly, it is the obligation of the holders of the
Uniroyal Preferred Stock to initiate all necessary action to perfect their
dissenters' appraisal rights within the time prescribed in Section 262. See
"Rights of Dissenting Stockholders--Uniroyal Stockholders; Holders of Uniroyal
Preferred Stock" and "Comparison of Stockholder Rights--Appraisal Rights."
Section 262 of the DGCL is set forth in Annex D to this Joint Proxy
Statement/Prospectus.
3
<PAGE>
THE MERGER
GENERAL; EXCHANGE RATIO
Upon consummation of the Merger pursuant to the Merger Agreement, (i) each
share of Uniroyal Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares, if any, held in the treasury of Uniroyal or
held by Crompton or any of its subsidiaries, which will be cancelled) will be
converted into and represent a number of shares of Crompton Common Stock equal
to the Exchange Ratio (as calculated below), and (ii) each share of Uniroyal
Preferred Stock issued and outstanding immediately prior to the Effective Time
(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) will be converted into
and represent a number of shares of Crompton Common Stock equal to the Exchange
Ratio multiplied by 6.667. No certificates for fractional shares of Crompton
Common Stock will be issued in the Merger, and to the extent that an outstanding
share of Uniroyal Common Stock or Uniroyal Preferred Stock would otherwise have
become a fractional share of Crompton Common Stock, the holder thereof will be
entitled to receive a cash payment therefor in an amount equal to the value
(determined with reference to the closing price of Crompton Common Stock on the
NYSE Composite Tape on the last full trading day immediately prior to the
Effective Time) of such fractional interest.
On July , 1996, pursuant to the Merger Agreement, the Exchange Ratio of
was calculated by Crompton and Uniroyal, with the consultation of their
respective financial and legal advisors, by dividing $15.00 by the "Acquiror
Transaction Value" (as defined below), and rounding to four decimal places;
provided, however, that notwithstanding the foregoing, the Exchange Ratio could
not be less than 0.9091 nor more than 1.1111. The term "Acquiror Transaction
Value" means the average closing price on the NYSE Composite Tape of Crompton
Common Stock for the twenty NYSE trading days ending with the third NYSE trading
day immediately preceding the date of mailing of this Joint Proxy
Statement/Prospectus. The Acquiror Transaction Value was $ (calculated
as described above based on the July , 1996 mailing date of this Joint Proxy
Statement/Prospectus). Consummation of the Merger and the conversion of Uniroyal
Common Stock and Uniroyal Preferred Stock into Crompton Common Stock as
described above are subject to the satisfaction or waiver of certain conditions
(see "The Merger Agreement--Conditions") and the right of one or both of
Uniroyal and Crompton to terminate the Merger Agreement under certain
circumstances as described under the caption "The Merger Agreement--Termination;
Effect of Termination."
See "The Merger Agreement--Merger Consideration."
UNIROYAL STOCK OPTIONS AND WARRANTS
At the Effective Time, each unexpired and unexercised option or right to
purchase shares of Uniroyal Common Stock under stock option plans and stock
purchase plans of Uniroyal in effect on the date of the Merger Agreement which
has been granted to current or former directors, officers, employees,
consultants or independent contractors of Uniroyal or its subsidiaries by
Uniroyal (each, a "Uniroyal Option") will be automatically converted into an
option (a "Crompton Exchange Option") to purchase that number of shares of
Crompton Common Stock equal to the number of shares of Uniroyal Common Stock
issuable immediately prior to the Effective Time upon exercise of the Uniroyal
Option (without regard to actual restrictions on exercisability) multiplied by
the Exchange Ratio, with an exercise price per share equal to the exercise price
per share which existed under the corresponding Uniroyal Option divided by the
Exchange Ratio, and with other terms and conditions that are the same as the
terms and conditions of such Uniroyal Option immediately before the Effective
Time (including, without limitation, the acceleration of the exercisability of
each such option upon the consummation of the Merger and the length of the
period of continuing exercisability of each such option after any termination of
the employment of the respective optionee); provided that with respect to any
Uniroyal Option that is an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), the
foregoing conversion will be carried out in a manner satisfying the requirements
of Section 424(a) of the Code. As of the Uniroyal Record Date, approximately
2,540,014 shares of Uniroyal Common Stock were issuable upon the exercise of
outstanding
4
<PAGE>
Uniroyal Options, which options will be converted to become approximately
Crompton Exchange Options at the Effective Time. Each of the executive officers
and directors of Uniroyal currently hold Uniroyal Options which will become
Crompton Exchange Options. Pursuant to the terms of the stock option agreements
under which the Uniroyal Options were issued, the unvested portion of each
Uniroyal Option will vest upon consummation of the Merger.
Also at the Effective Time, each unexpired and unexercised warrant to
purchase shares of Uniroyal Common Stock under the Warrant Agreement, dated as
of October 30, 1989, between Uniroyal and Avery, Inc. (each, a "Uniroyal
Warrant") will be converted into a warrant (a "Crompton Exchange Warrant") to
purchase that number of shares of Crompton Common Stock equal to the number of
shares of Uniroyal Common Stock issuable immediately prior to the Effective Time
upon exercise of the Uniroyal Warrant (without regard to actual restrictions on
exercisability) multiplied by the Exchange Ratio, with an exercise price equal
to the exercise price which existed under the corresponding Uniroyal Warrant
divided by the Exchange Ratio, and with other terms and conditions that are the
same as the terms and conditions of such Uniroyal Warrant immediately before the
Effective Time.
See "The Merger--Interests of Certain Persons in the Merger" and "The Merger
Agreement-- Uniroyal Stock Options and Warrants."
EFFECTIVE TIME OF THE MERGER; CLOSING DATE
The Merger will become effective (the "Effective Time") when a certificate
of merger is filed with the Delaware Secretary of State or at such later time as
is specified in the certificate of merger. This filing will be made on a date
(the "Closing Date") specified by Crompton and Uniroyal, which date will be as
soon as practicable, but in any event within ten business days, following the
date upon which all conditions set forth in the Merger Agreement have been
satisfied or waived, as the case may be, or such other time as Crompton and
Uniroyal may mutually agree. See "The Merger Agreement--The Merger" and "The
Merger Agreement--Conditions."
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to fulfillment (or waiver) of the
following conditions, among others, (i) approval by Uniroyal Stockholders (which
approval may not be legally waived) and approval by Crompton Stockholders of the
Merger Proposal; (ii) no temporary restraining order, preliminary or permanent
injunction or other order or decree which prevents the consummation of the
Merger having been issued and remaining in effect, and no statute, rule or
regulation having been enacted by any governmental authority which prevents the
consummation of the Merger; (iii) expiration or termination of all waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), which expired on June 13, 1996, and all other material
consents, approvals, permits or authorizations required to be obtained prior to
the Effective Time from any governmental authority in connection with the
execution and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby having been obtained; (iv) the Commission
having declared the Registration Statement effective, and, at the Effective
Time, no stop order or similar restraining order having been threatened by the
Commission or entered by the Commission or any state securities administrator
prohibiting the Merger; (v) receipt by Uniroyal and Crompton of legal opinions
to the effect that the Merger will qualify as a tax-free reorganization for
federal income tax purposes; (vi) receipt by Crompton of a letter, in form and
substance reasonably satisfactory to Crompton, from KPMG Peat Marwick LLP with
respect to qualification of the Merger as a pooling-of-interests for accounting
and financial reporting purposes; (vii) receipt by Uniroyal of a letter, in form
and substance reasonably satisfactory to Uniroyal, from Deloitte & Touche LLP
with respect to qualification of the Merger as a pooling-of-interests for
accounting and financial reporting purposes; (viii) authorization for inclusion
on the NYSE of the shares of Crompton Common Stock to be issued in the Merger,
subject to official notice of issuance; (ix) execution of certain employment
agreements with certain officers of Uniroyal (see "The Merger--Interests of
Certain Persons in the Merger"); (x) receipt by each of Crompton and Uniroyal of
written undertakings from each person who may be at the Effective Time or was on
the date of the Merger Agreement an "affiliate" of the other party within the
meaning of Rule 145 under the Securities Act at least 35 days prior to the other
party's special meeting;
5
<PAGE>
and (xi) no action having been instituted by any governmental authority which
seeks to prevent consummation of the Merger or which seeks material damages in
connection with the transactions contemplated by the Merger Agreement which
continues to be outstanding.
In addition, consummation of the Merger by any party to the Merger Agreement
is conditioned upon the representations and warranties of the other parties
being true and correct on the date of the Merger Agreement and on and as of the
Closing Date (except for those made as of a specified time), except for such
inaccuracies which have not had and would not reasonably be expected to have in
the reasonably foreseeable future a material adverse effect on the representing
or warranting party, and performance in all material respects of each obligation
and agreement and compliance in all material respects with each covenant to be
performed and complied with by the other parties thereto. Uniroyal's obligation
to consummate the Merger is further conditioned upon Crompton's having entered
into satisfactory arrangements with respect to the consolidated indebtedness of
the combined company. See "The Merger--Accounting Treatment," "The
Merger--Interests of Certain Persons in the Merger," "The Merger--Regulatory
Approvals," "The Merger Agreement--Representations, Warranties and Covenants"
and "The Merger Agreement--Conditions."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for accounting
and financial reporting purposes. Consummation of the Merger is conditioned
upon, among other things, Crompton's receipt of a letter, in form and substance
reasonably satisfactory to Crompton, from KPMG Peat Marwick LLP to the effect
that the Merger will qualify as a pooling-of-interests transaction under Opinion
16 of the Accounting Principles Board and Uniroyal's receipt of a letter, in
form and substance reasonably satisfactory to Uniroyal, from Deloitte & Touche
LLP to the same effect. See "The Merger-- Accounting Treatment."
REGULATORY APPROVALS
Under the HSR Act and the rules that have been promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated unless
certain filings have been submitted to the Antitrust Division of the United
States Department of Justice (the "Antitrust Division") and the FTC and certain
waiting period requirements have been satisfied. On May 14, 1996, Crompton and
Uniroyal submitted the required filings to the FTC and the Antitrust Division.
On June 13, 1996, the applicable waiting period expired without the Antitrust
Division or FTC taking any action.
Other than as described in this Joint Proxy Statement/Prospectus,
consummation of the Merger does not require the approval of any United States
Federal or state agency.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Uniroyal. The Uniroyal Board, in the course of reaching its decision to
approve the Merger Agreement and the transactions contemplated thereby,
considered a number of factors described under the caption "The Merger--Reasons
for the Merger; Recommendations of the Boards of Directors-- Uniroyal."
THE BOARD OF DIRECTORS OF UNIROYAL HAS DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN
THE BEST INTERESTS OF, UNIROYAL AND THE UNIROYAL STOCKHOLDERS. ACCORDINGLY, THE
UNIROYAL BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT UNIROYAL STOCKHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
In considering the Uniroyal Board's recommendation, certain members of the
Uniroyal Board may be deemed to have interests in addition to or potentially
different from the interests of stockholders of Uniroyal generally. See "The
Merger--Interests of Certain Persons in the Merger."
Crompton. The Crompton Board, in the course of reaching its decision to
approve the Merger Agreement and the transactions contemplated thereby,
considered a number of factors described under
6
<PAGE>
the caption "The Merger-- Reasons for the Merger; Recommendations of the Boards
of Directors-- Crompton."
THE BOARD OF DIRECTORS OF CROMPTON HAS DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN
THE BEST INTERESTS OF, CROMPTON AND THE CROMPTON STOCKHOLDERS. ACCORDINGLY, THE
CROMPTON BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT CROMPTON STOCKHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF UNIROYAL'S FINANCIAL ADVISOR
Uniroyal engaged Morgan Stanley & Co. Incorporated ("Morgan Stanley") to act
as its financial advisor in connection with the Merger. At the April 30, 1996,
Board meeting at which the Merger Agreement was approved by the Uniroyal Board,
Morgan Stanley delivered its written opinion to the effect that, as of such date
and based upon and subject to certain matters stated therein, the consideration
to be received by the holders of shares of Uniroyal Common Stock pursuant to the
Merger Agreement was fair from a financial point of view to such holders. As of
the date of this Joint Proxy Statement/Prospectus, Morgan Stanley owns 6% of the
outstanding shares of Uniroyal Common Stock. The full text of the written
opinion of Morgan Stanley, which sets forth a description of the assumptions
made, matters considered and limits of its review, is attached to this Joint
Proxy Statement/Prospectus as Annex B and Uniroyal Stockholders are urged to
read carefully the opinion in its entirety. Uniroyal does not intend to obtain
any further opinion of Morgan Stanley in respect of the Merger. See "The
Merger--Opinion of Uniroyal's Financial Advisor."
OPINION OF CROMPTON'S FINANCIAL ADVISOR
Salomon Brothers Inc ("Salomon Brothers") has acted as financial advisor to
Crompton in connection with the Merger and has delivered its written opinion
dated April 30, 1996, to the Crompton Board to the effect that, based upon and
subject to the various considerations set forth therein, as of April 30, 1996,
the consideration to be paid to the stockholders of Uniroyal in connection with
the Merger is fair to Crompton from a financial point of view. The full text of
the written opinion of Salomon Brothers, which sets forth a description of the
assumptions made, matters considered and limits of its review, is attached to
this Joint Proxy Statement/Prospectus as Annex C and should be read carefully in
its entirety. Crompton does not intend to obtain any further opinion of Salomon
Brothers in respect of the Merger. See "The Merger--Opinion of Crompton's
Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Uniroyal's management and the Uniroyal Board may be
deemed to have certain interests in the Merger that are in addition to or
potentially different from the interests of stockholders of Uniroyal generally.
The following is a summary of such interests. It is anticipated that Messrs.
Castaldi, Krakower, Mazaika and Melore will terminate their employment with
Uniroyal upon the Merger for "Good Reason" in accordance with their Employment
Agreements. Upon such terminations, certain severance payments become due
pursuant to their respective Employment Agreements and Supplemental Executive
Retirement Agreements and pro rata bonus payments become due as agreed by
Crompton and Uniroyal. The aggregate amounts payable to each individual if all
four such terminations were to occur on August 1, 1996 are estimated to be
$2,484,552, $3,445,532, $14,225,336 and $2,546,317 for Messrs. Castaldi,
Krakower, Mazaika and Melore, respectively. Messrs. Eisenberg, Ingulli, Johnson
and Stephenson have agreed in principle with Crompton to enter into amendments
to their current employment agreements with Uniroyal which will provide for,
among other things, sign on bonuses of approximately $365,800, $914,700,
$746,134 and $355,750 for Messrs. Eisenberg, Ingulli, Johnson and Stephenson,
respectively. Options to purchase Uniroyal Common Stock granted under the 1993
Uniroyal Chemical Corporation Stock Option Plan (the "Stock Option Plan") which
are not currently exercisable will become fully exercisable upon the Merger.
Messrs. Eisenberg, Ingulli, Krakower, Johnson, Mazaika, Melore and Stephenson
hold options to purchase 93,184, 172,933, 124,541, 208,062, 438,720, 71,823 and
57,141 shares of Uniroyal Common Stock half of which are currently exercisable
and the balance of which will become exercisable upon the Merger. Mr. Castaldi
7
<PAGE>
holds options to purchase 150,000 shares of Uniroyal Common Stock, one-third of
which are currently exercisable and the balance of which will become exercisable
upon the Merger. Messrs. Begel, Bernhard, Corless and Kolton each hold options
to purchase 16,000 shares of Uniroyal Common Stock, 13,000 of which are
currently exercisable and the balance of which will become exercisable upon the
Merger. The potential realizable value of Messrs. Eisenberg's, Ingulli's,
Krakower's, Johnson's, Mazaika's, Melore's, Stephenson's, Castaldi's, Begel's,
Bernhard's, Corless' and Kolton's options which become exercisable upon the
Merger is approximately $174,720, $324,251, $233,516, $390,116, $822,600,
$134,670, $107,141, $390,625, $14,500, $14,500, $14,500 and $14,500,
respectively, calculated, for each such option, by subtracting the exercise
price of such option from $15, the per share valuation of Uniroyal Common Stock.
Additionally, the Merger Agreement provides that immediately after the Effective
Time, Crompton will take action to cause Messrs. Mazaika, Begel and Corless to
be elected to the Crompton Board, upon which they will receive such benefits and
compensation as the other members of the Crompton Board. The Merger Agreement
also provides that Crompton will, to the fullest extent permitted by applicable
law, indemnify present and former officers, directors, employees, trustees or
agents of Uniroyal and its subsidiaries or divisions against certain
liabilities. Crompton has also agreed to cause Uniroyal to maintain in effect
for at least six years after the Effective Time the current policies of
directors' and officers' liability insurance maintained by Uniroyal with respect
to matters occurring prior to the Effective Time, subject to certain
limitations. In addition, the Uniroyal Board, the executive officers of Uniroyal
as well as certain key employees own options and rights to purchase Uniroyal
Common Stock which will become fully exercisable, to the extent such options and
purchase rights are not currently exercisable, upon consummation of the Merger.
Pursuant to the Merger Agreement all outstanding options and purchase rights
will be converted into options with respect to Crompton Common Stock.
Additionally, Crompton has agreed to provide for at least two years after the
Effective Time, benefits to employees of Uniroyal and its subsidiaries that are
no less favorable, in the aggregate, as those provided to such employees
immediately prior to the date of the Merger Agreement. For more information as
to these interests, see "The Merger--Interests of Certain Persons in the
Merger."
EXCHANGE PROCEDURES
If the Merger Proposal is approved and the Merger is consummated, promptly
and, in any event, within three business days after the Effective Time, a letter
of transmittal will be mailed to each Uniroyal Stockholder and each record
holder of Uniroyal Preferred Stock to be used in forwarding certificates
evidencing such holder's shares of Uniroyal Common Stock and shares of Uniroyal
Preferred Stock, respectively, for surrender and exchange for certificates
evidencing shares of Crompton Common Stock to which such holder has become
entitled and, if applicable, cash in lieu of fractional shares of Crompton
Common Stock. After receipt of such letter of transmittal, each holder of
certificates formerly representing shares of Uniroyal Common Stock or shares of
Uniroyal Preferred Stock should surrender such certificates to Chemical Mellon
Shareholder Services, the exchange agent for the Merger (the "Exchange Agent"),
pursuant to and in accordance with the instructions accompanying such letter of
transmittal, and each holder will receive in exchange therefor certificates
evidencing the whole number of shares of Crompton Common Stock to which he is
entitled and any cash which may be payable in lieu of any fractional share of
Crompton Common Stock. See "The Merger Agreement--Exchange Procedures." Such
letter of transmittal will be accompanied by instructions specifying other
details of the exchange. UNIROYAL STOCKHOLDERS AND HOLDERS OF UNIROYAL PREFERRED
STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL.
UNIROYAL RIGHTS AGREEMENT AMENDMENT
In connection with the execution of the Merger Agreement, Uniroyal and
Chemical Bank (the "Rights Agent") executed Amendment No. 2 to the Rights
Agreement, dated as of May 8, 1996 (the "Rights Agreement Amendment"), amending
the Rights Agreement, dated as of April 29, 1993, as amended as of October 31,
1995 (the "Uniroyal Rights Agreement"), between Uniroyal and Chemical Bank, so
as to provide that none of Crompton and its affiliates will become an "Acquiring
Person" (as
8
<PAGE>
such term is defined in the Uniroyal Rights Agreement) as a result of the
execution of the Merger Agreement or the consummation of the Merger pursuant to
the terms thereof. Uniroyal has also represented and warranted under the Merger
Agreement that it has taken or will take all action necessary, if any, in
respect of the Uniroyal Rights Agreement so as to provide that none of Crompton
and its affiliates will become an "Acquiring Person" and that no "Stock
Acquisition Date," "Distribution Date" or "Triggering Event" (as such terms are
defined in the Uniroyal Rights Agreement) will occur as a result of the
execution of the Merger Agreement or the consummation of the Merger pursuant
thereto or the acquisition or transfer of shares of Uniroyal Common Stock by
Crompton. Further, Uniroyal has agreed under the Merger Agreement that, during
the period from the date thereof to the Effective Time, Uniroyal will not,
without the prior written consent of Crompton, take any action that would
reasonably be expected to result in the representations and warranties regarding
the Uniroyal Rights Agreement set forth above becoming false or inaccurate, or
to otherwise terminate, amend, modify or make inapplicable as to any person or
entity, the Uniroyal Rights Agreement or redeem the rights issued thereunder.
See "The Merger--Uniroyal Rights Agreement Amendment" and "Comparison of
Stockholder Rights--Rights Agreements."
CERTAIN LITIGATION
On May 2, 1996, a purported class action lawsuit (the "Stockholder Action")
was filed in the Delaware Court of Chancery, allegedly on behalf of Uniroyal
Stockholders, against Uniroyal, the Uniroyal directors and Crompton alleging,
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. As relief, the Stockholder Action seeks,
among other things, an order enjoining consummation of the proposed Merger, or,
in the event it is consummated, recission of the Merger, or an award of
"rescissory or compensatory damages" in an unspecified amount. Defendants
believe that the Stockholder Action is without merit.
UNIROYAL STOCKHOLDERS SHOULD NOTE THE FOLLOWING. In the course of the
litigation, the defendants may raise as a defense to any claims asserted in the
Stockholder Action the circumstance that the Merger Proposal was approved and
ratified, upon full disclosure, by the requisite vote of the Uniroyal
Stockholders, if such is the case. Further, the defendants may contend that
those Uniroyal Stockholders who vote in favor of the Merger Proposal are barred
from receiving any proceeds from any potential award against the defendants in
the litigation, unless such award is based on a finding that the defendants
failed to make full disclosure in connection with the vote of Uniroyal
Stockholders. See "The Merger--Certain Litigation."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Crompton has received an opinion from Wachtell, Lipton, Rosen & Katz
("Wachtell") to the effect that, based on the assumptions set forth therein,
under currently applicable law, the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code and, accordingly, (i) no gain
or loss will be recognized by the stockholders of Uniroyal upon the conversion
of their shares of Uniroyal Common Stock or Uniroyal Preferred Stock (together,
"Uniroyal Capital Stock") solely into shares of Crompton Common Stock pursuant
to the terms of the Merger to the extent of such conversion; (ii) the tax basis
of the shares of Crompton Common Stock into which shares of Uniroyal Capital
Stock are converted pursuant to the Merger will be the same as the basis of such
shares of Uniroyal Capital Stock exchanged therefor; (iii) the holding period
for shares of Crompton Common Stock into which shares of Uniroyal Capital Stock
are converted will include the period that such shares of Uniroyal Capital Stock
were held by the holder, provided such shares were a capital asset of the
holder; and (iv) the receipt of cash in lieu of fractional shares of Crompton
Common Stock by a Uniroyal stockholder will be treated as if the fractional
shares were distributed as part of the exchange and then were redeemed by
Crompton. See "Certain Federal Income Tax Consequences."
9
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the Merger, shares of Uniroyal Common Stock and of Uniroyal
Preferred Stock, which are issued by a Delaware corporation, will be converted
into the right to receive shares of Crompton Common Stock, which are issued by a
Massachusetts corporation. There are differences between the rights of Uniroyal
Stockholders and holders of Uniroyal Preferred Stock, on the one hand, and the
rights of Crompton Stockholders, on the other hand. These differences result
from (i) differences between Massachusetts and Delaware law, and (ii)
differences between the governing instruments of Uniroyal and Crompton. For a
discussion of the various material differences between the rights of Uniroyal
Stockholders and holders of Uniroyal Preferred Stock, on the one hand, and
Crompton Stockholders, on the other hand, see "Comparison of Stockholder
Rights."
10
<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 or incorporated by reference herein. See
"Index to Financial Statements of Crompton & Knowles Corporation."
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
April 1, 1995 and March 30, 1996, and April 2, 1995 and March 31, 1996, are
derived from the unaudited consolidated financial statements of Crompton and
Uniroyal, respectively, that are incorporated by reference herein. In the
opinion of Crompton and Uniroyal, respectively, such unaudited financial data
have been prepared on the same basis as the audited financial statements
incorporated by reference 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 periods ended March 30, 1996 and
March 31, 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 THREE MONTHS ENDED
------------------------------------------------------------------------ --------------------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
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................. $450,228 517,718 558,348 589,757 665,513 168,193 164,840
Income before
extraordinary charges and
cumulative effect of
accounting changes....... $ 35,941 43,265 51,958 50,916 40,493 13,196 9,468
Net income................ $ 35,941 34,465 51,958 50,916 40,493 13,196 9,468
Income per common share
before extraordinary
charges and cumulative
effect of accounting
changes.................. $ 0.73 0.87 1.00 1.00 0.84 0.27 0.20
Net income per common
share.................... $ 0.73 0.69 1.00 1.00 0.84 0.27 0.20
Weighted average number of
shares outstanding....... 49,317 49,967 52,176 51,152 48,448 48,921 48,318
CONSOLIDATED BALANCE SHEET
DATA:
Total assets.............. $308,562 350,715 363,246 432,328 484,138 521,518
Long-term debt............ $ 76,118 24,000 14,000 54,000 64,000 74,000
Cash dividends declared
per common share......... $ 0.25 0.31 0.38 0.46 0.525 0.12 0.135
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
------------------------------------------------------------------------- ----------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, OCTOBER 2, OCTOBER 1, APRIL 2, MARCH 31,
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 1,079,321 485,963 527,108
Income (loss) before
extraordinary
charges and
cumulative effect of
accounting changes.. $ (23,648) (27,790) (24,792) (213,843)(3) 99,429(4) 83,300(4) 3,318
Net income (loss).... $ (23,648) (27,790) (236,733) (213,843)(3) 91,150(4) 75,021(4) 3,014
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) 6.71(4) 0.12
Net income (loss) per
common share (1)(2). $ (2.15) (2.54) (21.85) (20.31)(3) 4.92(4) 6.04(4) 0.11
Weighted average
number of shares
outstanding(2)...... 11,167 11,038 10,847 10,543 18,461 12,385 24,542
CONSOLIDATED BALANCE
SHEET DATA (5):
Total assets......... $ 1,253,370 1,228,569 1,225,438 1,056,017 1,171,707 1,197,502
Long-term debt....... $ 854,619 880,343 1,034,799 1,048,225 910,156 898,564
</TABLE>
- ------------
(1) Calculated based on income (loss) available to common shareholders after
preferred dividends earned of $375, $262, $267, $292, $395, $194 and $210
for the years ended September 30, 1991, 1992 and 1993, October 2, 1994, and
October 1, 1995, and the six-month periods ended April 2, 1995 and March 31,
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.
12
<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 three-month periods ended April
1, 1995 and March 30, 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 three-month periods ended April 2, 1995 and March 31, 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 March
30, 1996 with balance sheet data of Uniroyal as of September 30, 1993, October
2, 1994, October 1, 1995 and March 31, 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 Joint Proxy Statement/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>
THREE MONTHS
YEARS ENDED ENDED
--------------------------------------------- ---------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1993 AND 1994 AND 1995 AND 1995 AND 1996 AND
SEPTEMBER 30, OCTOBER 2, OCTOBER 1, APRIL 2, MARCH 31,
1993 1994 1995 1995 1996(4)
------------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA STATEMENT OF
OPERATIONS DATA: (2)
Net sales................ $ 1,466,210 1,536,211 1,744,834 442,515 460,468
Operating income......... $ 187,372 1,417(5) 218,122 71,708 63,792
Income (loss) before
extraordinary charges
and cumulative effect
of accounting
changes................ $ 27,166 (162,927)(5) 139,922(6) 107,032(6) 21,154
Income (loss) per common
share before
extraordinary charges
and cumulative effect
of accounting changes
(1).................... $ 0.42 (2.63)(5) 2.08(6) 1.70(6) 0.29(7)
Weighted average number
of shares outstanding
(1).................... 64,197 61,973 67,187 62,789 73,499
PRO FORMA BALANCE SHEET
DATA:
Total assets............. $ 1,588,684 1,488,345 1,655,845 1,719,020
Long-term debt........... $ 1,048,799 1,102,225 974,156 1,013,314(3)
Cash dividends declared
per common share (8)... $ 0.38 0.46 0.525 0.12 0.135
</TABLE>
- ------------
(1) Common and common equivalent shares outstanding were calculated assuming a
conversion rate of one share of Crompton Common Stock for each share of
Uniroyal Common Stock, and 6.667 shares of Crompton Common Stock for each
share of Uniroyal Preferred Stock as provided for in the Merger Agreement,
the conversion rates resulting in the mid-point number of shares of Crompton
Common Stock to be issued to effect the Merger.
Based on the maximum exchange ratio of 1.1111, the pro forma income (loss)
per common share before extraordinary charges and cumulative effect of
accounting changes would be $.41, $(2.58)
13
<PAGE>
and $2.02 for the years ended 1993, 1994 and 1995, respectively, and $1.66
and $0.28 for the three months ended April 1995 and March 1996,
respectively.
Based on the minimum exchange ratio of .9091, the pro forma income (loss)
per common share before extraordinary charges and cumulative effect of
accounting changes would be $0.43, $(2.67) and $2.14 for the years ended
1993, 1994 and 1995, respectively, and $1.74 and $0.30 for the three months
ended April 1995 and March 1996, respectively.
(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.
(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 three months ended 1996 would have been $0.29, $0.28 and $0.27 at the
minimum, midpoint and maximum exchange ratio, respectively.
(8) Represents Crompton's historical dividends per share. Uniroyal has not
declared any dividends on its common stock during the periods presented.
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Crompton
and Uniroyal and combined per share data on an unaudited pro forma combined
basis and on a per share equivalent pro forma combined basis for Uniroyal after
giving effect to the Merger using the pooling-of-interests basis of accounting.
Pro forma earnings per share and book value per share have been calculated
assuming that (a) one share of Crompton Common Stock is issued in exchange for
each share of outstanding Uniroyal Common Stock, and (b) 6.667 shares of
Crompton Common Stock are issued in exchange for each share of outstanding
Uniroyal Preferred Stock. Pro forma cash dividends declared per share represent
Crompton cash dividends declared per share in the periods indicated. The
Equivalent Pro Forma Crompton/Uniroyal Per Uniroyal Share amounts are based on
the assumed conversion of each share of Uniroyal Common Stock into one share of
Crompton Common Stock. The information set forth below should be read in
conjunction with the selected historical financial data and the unaudited pro
forma combined financial information included elsewhere in this Joint Proxy
Statement/Prospectus, and the separate historical financial statements of
Crompton and Uniroyal and the notes thereto, incorporated by reference herein.
The unaudited pro forma combined financial data are not necessarily indicative
of the operating results or financial position that would have been achieved had
the Merger been in effect as of the beginning of the periods presented and
should not be construed as representative of future operations.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
---------------------------------- -----------------------
DEC 25, DEC 31, DEC 30, APRIL 1, MARCH 30,
1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Historical--Crompton:
Net income per common share.......... $ 1.00 1.00 0.84 0.27 0.20
Book value per common share.......... $ 5.00 5.04
Cash dividends declared per common
share............................... $ 0.38 0.46 0.525 0.12 0.135
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
---------------------------------- -----------------------
SEPT 30, OCT 2, OCT 1, APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Historical--Uniroyal (3):
Income (loss) per common share before
extraordinary charges and
cumulative effect of accounting
changes (5)........................ $(2.31) (20.31)(6) 5.37(7) 6.71(7) 0.12
Book value per common share (1)...... $ (12.56) (12.51)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
---------------------------------- ------------------------
DEC 25, DEC 31, DEC 30, APRIL 1, MARCH 30,
1993 AND 1994 AND 1995 AND 1995 AND 1996 AND
SEPT 30, OCT 2, OCT 1, APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Pro Forma--Crompton/Uniroyal:
Income (loss) per common share
before extraordinary charges
and cumulative effect of
accounting changes (2)....... $ 0.42 (2.63)(6) 2.08(7) 1.70(7) 0.29(8)
Book value per common share
(2).......................... $ (0.82) (1.34)(4)
Cash dividends declared per
common share (9)(10)......... $ 0.38 0.46 0.525 0.12 0.135
Equivalent Pro Forma--Crompton/
Uniroyal per Uniroyal share:
Income (loss) per common share
before extraordinary charges
and cumulative effect of
accounting changes (2)....... $ 0.42 (2.63)(6) 2.08(7) 1.70(7) 0.29(8)
Book value per common share
(2).......................... $ (0.82) (1.34)(4)
Cash dividends declared per
common share (10)............ $ 0.05 0.05 0.05 -- --
</TABLE>
- ------------
(1) Represents stockholders' deficit attributable to common shareholders
(exclusive of the liquidation preference of preferred stock) on a per-share
basis.
(2) Per-share data were calculated assuming a conversion rate of one share of
Crompton Common Stock for each share of Uniroyal Common Stock, and 6.667
shares of Crompton Common Stock for each share of Uniroyal Preferred Stock
as provided for in the Merger Agreement, the conversion rates resulting in
the mid-point number of shares of Crompton Common Stock to be issued to
effect the Merger.
Based on the maximum exchange ratio of 1.1111, the pro forma income (loss) per
common share before extraordinary charges and cumulative effect of accounting
changes would be $0.41, $(2.58) and $2.02 for the years ended 1993, 1994 and
1995, respectively, and $1.66 and $0.28 for the three months ended April 1995
and March 1996, respectively. Equivalent pro forma amounts would be $0.46,
$(2.87) and $2.24 for the years ended 1993, 1994 and 1995, respectively, and
$1.84 and $0.31 for the three months ended April 1995 and March 1996,
respectively.
Based on the minimum exchange ratio of .9091, the pro forma income (loss) per
common share before extraordinary charges and cumulative effect of accounting
changes would be $0.43, $(2.67) and $2.14 for the years ended 1993, 1994 and
1995, respectively, and $1.74 and $0.30 for the three months ended April 1995
and March 1996, respectively. Equivalent pro forma amounts would be $0.39,
$(2.43) and $1.95 for the years ended 1993, 1994 and 1995, respectively, and
$1.58 and $0.27 for the three months ended April 1995 and March 1996,
respectively.
Pro forma book value per common share at December 1995 and March 1996,
respectively, would be $(0.79) and $(1.29) based on the maximum exchange ratio
of 1.1111, and $(0.84) and $(1.38) based on the minimum exchange ratio of
0.9091 for the three months ended April 1995 and March 1996, respectively.
Equivalent pro forma amounts at December 1995 and March 1996, respectively,
would be $(0.88) and $(1.43) based on the maximum exchange ratio and $(0.76)
and $(1.25) based on the minimum exchange ratio.
(3) Uniroyal has not declared any dividends on its common stock during the
periods indicated above.
(4) Reflects the issuance from treasury stock of 1,000,000 shares of Crompton
Common Stock in an offering to take place prior to the consummation of the
Merger. The issuance of such shares is required to reduce treasury share
purchases within two years of the initiation of the Merger to less than 10
percent of the Crompton Common Stock 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 using an estimated offering price of $15
per share, net of estimated fees of $750,000. The estimated
16
<PAGE>
offering price of $15 per share is based on the mid-point of the share price
range of Crompton Common Stock to be issued to effect the Merger.
(5) 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. The per-share data presented reflects the conversion on a
retroactive basis for all periods presented.
(6) Includes an after-tax write-off of $163 million for impairment of certain
intangible assets.
(7) 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.")
(8) 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 three months ended 1996 would have been $0.29, $0.28 and $0.27 at the
minimum, midpoint and maximum exchange ratio, respectively.
(9) Represents Crompton's historical dividends per share.
(10)Crompton intends to reduce its dividend to $0.05 per share annually,
payable in May.
17
<PAGE>
MARKET PRICE AND DIVIDEND DATA
The following table reflects (i) 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 and (ii) the range of the reported high and low prices of
Uniroyal Common Stock on the NASDAQ/NM and the per share dividends paid thereon,
in each case for the calendar quarters indicated. Uniroyal Preferred Stock is
not publicly traded and no comparative market price data is available in respect
thereof. The information in the table has been adjusted to reflect retroactively
all applicable stock splits.
<TABLE>
<CAPTION>
CROMPTON UNIROYAL
COMMON STOCK COMMON STOCK
--------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CALENDAR QUARTERS HIGH LOW DIVIDENDS HIGH LOW
- ------------------------------------------- --------------- --------------- --------- --------------- ---------------
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 $12 1/4 $11
Second quarter......................... 20 13 3/8 0.135 12 1/8 9 7/8
Third quarter.......................... 15 3/4 13 5/8 0.135 12 1/4 8 1/4
Fourth quarter......................... 14 7/8 12 0.135 9 7 1/4
1996:
First quarter.......................... 15 1/2 13 0.135 10 1/8 7 7/8
Second quarter......................... 18 3/8 13 7/8 0.135 16 1/2 8 1/2
<CAPTION>
<S> <C>
CALENDAR QUARTERS DIVIDENDS
- ------------------------------------------- ---------
1993:
First quarter.......................... $--
Second quarter......................... --
Third quarter.......................... --
Fourth quarter......................... --
1994:
First quarter.......................... $--
Second quarter......................... --
Third quarter.......................... --
Fourth quarter......................... --
1995:
First quarter.......................... $--
Second quarter......................... --
Third quarter.......................... --
Fourth quarter......................... --
1996:
First quarter.......................... --
Second quarter......................... --
</TABLE>
On April 30, 1996, the last full trading day prior to the public
announcement of the Merger Agreement, the closing price of Crompton Common Stock
was $15 3/8 per share and the last sale price of Uniroyal Common Stock was $11
3/4 per share, as reported on the NYSE Composite Tape and the NASDAQ/NM,
respectively. The value of Uniroyal Common Stock at April 30, 1996, on an
equivalent per share basis, was $ (based on the Exchange Ratio of
). The value of Uniroyal Preferred Stock at April 30, 1996, on an
equivalent per share basis, was $ (based on the Exchange Ratio
multiplied by 6.667). On July , 1996, the most recent practicable date prior
to the mailing of this Joint Proxy Statement/Prospectus, the closing price of
Crompton Common Stock and the last sale price of Uniroyal Common Stock were
$ per share and $ per share, respectively, as reported on the
NYSE Composite Tape and the NASDAQ/NM, respectively. Crompton Stockholders and
Uniroyal Stockholders are encouraged to obtain current market quotations for
Crompton Common Stock and Uniroyal Common Stock.
Crompton has applied for the listing of the shares of Crompton Common Stock
to be issued in the Merger on the NYSE.
Crompton anticipates that it will continue to 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.
Pursuant to the Merger Agreement, Uniroyal has agreed that, during the
period from the date of the Merger Agreement to the Effective Time, Uniroyal
will not make, declare or pay any dividend or distribution on the Uniroyal
Common Stock or the Uniroyal Preferred Stock.
If the Merger is consummated, the Uniroyal Common Stock will be delisted
from the NASDAQ/NM and will be deregistered under the Exchange Act.
18
<PAGE>
THE SPECIAL MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to Crompton
Stockholders in connection with the solicitation of proxies by the Board of
Directors of Crompton for use at the Crompton Special Meeting to be held on
, August , 1996, at Crompton's corporate offices at One Station Place,
Metro Center, Stamford, Connecticut 06902, commencing at 10:00 a.m., local time,
and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to Uniroyal
Stockholders in connection with the solicitation of proxies by the Board of
Directors of Uniroyal for use at the Uniroyal Special Meeting to be held on
, August , 1996, at the offices of Uniroyal Chemical Company, Inc. at
Benson Road, Middlebury, Connecticut 06749, commencing at 10:00 a.m., local
time, and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus, the Letter to Crompton Stockholders,
the Notice of the Crompton Special Meeting and the form of proxy for use at the
Crompton Special Meeting are first being mailed to Crompton Stockholders on or
about July , 1996. This Joint Proxy Statement/Prospectus, the Letter to
Uniroyal Stockholders, the Notice of the Uniroyal Special Meeting and the form
of proxy for use at the Uniroyal Special Meeting are first being mailed to
Uniroyal Stockholders on or about July , 1996.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
Crompton Special Meeting. At the Crompton Special Meeting, Crompton
Stockholders will consider and vote on:
1. The Merger Proposal, which is a proposal to approve and adopt the
Merger Agreement 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 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
shares of Crompton Common Stock (with cash in lieu of fractional
shares). Approval and adoption of the Merger Proposal will also constitute
approval of an amendment to the Crompton 1988 LTI Plan to increase the
number of shares of Crompton Common Stock reserved for issuance thereunder
by 6,000,000 shares. The consummation of the Merger is a condition to the
effectiveness of such amendment. A copy of the Merger Agreement is attached
as Annex A to this Joint Proxy Statement/Prospectus. For additional
information with respect to the amendment of the Crompton 1988 LTI Plan, see
"--The Crompton 1988 LTI Plan Amendment."
2. Such other business as may properly come before the Crompton Special
Meeting.
Uniroyal Special Meeting. At the Uniroyal Special Meeting, Uniroyal
Stockholders will consider and vote on:
1. The Merger Proposal.
2. Such other business as may properly come before the Uniroyal Special
Meeting.
19
<PAGE>
THE CROMPTON 1988 LTI PLAN AMENDMENT
On May 15, 1996, the Board of Directors of Crompton approved an amendment to
the Crompton 1988 LTI Plan to increase the number of shares of Crompton Common
Stock reserved for issuance thereunder by 6,000,000 shares, subject to the
approval of Crompton Stockholders and the effectiveness of which is conditioned
upon the consummation of the Merger. Of the 4,000,000 shares of Crompton Common
Stock approved for issuance under the Crompton 1988 LTI Plan, 380,800 shares
remain available for future grants as of the close of business on the Crompton
Record Date.
The Board of Directors of Crompton believes that it is in the best interests
of Crompton to be able to continue to create equity incentives to assist in
attracting, retaining and motivating its key employees. Further, Crompton
expects to issue options to purchase shares of Crompton Common Stock under the
Crompton 1988 LTI Plan in connection with the Merger. The shares remaining
reserved for issuance under the Crompton 1988 LTI Plan are insufficient for such
purposes, and the Board of Directors therefore recommends that all Crompton
Stockholders vote in favor of increasing the number of shares authorized for
issuance thereunder as provided by the amendment.
Summary of the Crompton 1988 LTI Plan
The following general description of certain features of the Crompton 1988
LTI Plan, as proposed to be amended, is qualified in its entirety by reference
to such plan, a copy of which may be obtained from the Secretary of Crompton.
Eligibility. Approximately fifty officers and other key employees (including
approximately ten executive officers) of Crompton and its subsidiaries who in
the opinion of the Committee on Executive Compensation of the Board (the
"Committee") are responsible for the management, growth, and profitability of
the business of Crompton and its subsidiaries are eligible to be granted stock
options, stock appreciation rights ("SARs"), restricted stock awards, and long
term performance awards.
Administration. The Crompton 1988 LTI Plan is administered by the Committee,
which is composed of not less than three disinterested persons. The Committee
has full power to select, from among the officers and other key employees
eligible for awards, the individuals to whom awards will be granted, to make any
combination of awards to any participant, and to determine the specific terms of
each grant, subject to the provisions of the Crompton 1988 LTI Plan.
Plan Features. The Crompton 1988 LTI Plan authorizes the issuance of up to
2,676,656 shares plus such number of shares of stock previously approved by the
stockholders of Crompton for issuance pursuant to Crompton's 1983 stock option
plan as are not used under such plan. Such shares may be issued pursuant to the
grant or exercise of stock options, including incentive stock options ("ISOs"),
nonqualified stock options, stock appreciation rights ("SARs"), restricted stock
and long-term performance awards. No single participant may be granted stock
options pursuant to the Crompton 1988 LTI Plan covering in excess of 1,000,000
shares of Crompton's Common Stock over the life of the Crompton 1988 LTI Plan.
Subject to the foregoing limits, the shares available under the Crompton 1988
LTI Plan can be divided among the various types of awards and participants as
the Committee sees fit. The shares subject to grant under the Crompton 1988
LTI Plan are to be made available from authorized but unissued shares or from
treasury shares as determined from time to time by the Board. Awards may be
granted for such terms as the Committee may determine, except that the term of
an ISO may not exceed ten years from its date of grant, and the term of a
nonqualified stock option may not exceed ten years and one month.
Stock Options. The Crompton 1988 LTI Plan permits the granting of
non-transferable stock options that either qualify as ISOs under Section 422 of
the Code or do not so qualify ("Non-Qualified Options"). No more than 25% of the
shares of stock reserved under the plan may be granted as to stock options to
any one individual. The option exercise price for each share covered by an
option is, unless a higher price is determined by the Committee, the fair market
value of such share on date of grant. The
20
<PAGE>
term of each option is fixed by the Committee but may not exceed ten years from
date of grant in the case of an ISO or ten years and one month in the case of a
Non-Qualified Option. The Committee determines at what time or times each option
may be exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Committee. The option
exercise price may be paid in cash or, unless the Committee determines
otherwise, by delivery of Crompton Common Stock (or, in the case of exercise of
a Non-Qualified Option, with restricted stock) valued at its fair market value
on the exercise date. The Committee may permit the option exercise price to be
paid in shares acquired through the previous exercise of a portion of the
option.
In the event of termination of employment by reason of normal retirement at
or after age 65, approved early retirement, disability, or death, an option may
thereafter be exercised (to the extent it was then exercisable) for various
periods of up to three years, subject to the stated term of the option. If an
optionee's employment terminates for any reason other than normal retirement at
or after age 65, approved early retirement, disability, or death, his option may
be exercised for three months, subject to the stated term of the option, except
that if the optionee is terminated for cause, all rights in the option expire
immediately upon notice of termination. If an optionee whose employment has
terminated for any reason other than cause dies while the option is still
exercisable, the option will be exercisable for one year following death,
subject to the stated term of the option. The Committee may at or after the date
of grant provide for acceleration of the exercisability of options upon
termination of employment by reason of retirement, disability, or death.
The Crompton 1988 LTI Plan also permits the Committee to cash out options
exercised after the death of an optionee by paying the spread between the
exercise price of the shares subject to the option and the fair market value on
the date of exercise in cash or in shares of Crompton Common Stock.
To qualify as ISOs, options must meet additional federal income tax
requirements. Under current law, these requirements include a limitation of
$100,000 on the value of options that may become exercisable annually as ISOs
with respect to any optionee.
Stock Appreciation Rights. The Committee may also grant non-transferable
SARs, either standing alone or in conjunction with options, entitling the holder
upon exercise to receive an amount in any combination of cash or Crompton Common
Stock (as determined by the Committee) equal in value to the increase since date
of grant in the fair market value of the shares covered by such right. When SARs
are exercised by persons subject to Section 16(b) of the Exchange Act during a
"window period," as provided in Rule 16b-3 under the Exchange Act, cash
settlements may be made on the basis of the highest mean sales price of the
Crompton Common Stock on the NYSE on any day during such "window period". Each
SAR granted in conjunction with an option will terminate upon the exercise or
termination of the related option, and the related option will no longer be
exercisable to the extent the SAR has been exercised.
Restricted Stock. The Committee may also award shares of Crompton Common
Stock which are subject to certain conditions set forth in the Crompton 1988 LTI
Plan and such other conditions and restrictions as the Committee may determine,
but which are deliverable to a participant without the payment of any
consideration. The Committee may also provide at the time of grant that
restricted stock cannot vest unless applicable performance goals are satisfied.
These performance goals must be based on the attainment of one or any
combination of the following: specified levels of earnings per share from
continuing operations, operating income, revenues, return on operating assets,
return on equity, shareholder return, total shareholder return, achievement of
cost controls, or stock price of Crompton. Such performance goals also may be
based on the attainment of specified levels of Crompton performance under one or
more of the measures described above relative to the performance of other
corporations. Performance goals based on the foregoing factors are hereinafter
referred to as "Performance Goals." Prior to the lapse of restrictions on shares
of restricted stock, the participant will have all rights of a stockholder with
respect to the shares, including the right to vote the shares and receive cash
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dividends thereon, unless the Committee provides that dividends will be
automatically deferred and reinvested in the form of additional restricted
stock.
Crompton delivers to each recipient of a restricted stock award a restricted
stock agreement, setting forth the restrictions to which the shares are subject
and the date or dates on which the restrictions will lapse. The Committee may
permit such restrictions to lapse in installments within the restricted period
and may accelerate or waive such restrictions at any time. Shares of restricted
stock are non-transferable. If a participant to whom shares of restricted stock
are granted terminates employment for any reason prior to the lapse or waiver of
the restrictions, all shares still subject to restrictions are forfeited by the
participant. In the event of the death of a participant or if the Committee
determines that special hardship circumstances have occurred with respect to a
participant whose employment is terminated involuntarily (other than for cause),
it may waive, in whole or in part, any remaining restrictions with respect to
the restricted stock.
Long Term Performance Awards. The Committee may also grant long term
performance awards under the Crompton 1988 LTI Plan. Such awards will be
conditioned upon continued service and/or the attainment of Performance Goals
based on one or more of the measures described in the section entitled
"Restricted Stock" above, determined by such Committee during a performance
period, which may be no less than two years. Performance Goals may vary from
participant to participant, group to group, and period to period. At the
beginning of each Performance Period, the Committee fixes a range of dollar
values or number of shares of Crompton Common Stock to be awarded to the
participant at the end of the Performance Period if the performance objectives
are met. Unless otherwise determined by the Committee, long term performance
awards are generally paid out on a prorated basis in the event of termination of
employment due to normal retirement at or after age 65 or approved early
retirement, death, or disability and are forfeited in the event of other types
of termination. Long term performance awards are payable in cash or Crompton
Common Stock (including restricted stock), as the Committee determines.
"Unfunded" Status. The Crompton 1988 LTI Plan constitutes an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to facilitate or ensure payment of
Crompton's obligations, provided that such trusts and arrangements are
consistent with the "unfunded" status of the Crompton 1988 LTI Plan (unless the
Committee otherwise determines).
Amendment and Termination. The Board of Directors may terminate or suspend
the Crompton 1988 LTI Plan at any time, but such termination or suspension shall
not adversely affect any stock options, SARs, restricted stock awards, or long
term performance awards then outstanding without the participant's consent. The
Board may amend the Crompton 1988 LTI Plan but may not, without prior approval
of the Crompton Stockholders, make any amendment which would, except as
otherwise provided in the Crompton 1988 LTI Plan, increase the number of shares
reserved for grants, decrease the minimum purchase price for stock options,
change the class of employees eligible to receive awards, or extend the maximum
term for option. The Committee may amend the term of any award or option
theretofore granted, retroactively or prospectively, but no such amendment shall
impair the rights of any holder without the holder's consent.
Change in Control Provisions. The Crompton 1988 LTI Plan provides that in
the event of a "Change in Control" (as defined in the Crompton 1988 LTI Plan),
unless otherwise determined by the Committee or the Board prior to such Change
in Control, or to the extent expressly provided by the Committee or the Board in
the event of a "Potential Change in Control" (as so defined), all stock options
and related SARs (to the extent outstanding for at least six months in the case
of persons subject to Section 16(b) of the Exchange Act) will become immediately
exercisable, the restrictions and deferral limitations applicable to outstanding
restricted stock awards will lapse and the shares in question will fully vest,
the value of all outstanding options, SARs, and restricted stock awards (except
as otherwise determined by the Committee) will be cashed out on the basis of the
highest price paid (or
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offered) during the preceding 60-day period, and outstanding long term
performance awards will be vested and paid out on a prorated basis, based on the
target values of such awards and the number of months elapsed compared to the
total number of months in the Performance Period. In addition, at any time prior
to or after a Change in Control or a Potential Change in Control, the Committee
may accelerate awards and waive conditions and restrictions on any awards to the
extent it deems appropriate.
Federal Income Tax Aspects
The following is a brief summary of the principal federal income tax
consequences of transactions under the Crompton 1988 LTI Plan, based on federal
income tax laws as presently in effect. This summary is not intended to be
exhaustive and does not describe state, local, or foreign tax consequences.
Incentive Stock Options. No taxable income will be realized by an optionee
upon the grant or exercise of an ISO. If shares of Crompton Common Stock are
issued to an optionee pursuant to the exercise of an ISO and if no disposition
of such shares is made within two years after date of grant or within one year
after the transfer of such shares to such optionee ("disqualifying
disposition"), then, upon the sale of such shares, any amount realized in excess
of the option price will be taxed to such optionee as a long term capital gain
and any loss sustained will be a long term capital loss and no deduction will be
allowed to the optionee's employer for federal income tax purposes. If no
disqualifying disposition is made, the difference between the fair market value
of the shares at the time of exercise and the exercise price will be taken into
account in computing the alternative minimum tax liability of the optionee.
Under the Code, long-term capital gains are subject to a maximum tax rate of
28%. Capital losses, however, will not be treated like ordinary losses but must
be offset against any capital gains, with only the lesser of the excess of
capital losses over capital gains or $3,000 ($1,500 in the case of a married
individual filing a separate return) being deductible in the same manner as
ordinary losses.
If shares of Crompton Common Stock acquired upon the exercise of an ISO are
disposed of prior to the expiration of either holding period described above,
the optionee will in most instances realize ordinary income in the year of such
disqualifying disposition in an amount equal to the excess (if any) of the fair
market value of the shares at exercise (or, if less, the amount realized on the
disposition of the shares) over the exercise price thereof, and the optionee's
employer will be entitled to deduct such amount. Any further gain realized by
the participant will be taxed as short term or long term capital gain, as the
case may be, and will not result in any deduction by the employer. Long-term
capital gain and loss treatment applies to capital assets held for more than one
year.
If an ISO is exercised at a time when it no longer qualifies as an ISO, the
option will be treated as a Non-Qualified Option. Subject to certain exceptions
for disability or death, an ISO generally will not be eligible for the tax
treatment described above if it is exercised more than three months following
the termination of employment.
Non-Qualified Options. No income will be realized by an optionee at the time
a Non-Qualified Option is granted. Except as noted below, ordinary income will
be realized by the optionee upon exercise in an amount equal to the difference
between the exercise price and the fair market value of the shares on the date
of exercise, and the optionee's employer will be entitled to a tax deduction in
the same amount. When an optionee exercises a Non-Qualified Option by paying the
exercise price solely in cash, the basis in the shares acquired is equal to the
fair market value of the shares on the date ordinary income is recognized, and
the holding period for such shares begins on the day after the shares are
received. When an optionee exercises a Non-Qualified Option by exchanging
previously acquired shares of Common Stock of the Company held as capital assets
in partial or full payment of the exercise price, shares of Common Stock of the
Company received by the optionee equal in number to the previously acquired
shares exchanged therefor will be received free of tax and will have the same
basis and holding
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period as such previously acquired shares. The optionee will have a basis in
such additional shares equal to their fair market value on the date ordinary
income is recognized and the holding period of such shares will commence on the
day after they are transferred to the optionee. At disposition, appreciation (or
depreciation) after the date of exercise will be treated as either short-term or
long-term capital gain (or loss) depending on how long the shares have been
held.
Stock Appreciation Rights. No income will be realized by an optionee in
connection with the grant of a SAR. When a SAR is exercised, the optionee will
in most instances be required to include as ordinary income in the year of
exercise an amount equal to the amount of cash and the fair market value of any
shares received upon exercise. The optionee's employer will be entitled to a
deduction for federal income tax purposes at the same time equal to the amount
included in such optionee's income by reason of the exercise. If the optionee
receives shares of Crompton Common Stock upon the exercise of a SAR, the tax
treatment after such exercise is the same as that described above with respect
to shares acquired pursuant to the exercise of a Non-Qualified Option. Reference
is also made to the material appearing under the caption "Special Rules
Applicable to Corporate Insiders", below.
Restricted Stock. A recipient of restricted stock will in most instances be
subject to tax at ordinary income rates on the fair market value of the
restricted stock at the time the stock is no longer subject to forfeiture.
However, a recipient who makes an election under Section 83(b) of the Code
within 30 days of the date of grant will have ordinary income as of such date
equal to the fair market value of the shares of restricted stock, determined
without regard to the restrictions. If the shares subject to such election are
forfeited, the recipient will not be entitled to a deduction, refund, or loss
for tax purposes. In the case of a sale of shares after the expiration of the
forfeiture period, the holding period to determine whether the recipient has
long term or short term capital gain or loss begins upon such expiration, and
the tax basis for such shares will be equal to the fair market value thereof on
such date. However, if the recipient elects under Section 83(b) to be taxed as
of the date of grant, the holding period commences on such date and the tax
basis will be equal to the fair market value of the shares on the date of grant,
determined without regard to the restrictions. The recipient's employer will in
most instances be entitled to a deduction equal to the amount treated as
compensation to the recipient, subject to the provisions of Section 162(m) of
the Code (see below). Dividends on restricted stock will be taxed as ordinary
income when paid to the recipient.
Long Term Performance Awards. Long term performance awards once vested will
in most instances be taxed as ordinary income equal to the full fair market
value of the shares delivered or the amount of cash paid. However, if receipt of
payment is subject to restrictions or deferral limitations, rules similar to
those applicable to restricted stock will apply.
Limitation on Company's Ability to Take Deductions. Section 162(m) of the
Code generally denies a corporate tax deduction for annual compensation
exceeding $1 million paid to the Chief Executive Officer and the four other most
highly compensated officers of a public corporation. Certain types of
compensation, including options and SARs granted with a fair market value
exercise price, and performance-based stock awards are generally excluded from
this deduction limit. The stock options and SARs should qualify for compensation
deductions under Section 162(m), as their exercise price must be equal to at
least the full fair market value on the date of the grant. Further, both the
restricted stock and long-term performance awards may require participants to
meet certain Performance Goals in order to qualify for such compensation, which
would comply with Section 162(m).
Special Rules Applicable to Corporate Insiders. In most instances, persons
subject to Section 16(b) of the Exchange Act will not be taxed until six months
after exercise of a Non-Qualified Option, with the excess of the fair market
value of the stock at the end of the six-month period over the exercise price
being taxed as ordinary income and the holding period for such stock beginning
at the end of the six-month period. Similar rules apply with respect to the
exercise of SARs settled in stock. However, an optionee who makes an election
under Section 83(b) of the Code, as described above under the caption
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"Restricted Stock," will be taxed on the excess of the fair market value at
exercise over the exercise price.
Payments in Respect of a Change in Control. The Crompton 1988 LTI Plan
provides for acceleration or payment of awards and related shares in the event
of a Change in Control or Potential Change in Control. Such acceleration or
payment may cause part or all of the consideration involved to be treated as a
"parachute payment" under the Code which could subject the recipient to a 20%
excise tax and which would reduce the $1 million limitation on deduction of
their compensation by an equal amount, and thus could result in other
compensation to such individuals being nondeductible.
RECORD DATE; VOTE REQUIRED; VOTING AT THE MEETINGS
Crompton. Crompton is seeking stockholder approval of the Merger Proposal to
comply with (i) certain requirements of the NYSE governing the listing of
Crompton Common Stock thereon and relating to the issuance of the shares of
Crompton Common Stock in the Merger and (ii) certain requirements of the
Exchange Act governing the qualification of the Crompton 1988 LTI Plan under
certain provisions thereof. Approval of the Merger Proposal is not required by
Massachusetts law or the Crompton Articles or the Crompton By-Laws. If Crompton
were to consummate the Merger without stockholder approval, the Crompton Common
Stock could not remain listed on the NYSE. See "--The Crompton 1988 LTI Plan
Amendment."
The Board of Directors of Crompton has fixed the close of business on July
9, 1996, as the Crompton Record Date for determination of Crompton Stockholders
entitled to notice of and to vote at the Crompton Special Meeting. Accordingly,
only holders of Crompton Common Stock of record at the close of business on July
9, 1996, will be entitled to notice of and to vote at the Crompton Special
Meeting. Each holder of record of Crompton Common Stock on the Crompton Record
Date is entitled to cast one vote per share, exercisable in person or by a
properly executed proxy, at the Crompton Special Meeting. As of the Crompton
Record Date, there were approximately 48,039,309 shares of Crompton Common Stock
outstanding and entitled to vote which were held by approximately 4,474 holders
of record.
The holders of a majority of the outstanding shares of Crompton Common Stock
entitled to vote at the Crompton Special Meeting shall represent a quorum.
Pursuant to the requirements of the NYSE set forth under paragraph 312.03 of the
NYSE Listed Company Manual and the requirements of Rule 16b-3 promulgated under
the Exchange Act, the affirmative vote of the holders of a majority of the
shares of Crompton Common Stock present in person, or represented by proxy, and
entitled to vote at the Crompton Special Meeting, provided that the total votes
cast represent over 50% of the shares of Crompton Common Stock issued and
outstanding on the Crompton Record Date, is required to approve and adopt the
Merger Proposal. Abstentions will not be counted in favor of the Merger Proposal
and will have the same effect as votes against such proposal. Broker non-votes
will have no effect on the result of the vote to approve the Merger Proposal,
assuming that the number of votes cast represents over 50% of all outstanding
shares of Crompton Common Stock. As of the Crompton Record Date, the directors
and executive officers of Crompton and certain of their affiliates owned
approximately 4% of the outstanding Crompton Common Stock and each such person
has advised Crompton that such person intends to vote in favor of the Merger
Proposal.
Uniroyal. The Board of Directors of Uniroyal has fixed the close of business
on July 9, 1996, as the Uniroyal Record Date for determination of Uniroyal
Stockholders entitled to notice of and to vote at the Uniroyal Special Meeting.
Accordingly, only holders of Uniroyal Common Stock of record at the close of
business on July 9, 1996, will be entitled to notice of and to vote at the
Uniroyal Special Meeting. Each holder of record of Uniroyal Common Stock on the
Uniroyal Record Date is entitled to cast one vote per share, exercisable in
person or by a properly executed proxy, at the Uniroyal Special Meeting. As of
the Uniroyal Record Date, there were approximately 24,308,403 shares of Uniroyal
Common
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Stock outstanding and entitled to vote which were held by approximately 358
holders of record. Holders of Uniroyal Preferred Stock as of the Uniroyal Record
Date are entitled to notice of, but are not entitled to vote such shares at, the
Uniroyal Special Meeting.
Pursuant to Uniroyal's Certificate of Incorporation, as amended (the
"Uniroyal Certificate"), and Uniroyal's Bylaws, as amended and restated (the
"Uniroyal Bylaws"), the holders of a majority of the outstanding shares of
Uniroyal Common Stock shall represent a quorum. Under applicable Delaware law,
the affirmative vote of the holders of a majority of the shares of Uniroyal
Common Stock outstanding and entitled to vote thereon is required to approve and
adopt the Merger Proposal. Under applicable Delaware law, in determining whether
the Merger Proposal has received the requisite number of affirmative votes,
abstentions and broker non-votes will be counted and will have the same effect
as votes against such proposal. A vote of the holders of outstanding shares of
Uniroyal Preferred Stock is not required to approve and adopt the Merger
Proposal. As of the Uniroyal Record Date, the directors and executive officers
of Uniroyal and certain of their affiliates owned approximately 4% of the
outstanding Uniroyal Common Stock and each such person has advised Uniroyal that
such person intends to vote in favor of the Merger Proposal.
VOTING OF PROXIES
All Crompton Stockholders and Uniroyal Stockholders who are entitled to vote
and are represented at the Crompton Special Meeting (in the case of Crompton
Stockholders) or at the Uniroyal Special Meeting (in the case of Uniroyal
Stockholders) by properly executed proxies received prior to or at such meeting
and not revoked will be voted at such meeting in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
proxies will be voted FOR approval and adoption of the Merger Proposal.
If any other matters are properly presented at the Crompton Special Meeting
(in the case of Crompton Stockholders) or at the Uniroyal Special Meeting (in
the case of Uniroyal Stockholders) for consideration, including, among other
things, consideration of a motion to adjourn such meeting to another time or
place (including, without limitation, for the purpose of soliciting additional
proxies), the persons named in the enclosed form of proxy, and acting
thereunder, will have discretion to vote on such matters in accordance with
their best judgment (unless authorization to use such discretion is withheld).
Neither Crompton nor Uniroyal is aware of any matters expected to be presented
at its respective meeting other than as described in its respective Notice of
Special Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Crompton or the Secretary of Uniroyal, as the case may be,
before the taking of the vote at the relevant meeting, a written notice of
revocation bearing a later date than the date of the proxy, (ii) duly executing
a later-dated proxy relating to the same shares and delivering it to the
Secretary of Crompton or the Secretary of Uniroyal, as the case may be, before
the taking of the vote at the relevant meeting, or (iii) attending the relevant
meeting and voting in person. In order to vote in person at either the Crompton
Special Meeting or the Uniroyal Special Meeting, Crompton Stockholders and
Uniroyal Stockholders must attend the relevant meeting and cast their votes in
accordance with the voting procedures established for such meeting. Attendance
at a meeting will not in and of itself constitute a revocation of a proxy. Any
written notice of revocation or subsequent proxy must be sent so as to be
delivered at or before the taking of the vote at the meeting as follows:
(i) in the case of Crompton Stockholders, to Crompton & Knowles
Corporation, One Station Place, Metro Center, Stamford, Connecticut 06902,
Attention: John T. Ferguson II, Secretary; and
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(ii) in the case of Uniroyal Stockholders, to Uniroyal Chemical
Corporation, c/o Uniroyal Chemical Company, Inc., Benson Road, Middlebury,
Connecticut 06749, Attention: Ira J. Krakower, Secretary.
SOLICITATION OF PROXIES
The expenses of the respective solicitations for the Crompton and Uniroyal
Special Meetings will be borne by Crompton and Uniroyal, respectively; however,
Crompton and Uniroyal have agreed to share equally the cost of printing and
distributing this Joint Proxy Statement/Prospectus and the forms of proxy to
Crompton Stockholders and Uniroyal Stockholders. In addition to solicitation by
mail, proxies may be solicited by directors, officers and employees of Crompton
and Uniroyal in person or by telephone, telegram or other means of
communication. These persons will receive no additional compensation for
solicitation of proxies, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Crompton has retained D.F. King &
Co., Inc. at an estimated cost of $10,000, plus reimbursement of expenses, to
assist in its solicitation of proxies from brokers, nominees, institutions and
individuals. Uniroyal has retained MacKenzie Partners, Inc. at an estimated cost
of $10,000, plus reimbursement of expenses, to assist in its solicitation of
proxies from brokers, nominees, institutions and individuals. Arrangements will
also be made by Crompton and Uniroyal with custodians, nominees and fiduciaries
for forwarding of proxy solicitation materials to beneficial owners of shares
held of record by such custodians, nominees and fiduciaries, and Crompton and
Uniroyal will reimburse such custodians, nominees and fiduciaries for reasonable
expenses incurred in connection therewith.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Crompton. The Board of Directors of Crompton has determined that the terms
of the Merger Agreement and the transactions contemplated thereby are fair to,
and in the best interests of, Crompton and the Crompton Stockholders.
Accordingly, the Crompton Board of Directors has approved the Merger Agreement
and the transactions contemplated thereby and recommends that Crompton
Stockholders vote FOR the approval and adoption of the Merger Agreement.
Uniroyal. The Board of Directors of Uniroyal has determined that the terms
of the Merger Agreement and the transactions contemplated thereby are fair to,
and in the best interests of, Uniroyal and the Uniroyal Stockholders.
Accordingly, the Uniroyal Board of Directors has approved the Merger Agreement
and the transactions contemplated thereby and recommends that Uniroyal
Stockholders vote FOR the approval and adoption of the Merger Agreement. In
considering the Uniroyal Board's recommendation, certain members of the Uniroyal
Board may be deemed to have interests in addition to or potentially different
from the interests of stockholders of Uniroyal generally. See "The Merger--
Interests of Certain Persons in the Merger."
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APPRAISAL RIGHTS
Crompton Stockholders. Crompton Stockholders will not be entitled to
dissenters' appraisal rights under Massachusetts law or any other statute in
connection with the Merger. See "Rights of Dissenting Stockholders--Crompton
Stockholders" and "Comparison of Stockholder Rights--Rights of Dissenting
Stockholders."
Uniroyal Stockholders; Holders of Uniroyal Preferred Stock. Uniroyal
Stockholders will not be entitled to dissenters' appraisal rights under Delaware
law or any other statute in connection with the Merger.
Dissenters' appraisal rights will be available in connection with the Merger
to those holders of Uniroyal Preferred Stock who meet and comply with the
requirements of Section 262 of the DGCL. Such holders who comply with the
procedural requirements of Section 262 of the DGCL will have the right to obtain
a cash payment for the "fair value" of their shares of Uniroyal Preferred Stock
(excluding any element of value arising from the accomplishment or expectation
of the Merger) if the Merger is consummated. See "Rights of Dissenting
Stockholders--Uniroyal Stockholders; Holders of Uniroyal Preferred Stock" and
"Comparison of Stockholder Rights--Rights of Dissenting Stockholders." Section
262 of the DGCL is set forth in Annex D to this Joint Proxy
Statement/Prospectus.
THE MERGER
BACKGROUND OF THE MERGER
Crompton regularly reviews merger and acquisition opportunities and
candidates as a part of its management process and in January 1996 reviewed
Uniroyal as a potential candidate for a business combination with Crompton.
Several senior managers of Crompton, including its Chairman, President and Chief
Executive Officer, Vincent A. Calarco, were familiar with Uniroyal in part due
to having held senior posts at Uniroyal prior to joining Crompton. As a major
specialty chemical producer with a number of niche market positions, Uniroyal
was perceived by Crompton management as offering significant growth
opportunities for Crompton. It appeared that by aggressively managing and
rapidly deleveraging the combined company, profitability could be increased and
stockholder value created.
Representatives of Salomon Brothers attended the regularly scheduled meeting
of the Crompton Board on January 22, 1996, and discussed with the Board the
possibility of a business combination between Crompton and Uniroyal. At this
meeting, the Board was given an overview of Uniroyal's businesses, and the
strategic rationale for a merger was discussed. At the conclusion of the
meeting, the Board asked that Mr. Calarco contact Robert J. Mazaika, the
Chairman, President and Chief Executive Officer of Uniroyal, to explore the
possibility of a transaction between the two companies.
Mr. Calarco contacted Mr. Mazaika on January 22, 1996, and arranged to meet
on January 29, 1996. The two chairmen met on January 29, 1996, and discussed the
possibility of a business combination between the two companies.
At a regular meeting of the Uniroyal Board held on January 30, 1996, and at
a special meeting of the Uniroyal Board held on February 22, 1996, the Uniroyal
Board discussed the possibility of a business combination between Uniroyal and
Crompton. At these meetings, the Uniroyal Board decided that Uniroyal was not
interested in pursuing a transaction with Crompton at Crompton's initial
indications of value. As of the January 30 meeting, Crompton had indicated a
value approximating the Uniroyal IPO price of $12 per share of Uniroyal Common
Stock, less certain costs. As of the February 22 meeting, Crompton had indicated
a value per share ranging from $12 to $15, based on certain conditions and
assumptions.
At a special meeting of the Uniroyal Board held on March 5, 1996, the
Uniroyal Board again discussed the possibility of a business combination with
Crompton after receiving a letter dated
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February 28, 1996, from Crompton indicating a willingness to increase the value
it was prepared to offer Uniroyal stockholders in a possible business
combination between the companies. At the March 5 special meeting, the Uniroyal
Board determined to engage Morgan Stanley as its financial advisor in connection
with evaluating a potential transaction between Uniroyal and Crompton.
At a special meeting of the Uniroyal Board held on March 14, 1996,
representatives of Morgan Stanley gave a preliminary report, based on publicly
available information, on a possible business combination between Uniroyal and
Crompton, including, among other things, an overview of Crompton and its
business, the strategic rationale for a transaction between the two companies
and the outlook for Uniroyal as an independent entity. At the March 14 meeting,
the Uniroyal Board determined that it would continue to explore whether a merger
with Crompton would be feasible and in the best interests of Uniroyal
stockholders and authorized management to continue exploratory discussions with
Crompton and to conduct due diligence and exchange information with Crompton.
Discussions between representatives of the two companies and between their
financial advisors occurred from late January until the middle of March. From
March 15, 1996 to March 17, 1996, representatives of Crompton and Uniroyal
negotiated the terms of a confidentiality agreement which was executed on March
18, 1996.
A meeting of senior management of the two companies together with certain of
their financial advisors occurred on March 19, 1996. At that meeting,
arrangements were made for further meetings to conduct due diligence
investigations. Those meetings occurred during the period of March 20 through
April 3, 1996. During the same period, there were numerous discussions between
management representatives of the two companies and between their financial
advisors regarding terms for a potential merger between the companies.
At a regular meeting of the Crompton Board held on April 9, 1996, the Board
was briefed regarding the results of due diligence to date, the status of
negotiations of a potential merger, the information developed to date regarding
valuation of Uniroyal, the pro forma capital structure of the combined company,
and various integration issues.
Negotiations between representatives of Crompton and Uniroyal and due
diligence continued during the period of April 9 through April 30, 1996.
At a regular meeting of the Uniroyal Board held on April 12, 1996, at which
Uniroyal's financial and legal advisors were present, the Uniroyal Board
discussed in detail the results of the due diligence to date, the status of the
negotiations of a potential merger, the value to Uniroyal stockholders of the
potential merger between Uniroyal and Crompton, price protection mechanisms,
governance issues, the structure of the transaction and various integration
issues. At the April 12 meeting, the Uniroyal Board determined to continue to
explore further whether a merger between Uniroyal and Crompton was in the best
interests of Uniroyal stockholders.
At a special meeting of the Uniroyal Board held on April 20, 1996, at which
Uniroyal's financial and legal advisors were present, the Uniroyal Board
discussed in detail the progress of negotiations with Crompton to date and
determined to further explore the possibility of a merger.
At a special meeting of the Crompton Board held on April 30, 1996, at which
Crompton's financial and legal advisors were present, the Crompton Board
reviewed the negotiations with Uniroyal and the terms of the proposed
transaction, including the Exchange Ratio, with the management of Crompton and
its financial and legal advisors. Salomon Brothers delivered its written opinion
to the Crompton Board to the effect that, based upon and subject to the various
considerations set forth therein, as of that date, the consideration to be paid
to the stockholders of Uniroyal in connection with the Merger is fair to
Crompton from a financial point of view. Following extended discussion, the
Crompton Board determined that the terms of the Merger Agreement and the
transactions contemplated thereby are fair
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to, and in the best interests of, Crompton and its stockholders, and approved
the Merger Agreement and the transactions contemplated thereby.
At a special meeting of the Uniroyal Board held on April 30, 1996, at which
Uniroyal's financial and legal advisors were present, the Uniroyal Board
reviewed the negotiations with Crompton and the terms of the proposed
transaction, including the Exchange Ratio, with the management of Uniroyal and
its financial and legal advisors. Morgan Stanley delivered its written opinion
to the effect that, as of such date and based upon and subject to certain
matters stated therein, the consideration to be received by the holders of
shares of Uniroyal Common Stock pursuant to the Merger Agreement was fair from a
financial point of view to such holders. Following extended discussion, the
Uniroyal Board determined that the terms of the Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests of,
Uniroyal and its stockholders, and approved the Merger Agreement and the
transactions contemplated thereby.
The Exchange Ratio was determined through negotiation between Crompton and
Uniroyal as directed by their respective Board of Directors and in consultation
with their respective financial and legal advisors.
On Tuesday, April 30, 1996, the Merger Agreement was executed. The parties
issued a joint press release announcing the Merger on Wednesday, May 1, 1996.
In considering the proposed Merger, the Uniroyal Board determined not to
solicit other offers based on the advice of its financial advisors that there
were not likely to be any alternatives reasonably available that would provide
Uniroyal Stockholders with greater value than Crompton's proposed strategic
combination.
On May 2, 1996, a purported class action lawsuit was filed in the Delaware
Court, allegedly on behalf of Uniroyal Stockholders, against Uniroyal, the
Uniroyal directors and Crompton alleging, 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.
Defendants believe that the complaint in such stockholder action is without
merit. See "The Merger--Certain Litigation."
On July , 1996, pursuant to the Merger Agreement, the Exchange Ratio of
was calculated by Crompton and Uniroyal, with the consultation of their
respective financial and legal advisors, by dividing $15.00 by the Acquiror
Transaction Value of $ , and rounding to four decimal places; provided,
however, that notwithstanding the foregoing, the Exchange Ratio could not be
less than 0.9091 nor more than 1.1111. See "Summary--The Merger--General;
Exchange Ratio" and "The Merger Agreement--Merger Consideration." On July ,
1996, the closing price of Crompton Common Stock and the last sale price of
Uniroyal Common Stock were $ per share and $ per share, respectively, as
reported on the NYSE Composite Tape and the NASDAQ/NM, respectively.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Uniroyal. The Uniroyal Board has determined that the terms of the Merger
Agreement and the transactions contemplated thereby are fair to, and in the best
interests of, Uniroyal and its stockholders. Accordingly, the Uniroyal Board has
approved the Merger Agreement and the transactions contemplated thereby and
recommends that the Uniroyal Stockholders vote for approval and adoption of the
Merger Agreement. The Uniroyal Board views the Merger as an opportunity for
Uniroyal stockholders to participate in a combined enterprise which would have a
stronger financial position and long-term growth potential than Uniroyal
standing alone. In the course of reaching its decision to approve the Merger
Agreement and the transactions contemplated thereby, the Uniroyal Board
consulted with
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Uniroyal's legal and financial advisors as well as with Uniroyal's management,
and considered a number of factors, including the following which were the
material factors considered:
(i) the Board's review and analysis of the business, assets, management,
competitive position and prospects of Uniroyal and Crompton;
(ii) the financial condition, cash flows and results of operations of
Uniroyal and Crompton, both on an historical and a prospective basis;
(iii) historical market prices and trading information with respect to
Uniroyal Common Stock and Crompton Common Stock;
(iv) the significant potential enhancement of the strategic and market
position of the combined entity beyond that achievable by Uniroyal alone;
(v) the ability of the combined company to accelerate repayment of
Uniroyal's debt from the increased free cash flow of the combined entity and the
reduction of Crompton's dividend to $0.05 per share payable annually, leading to
improved credit worthiness and faster growth in earnings per share;
(vi) the potential efficiencies and cost savings as a result of the
combination of Uniroyal's and Crompton's operations, including the elimination
of redundant costs at the corporate level, although such potential efficiencies
and cost savings were not quantified by the Uniroyal Board;
(vii) the succession of leadership in the management of Uniroyal following
the anticipated retirement of Robert J. Mazaika, President and Chief Executive
Officer of Uniroyal, and the familiarity of certain members of senior management
of Crompton with, and its prior experience in, the management of Uniroyal's
business;
(viii) a review of the possible alternatives to the Merger, including (a)
the sale of Uniroyal, it being determined, following consultation with
Uniroyal's financial advisors, that potential alternatives offering a higher
value to Uniroyal Stockholders were not reasonably available, and (b) operating
as an independent entity, which, it was determined, did not present the
increased financial strength and flexibility of the combined entity and
accordingly yielded less value to Uniroyal Stockholders;
(ix) that, following the Merger, Uniroyal's stockholders will be able to
participate in the potential growth of Crompton;
(x) the terms of the Merger Agreement (see "The Merger Agreement");
(xi) the financial terms of the Merger, including the proposed structure of
the Merger as a stock for stock transaction and the Exchange Ratio (see "The
Merger Agreement--Merger Consideration");
(xii) that, assuming the Exchange Ratio yields the Crompton Common Stock
equivalent of $15 per share of Uniroyal Common Stock, the Merger represents a
premium for Uniroyal Common Stock of approximately 28% over the closing price of
$11.75 per share of Uniroyal Common Stock on April 30, 1996, the last trading
day prior to the public announcement of the execution of the Merger Agreement;
(xiii) the terms of the Merger Agreement that set forth the restrictions on
the conduct of Uniroyal's business pending closing, conditions to closing and
the fee that would become payable by Uniroyal in the event of a termination of
the Merger Agreement under certain circumstances (see "The Merger
Agreement--Representations, Warranties and Covenants," "The Merger
Agreement--Conditions" and "The Merger Agreement--Termination; Effect of
Termination");
(xiv) while the Merger Agreement restricts Uniroyal's ability to negotiate
with parties concerning an alternative transaction and restricts Uniroyal from
providing such parties with information, the Merger Agreement does however
permit Uniroyal to consider additional third party offers to acquire Uniroyal
and permits Uniroyal to provide information to and negotiate with such parties
and to
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terminate the Merger Agreement, subject to the payment of a fee of $50 million
to Crompton, in each case under limited circumstances (see "The Merger
Agreement--No Negotiation or Solicitation" and "The Merger
Agreement--Termination; Effect of Termination");
(xv) the likelihood of consummation of the Merger, including the risks
associated with obtaining necessary approvals and the fact that it is possible
that the Merger may not be consummated even if approved by, stockholders (see
"The Merger Agreement--Conditions");
(xvi) the interests that certain executive officers of Uniroyal have with
respect to the Merger in addition to their interests as stockholders of Uniroyal
generally, including the treatment of purchase rights and options to purchase
Uniroyal Common Stock and other rights of certain members of the Uniroyal Board
(see "--Interests of Certain Persons in the Merger");
(xvii) the opinions, analyses and presentations of Morgan Stanley, its
opinion as to the fairness from a financial point of view of the consideration
to be received by the Uniroyal Stockholders pursuant to the Merger Agreement and
the assumptions made, matters considered and limitations of the review
undertaken by Morgan Stanley, as discussed in "--Opinion of Uniroyal's Financial
Advisor" and "--Background of the Merger";
(xviii) the percentage of equity in Crompton to be received by Uniroyal
stockholders (approximately % after the Merger) in relation to the
contribution of Uniroyal to the combined entity based upon a review of certain
financial elements being contributed by Uniroyal, which included, among other
things, (a) income before interest, taxes, depreciation and amortization, (b)
income before interest and taxes and (c) net income;
(xix) that the majority of the Uniroyal Board will become members of the
Crompton Board, as described under "The Merger Agreement--Representations,
Warranties and Covenants";
(xx) that The Merger Agreement contains a condition to Uniroyal's
consummating the Merger that Uniroyal is satisfied with the arrangements that
Crompton has made with respect to the consolidated indebtedness of Uniroyal;
(xxi) that the Merger is intended to be a tax-free reorganization under the
Code as described under "Certain Federal Income Tax Consequences" and that the
Merger Agreement contains a condition to the consummation of the Merger that
Crompton and Uniroyal receive an opinion from Wachtell and Skadden,
respectively, confirming that the Merger will constitute a tax free
reorganization under the Code; and
(xxii) that the Merger is intended to qualify for pooling of interests
treatment as described under "--Accounting Treatment" and that the Merger
Agreement contains a condition to the consummation of the Merger that Crompton
and Uniroyal receive letters from their respective accountants confirming that
the Merger will qualify as a pooling of interests.
The foregoing discussion of the information and factors considered by the
Uniroyal Board is not intended to be exhaustive. In view of the wide variety of
factors considered in connection with its evaluation of the Merger, the Uniroyal
Board did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. Rather, the Board viewed its position and recommendation as being
based on the totality of the information presented to and considered by it.
AT A MEETING OF THE BOARD OF DIRECTORS OF UNIROYAL, THE DIRECTORS OF
UNIROYAL PRESENT, WITH ONE DIRECTOR ABSENT, UNANIMOUSLY DETERMINED THAT THE
TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR
TO, AND IN THE BEST INTERESTS OF, UNIROYAL AND THE UNIROYAL STOCKHOLDERS.
ACCORDINGLY, THE UNIROYAL DIRECTORS PRESENT AT
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SUCH MEETING HAVE UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND RECOMMEND THAT UNIROYAL STOCKHOLDERS VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
In considering the Uniroyal Board's recommendation, certain members of the
Uniroyal Board may be deemed to have interests in addition to or potentially
different from the interests of stockholders of Uniroyal generally. See
"--Interests of Certain Persons in the Merger."
Crompton. In the course of reaching its decision to approve the Merger
Agreement and the transactions contemplated thereby, the Board of Directors of
Crompton consulted with Crompton's legal and financial advisors as well as with
Crompton's management, and considered a number of factors, including the
following which were the material factors considered: (i) the transaction is
expected to be immediately additive to Crompton's earnings per share by
approximately 5% in 1996 before considering potential synergies, (ii) Uniroyal's
strong positions in industry segments which offer significant new growth
opportunities for the combined company, (iii) the ability of the combined
company to accelerate repayment of Uniroyal's debt from the increased free cash
flow of the combined entity and the reduction of Crompton's dividend to $0.05
per share payable annually, leading to improved credit worthiness and faster
growth in earnings per share, (iv) the potential efficiencies and cost-savings
as a result of the combination of Crompton's and Uniroyal's operations,
including the elimination of redundant costs at the corporate level, although
such potential efficiencies and cost-savings were not quantified by the Crompton
Board, (v) the increase in international business opportunities expected to
result from the combination of the two companies, (vi) the familiarity of senior
management of Crompton with and its prior experience in the management of
Uniroyal's businesses, (vii) the Crompton Board's review and analysis of the
business, assets, management, competitive position and prospects of Crompton and
Uniroyal, (viii) the financial condition, cash flows and results of operations
of Crompton and Uniroyal, both on an historical and a prospective basis, (ix)
historical market prices and trading information with respect to Crompton Common
Stock and Uniroyal Common Stock, (x) the terms of the Merger Agreement, (xi) the
analyses and presentations of Salomon Brothers, Crompton's financial advisor in
connection with the Merger, its opinion that the consideration to be paid to the
stockholders of Uniroyal in connection with the Merger is fair to Crompton from
a financial point of view and the assumptions made, matters considered and
limitations of the review undertaken by Salomon Brothers, and (xii) the
treatment of the Merger as a pooling-of-interests for financial reporting and
accounting purposes, which avoids adding goodwill to Crompton's balance sheet
and penalizing reported earnings with goodwill amortization charges.
The foregoing discussion of the factors considered by the Crompton Board is
not intended to be exhaustive. In view of the wide variety of factors considered
in connection with its evaluation of the Merger, the Crompton Board did not find
it practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determinations.
THE BOARD OF DIRECTORS OF CROMPTON HAS UNANIMOUSLY DETERMINED THAT THE TERMS
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO,
AND IN THE BEST INTERESTS OF, CROMPTON AND THE CROMPTON STOCKHOLDERS.
ACCORDINGLY, THE CROMPTON BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT CROMPTON
STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF UNIROYAL'S FINANCIAL ADVISOR
Morgan Stanley was retained by Uniroyal to act as its financial advisor in
connection with the Merger and related matters based upon Morgan Stanley's
experience and expertise. At the April 30,
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1996 meeting of the Uniroyal Board, Morgan Stanley rendered to the Uniroyal
Board a written opinion to the effect that, as of such date and based upon and
subject to certain matters stated therein, the consideration to be received by
the holders of shares of Uniroyal Common Stock pursuant to the Merger Agreement
was fair from a financial point of view to such holders. No limitations were
imposed by Uniroyal on Morgan Stanley with respect to the investigations made or
procedures followed by Morgan Stanley. Uniroyal does not intend to obtain any
further opinion of Morgan Stanley in respect of the Merger.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED APRIL 30, 1996,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF
UNIROYAL COMMON STOCK SHOULD READ MORGAN STANLEY'S OPINION CAREFULLY IN ITS
ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED TO THE UNIROYAL BOARD AND THE
FAIRNESS OF THE CONSIDERATION FROM A FINANCIAL POINT OF VIEW TO BE RECEIVED BY
THE HOLDERS OF SHARES OF UNIROYAL COMMON STOCK, AND IT DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY HOLDER
OF UNIROYAL COMMON STOCK AS TO HOW TO VOTE AT THE UNIROYAL SPECIAL MEETING. THE
SUMMARY OF MORGAN STANLEY'S OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley (i) analyzed certain publicly
available financial statements and other information of Uniroyal and Crompton,
respectively; (ii) reviewed certain internal business, operating and financial
information, including financial projections, relating to Uniroyal and Crompton,
furnished to Morgan Stanley by Uniroyal and Crompton, respectively; (iii)
discussed the past and current operations and financial condition and the
prospects of Uniroyal with senior executives of Uniroyal; (iv) discussed the
past and current operations and financial condition and the prospects of
Crompton with senior executives of Crompton and analyzed the pro forma impact of
the Merger on Crompton's earnings per share, consolidated capitalization and
financial ratios; (v) reviewed the reported prices and trading activity for
Uniroyal Common Stock and the Crompton Common Stock; (vi) compared the financial
performance of Uniroyal and the prices and trading activity of Uniroyal Common
Stock with that of certain other comparable publicly traded companies and their
securities; (vii) compared the financial performance of Crompton and the prices
and trading activity of the Crompton Common Stock with that of certain other
comparable publicly traded companies and their securities; (viii) reviewed the
financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (ix) participated in discussions and negotiations
among representatives of Uniroyal and Crompton and their financial and legal
advisors and reviewed the Merger Agreement; and (x) performed such other review
and performed such other analyses as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to
financial projections, Morgan Stanley assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of Uniroyal and Crompton. Morgan
Stanley did not make an independent valuation or appraisal of the assets or
liabilities of Uniroyal or Crompton, nor was Morgan Stanley furnished with any
such appraisals. Morgan Stanley assumed that the Merger will be treated as a
"pooling-of-interests" business combination in accordance with U.S. Generally
Accepted Accounting Principles and will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code. Morgan Stanley also assumed that the
Merger will be consummated in accordance with the terms of the Merger Agreement.
Morgan Stanley's opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to Morgan Stanley
as of the date of its opinion. In arriving at its opinion, Morgan Stanley was
not authorized to solicit, and did not solicit, interest from any party with
respect to the acquisition of Uniroyal or any of its assets.
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The following is a brief summary of certain analyses performed by Morgan
Stanley and reviewed with the Uniroyal Board in connection with the preparation
of the Morgan Stanley opinion and with its oral presentations to the Uniroyal
Board on April 12 and April 30, 1996:
Uniroyal Common Stock Performance. Morgan Stanley's analysis of Uniroyal's
Common Stock performance consisted of a historical analysis of closing prices
and trading volumes from March 17, 1995, the time of Uniroyal's initial public
offering ("IPO"), to April 29, 1996. In this period based on close prices of the
NYSE, Uniroyal Common Stock achieved a high of $12.25 and a low of $7.25.
Uniroyal was offered to the public at $12.00 per share of Common Stock (the "IPO
Price") and had a price of $9.625 on March 29, 1996, approximately 30 calendar
days prior to April 29, 1996 (the "Unaffected Market Price"). Morgan Stanley
observed that a $15 proposal price represented a 55.8% premium to the Unaffected
Market Price, a 25.0% premium to the IPO Price, a 22.4% premium to the high
price and a 106.9% premium to the low price.
Comparable Company Analysis. Comparable company analysis examines a
company's trading performance relative to a group of publicly traded peers.
Morgan Stanley analyzed the trading performance of Uniroyal, Crompton and seven
groups of chemical companies (the "Comparable Companies"): Small Capitalization
Specialty, Small Capitalization Intermediate, Small Capitalization Commodity,
Large Capitalization Specialty, Large Capitalization Intermediate, Large
Capitalization Commodity and Large Capitalization Conglomerate. Companies in the
Large Capitalization Conglomerate Chemicals group are: E.I. Du Pont De Nemours &
Co., Dow Chemical Co., Monsanto Co., PPG Industries Inc., Air Products and
Chemicals Inc., W.R. Grace & Co., Eastman Chemical Co. and Olin Corp. ("Large
Capitalization Conglomerate Chemicals Companies"). Companies in the Large
Capitalization Commodity Chemicals group are: Union Carbide Corp., FMC Corp.,
Lyondell Petrochemical Co., Georgia Gulf Corp., Wellman Inc., The Geon Co. and
Sterling Chemicals Inc. ("Large Capitalization Commodity Chemicals Companies").
Companies in the Large Capitalization Intermediate Chemicals group are: Hercules
Inc., ARCO Chemical Co., Rohm and Haas Co., Witco Corp., Albemarle Corp., M.A.
Hanna Co., Cytec Industries Inc. and Dexter Corp. ("Large Capitalization
Intermediate Chemicals Companies"). Companies in the Large Capitalization
Specialty Chemicals group are: Morton International Inc., Great Lakes Chemical
Corp., Nalco Chemical Co., Lubrizol Corp., Loctite Corp., Ethyl Corp., Betz
Laboratories Inc., H.B. Fuller Co. and Petrolite Corp. ("Large Capitalization
Specialty Chemicals Companies"). Companies in the Small Capitalization Commodity
Chemicals group are: NL Industries Inc. and Rexene Corp. ("Small Capitalization
Commodity Chemicals Companies"). Companies in the Small Capitalization
Intermediate Chemicals group are: OM Group Inc., McWhorter Technologies Inc.,
Stepan Co., Quaker Chemical Corp. and MacDermid Inc. ("Small Capitalization
Intermediate Chemicals Companies"). Companies in the Small Capitalization
Specialty Chemicals group are: Cambrex Corp., Learonal Inc., Penwest Ltd.,
Sybron Chemical Corp. and Park Electrochemical Corp. ("Small Capitalization
Specialty Chemical Companies"). Historical financial information used in
connection with the ratios provided below with respect to the Comparable
Companies is as of the most recent financial statements publicly available for
each company.
Morgan Stanley analyzed the relative performance and value for Uniroyal and
Crompton by comparing certain market trading statistics for Uniroyal and
Crompton with the Comparable Companies. Among the market trading information
considered in the valuation analysis was market price to earnings per share
("EPS") estimates for 1996 and the ratio of aggregate value to latest twelve
months earnings before interest, taxes, depreciation and amortization
("EBITDA"). These two ratios were deemed most relevant by Morgan Stanley for
this analysis. Market information used in calculating the ratios below is as of
April 29, 1996. The market price to EPS estimate for Uniroyal for 1996 was 10.1x
and for Crompton was 16.1x. The median ratios of market price to EPS estimate
for 1996 for the Large Capitalization Conglomerate Chemicals Companies, Large
Capitalization Commodity Chemicals Companies, Large Capitalization Intermediate
Chemicals Companies, Large Capitalization Specialty Chemicals Companies, Small
Capitalization Commodity Chemicals Companies, Small Capitalization Intermediate
Chemicals Companies and Small Capitalization Specialty Chemicals Companies were
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13.6x, 12.0x, 16.0x, 15.3x, 8.3x, 14.3x and 13.1x, respectively. EPS estimates
for Crompton and the Comparable Companies were estimates provided by
Institutional Brokers Estimate System ("IBES"). EPS estimates for Uniroyal were
based on Morgan Stanley research analyst Mark Gulley's April 9, 1996 estimates,
which Uniroyal management deemed to be a reasonably conservative estimation of
expected 1996 EPS at the time. The ratio of aggregate value to latest twelve
months EBITDA for Uniroyal was 6.4x and for Crompton was 9.8x. The median ratios
of aggregate value to latest twelve months EBITDA for the Large Capitalization
Conglomerate Chemicals Companies, Large Capitalization Commodity Chemicals
Companies, Large Capitalization Intermediate Chemicals Companies, Large
Capitalization Specialty Chemicals Companies, Small Capitalization Commodity
Chemicals Companies, Small Capitalization Intermediate Chemicals Companies and
Small Capitalization Specialty Chemicals Companies were 6.8x, 5.5x, 8.0x, 8.3x,
5.8x, 7.1x and 7.1x, respectively. Morgan Stanley observed that a $15 proposal
price implied a ratio of market price to EPS estimate for 1996 of 13.2x and a
ratio of aggregate value to latest twelve months EBITDA of 6.9x for Uniroyal.
No company utilized in the comparable companies analysis as a comparison is
identical to Uniroyal or Crompton. In evaluating the Comparable Companies,
Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Uniroyal or Crompton such
as the impact of competition on the business of Uniroyal or Crompton and the
industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of Uniroyal or Crompton or the
industry or in the financial markets in general. Mathematical analysis (such as
determining the average or median) is not in itself a meaningful method of using
comparable company data.
Comparable Transaction Analysis. Morgan Stanley performed an analysis of
precedent transactions involving specialty chemicals companies from January 8,
1993 through November 10, 1995. Multiples of aggregate value to EBITDA were
deemed by Morgan Stanley to be most relevant for this analysis. The following
transactions were analyzed (acquiree/acquiror): INDSPEC Chemical Corp. (65%
stake)/Occidental Petroleum Corp.; DLJ Merchant Banking Partners L.P. (OSI
Specialties Inc.)/Witco Corp.; Associated British Industries plc/MSC Holdings
Inc. (Newco); Grow Group Inc./ICI plc; ENI SpA (Enichem Augusta--70%)/RWE AG;
Merck & Co. Inc. (Kelco division)/Monsanto Co.; Procter & Gamble Co.
(Richardson-Vicks--J.T. Baker Inc.)/Mallinckrodt Group Inc.; EniChem SpA
(Alcantara--51%)/Toray Industries Inc.; Merck & Co. (Calgon Vestal
Labs)/Bristol-Meyers Squibb Co.; Kay Chemical Co./Ecolab Inc.; Exxon Corp.
(Callaway Chemical Co.)/Vulcan Materials Co.; Premier Holdings BV/Manders plc;
Insilco Corp. (Sinclair Paint Co.)/Grow Group Inc.; Rust-Oleum Corp./RPM Inc.;
Millipore Corp. (Waters Chromatography division)/Waters Holding Inc.; Reckitt &
Colman plc (Reckitt Colours International)/Holliday Chemical Holdings plc;
EniChem SpA (polymer additives)/Great Lakes Chemical Corp.; ChemDesign
Corp./Bayer AG (Miles Inc.); United Coatings Inc./Pratt & Lambert Inc.; Manders
Holdings plc (decorative division)/Johnstone's Paints plc; Zeneca Group plc
(Thoro System products)/D. George Harris & Associates; INDSPEC Chemical
Corp./Castle Harlan Inc.; Brent International plc (electronic chemicals)/Cookson
Group plc; Merck & Co. (Calgon Corp.)/English China Clays plc; Cargill Inc.
(resin products)/Valspar Corp.; MTM plc (fine chemicals assets)/BTP plc; Elf
Atochem North America Inc. (specialty chemicals assets)/Ivax Corp.; ICI plc
(powder coatings)/Ferro Corp.; Union Carbide Corp. (organosilicon)/DLJ Merchant
Banking Partners; and Evode Group plc/Laporte plc. EBITDA values were calculated
for the latest twelve month period prior to the transaction for which publicly
reported information was available. Since some of the transactions analyzed did
not involve public disclosure, some of the multiples of aggregate value to
EBITDA statistics were unavailable or inapplicable. The analysis resulted in a
range of multiples of 6.2x to 14.8x latest twelve months EBITDA. Morgan Stanley
observed that a $15 proposal price implied a multiple of 6.9x Uniroyal's latest
twelve months EBITDA.
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No transaction utilized in the comparable transaction analysis is identical
to the Merger. In evaluating the precedent transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Uniroyal or Crompton, such as the impact of competition on
the business of Uniroyal and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of Uniroyal or the industry or in the financial markets in general. Mathematical
analysis (such as determining the average or median) is not in itself a
meaningful method of using comparable transaction data.
Discounted Cash Flow Analysis. Morgan Stanley conducted a discounted cash
flow analysis to estimate the present value of the stand-alone unleveraged free
cash flows that Uniroyal and Crompton are expected to generate if Uniroyal and
Crompton perform in accordance with scenarios based upon certain financial
forecasts. Morgan Stanley analyzed two sets of financial forecasts for each
company, a Management case ("Management Case") and a Downside case ("Downside
Case"). The Management Case for each company was based upon certain financial
forecasts prepared by the respective managements of each company. The Downside
Case differed from the Management Case in that it employed slower sales growth
rate and essentially stable rather than increasing margins. Unlevered free cash
flows of each company were calculated as net income plus depreciation and
amortization plus deferred taxes plus other noncash expenses plus after-tax net
interest expense less capital expenditures less investment in working capital.
Morgan Stanley calculated terminal values by applying a range of perpetual
growth rates ("Perpetual Growth Rate Methodology") to the unlevered free cash
flows in fiscal 2000 from 2.5% to 3.5% for Uniroyal and 3.0% to 4.0% for
Crompton representing estimated ranges of long-term cash flow growth rates.
Morgan Stanley also calculated terminal values for Crompton by applying a
multiple of 7.0x to 9.0x the terminal year's EBITDA ("Terminal EBITDA Multiple
Methodology"). The cash-flow streams and terminal values were then discounted to
the present using a range of discount rates from 11.5% to 12.5% for Uniroyal and
11.0% to 12.0% for Crompton. The discount rate ranges were selected based upon a
weighted average cost of capital analysis. Based on this analysis, Morgan
Stanley calculated per share equity values of Uniroyal ranging from $18.32 to
$31.60 for the Management Case and $6.96 to $17.24 for the Downside Case on a
primary share basis. The per share equity values calculated for Crompton ranged
from $10.28 to $13.41 based on the Perpetual Growth Rate Methodology and $13.16
to $17.20 based on the Terminal EBITDA Multiple Methodology for the Management
Case and $7.21 to $9.48 based on the Perpetual Growth Rate Methodology and $9.07
to $11.91 based on the Terminal EBITDA Multiple Methodology for the Downside
Case on a primary share basis.
Historical Exchange Ratio Analysis. Morgan Stanley analyzed the historical
exchange ratio between Uniroyal Common Stock and Crompton Common Stock over
several time periods. The historical exchange ratio is the ratio of the price of
Uniroyal Common Stock to the price of Crompton Common Stock for a selected
period of time or for a point in time. For each time period selected, the high,
average and low exchange ratios were calculated. The time periods selected for
analysis were as follows: March 17, 1995 to April 19, 1996, last six months,
last three months, last one month, last ten days, and close price on April 29,
1996 (for which only one exchange ratio was calculated). The average exchange
ratio for each aforementioned time period was 0.6531, 0.6375, 0.6672, 0.6602,
0.6879, and 0.7541, respectively. The highest exchange ratio achieved in any
time period reviewed by Morgan Stanley was 0.8378. Morgan Stanley observed that
a $15 proposal price implied an exchange ratio of 0.9836, which is higher than
the historical exchange ratios between Uniroyal Common Stock and Crompton Common
Stock.
Pro Forma Analysis of the Merger. Morgan Stanley analyzed the pro forma
impact of the Merger on Crompton's earnings per share for the fiscal years ended
1996 through 2000. This analysis was based upon certain assumptions, including,
among others, an assumed exchange ratio of 0.9836 and a $0.25 annual dividend
per share. This financial analysis indicated that when the Uniroyal Management
Case forecasts and the Crompton Management Case forecasts are utilized, the
combined company's 1996, 1997, 1998, 1999 and 2000 EPS were, respectively,
approximately 15.1%, 25.4%, 39.9%, 56.0% and
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79.0% greater than the EPS estimates for Crompton on a stand-alone basis in the
absence of the Merger. When the Uniroyal Downside Case forecasts and the
Crompton Downside Case forecasts are utilized, this financial analysis indicated
that the combined company's 1996, 1997, 1998, 1999 and 2000 EPS were,
respectively, approximately 12.2%, 20.1%, 29.1%, 38.0% and 52.1% greater than
the EPS estimates for Crompton on a stand-alone basis in the absence of the
Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all of its
analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, by selecting any
portions of Morgan Stanley's analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In addition,
Morgan Stanley may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of Uniroyal or Crompton.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Uniroyal or Crompton. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as a part of Morgan Stanley's
analysis of the fairness of the consideration from a financial point of view to
holders of Uniroyal Common Stock and were provided to the Uniroyal Board in
connection with the delivery of Morgan Stanley's written opinion of April 30,
1996. The analyses do not purport to be appraisals or to reflect the prices at
which Uniroyal or Crompton might actually be sold. Because such estimates are
inherently subject to uncertainty, none of Uniroyal, Crompton, Morgan Stanley or
any other person assumes responsibility for their accuracy. In addition, as
described above, Morgan Stanley's opinion and presentation to the Uniroyal Board
was one of many factors taken into consideration by the Uniroyal Board in making
its determination to approve the Merger.
The Uniroyal Board retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. Morgan Stanley, as part of its investment banking business,
is continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. Morgan Stanley is a
full-service securities firm engaged in securities trading and brokerage
activities, as well as providing investment banking and financial advisory
services. In the ordinary course of its trading and brokerage activities, Morgan
Stanley or its affiliates may at any time hold long or short positions, and may
trade or otherwise effect transactions, for its own account or the accounts of
customers, in debt or equity securities of Uniroyal or Crompton. As of the date
of this Joint Proxy Statement/Prospectus, Morgan Stanley and its affiliates own
approximately 6% of the outstanding shares of Uniroyal Common Stock. The shares
were acquired by Morgan Stanley or its affiliates in one or more transactions
unrelated to the current engagement. In the past, Morgan Stanley and its
affiliates have provided financial advisory and financing services to Uniroyal
and Crompton and have received customary fees for the rendering of these
services. In the last two years, Morgan Stanley received fees from Uniroyal of
approximately $1.7 million for financing and advisory services, including acting
as a co-manager in connection with the IPO. Morgan Stanley has received no fees
from Crompton in the last two years.
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Pursuant to a letter agreement, dated March 13, 1996, between Uniroyal and
Morgan Stanley, Uniroyal has agreed to pay Morgan Stanley a transaction fee,
payable upon consummation of the Merger. The transaction fee is calculated as a
percentage of the transaction's aggregate value, defined as the value of the
consideration paid per share of outstanding common stock times the total number
of outstanding common shares (including the number of shares which would be
outstanding upon exercise of any in-the-money options, convertible debt,
convertible preferred or warrants) of Uniroyal, plus the value of any long-term
debt, capital lease, and preferred stock obligations of Uniroyal assumed,
retired, or defeased in connection with the Merger. At the time of the execution
of the Merger Agreement, the transaction fee payable to Morgan Stanley was
estimated at approximately $6.0 million. Uniroyal also agreed pursuant to such
letter agreement that in the event the Merger is not consummated to reimburse
Morgan Stanley for its time and efforts expended and expenses as incurred.
Uniroyal has also agreed to reimburse Morgan Stanley for its expenses related to
the engagement and to indemnify and hold harmless Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including liabilities under the federal
securities laws, incurred in connection with its services. All fees will be paid
by Uniroyal to Morgan Stanley after consummation of the Merger.
OPINION OF CROMPTON'S FINANCIAL ADVISOR
Salomon Brothers has rendered to the Crompton Board its written opinion
dated April 30, 1996 (the "Salomon Brothers Opinion") to the effect that, based
upon and subject to the various considerations set forth in the opinion, as of
April 30, 1996, the consideration to be paid to the stockholders of Uniroyal in
connection with the Merger is fair to Crompton from a financial point of view.
Crompton does not intend to obtain any further opinion of Salomon Brothers in
respect of the Merger.
THE FULL TEXT OF THE SALOMON BROTHERS OPINION, WHICH SETS FORTH A
DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS OF THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX C AND SHOULD BE READ CAREFULLY IN
ITS ENTIRETY. THE SALOMON BROTHERS OPINION ADDRESSES ONLY THE FAIRNESS OF THE
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS OF UNIROYAL IN CONNECTION WITH THE
MERGER FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY STOCKHOLDER OF CROMPTON AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE
MERGER AGREEMENT. THE SUMMARY OF THE OPINION OF SALOMON BROTHERS SET FORTH IN
THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In rendering the Salomon Brothers Opinion, Salomon Brothers, among other
things: (i) reviewed the Merger Agreement, including the exhibits and disclosure
schedules thereto and the documents referred to therein; (ii) analyzed certain
publicly available information concerning Crompton and Uniroyal, including the
Annual Reports on Form 10-K of Crompton for each of the years in the five-year
period ended December 30, 1995, the Annual Report on Form 10-K of Uniroyal for
the year ended October 1, 1995, and the Quarterly Report on Form 10-Q of
Uniroyal for the quarter ended December 31, 1995; (iii) reviewed Crompton's and
Uniroyal's press releases announcing preliminary financial information for the
quarter ended March 30, 1996 and March 31, 1996, respectively; (iv) reviewed
certain financial forecasts concerning the businesses and operations of Crompton
and Uniroyal that were prepared by the managements of Crompton and Uniroyal,
respectively; (v) analyzed certain publicly available information with respect
to certain other companies that Salomon Brothers believed to be comparable in
certain respects to Crompton and Uniroyal and the trading markets for such other
companies' securities; (vi) met with certain officers and employees of Crompton
and Uniroyal to discuss the foregoing, including the past and current business
operations, financial condition and prospects of Crompton and Uniroyal,
respectively, as well as other matters Salomon Brothers believed relevant to its
inquiry; and (vii) considered such other information, financial studies,
analyses, investigations, financial, economic and market criteria as Salomon
Brothers deemed relevant.
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In rendering its opinion, Salomon Brothers assumed and relied upon the
accuracy and completeness of all of the financial and other information provided
to it or publicly available and did not attempt to independently verify or
assume responsibility for independently verifying any of such information. With
respect to the financial projections of Crompton and Uniroyal, Salomon Brothers
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of management as to the future
financial performance of Crompton or Uniroyal, as the case may be, and Salomon
Brothers expressed no opinion with respect to such projections or the
assumptions on which they were based. Salomon Brothers has not made or obtained
or assumed any responsibility for making or obtaining any independent
evaluations or appraisals of any of the assets (including properties and
facilities) or liabilities of Crompton or Uniroyal. Salomon Brothers assumed
that the Merger would qualify as a tax-free reorganization for federal income
tax purposes, and would be accounted for as a pooling-of-interests business
combination in accordance with generally accepted accounting principles as
described in Accounting Principles Board Opinion Number 16. The Salomon Brothers
Opinion was necessarily based on conditions as they existed and could be
evaluated on the date of such opinion and Salomon Brothers did not assume any
responsibility to update or review the Salomon Brothers Opinion based upon
circumstances or events occurring after the date thereof. The Salomon Brothers
Opinion does not address Crompton's underlying business decision to effect the
Merger nor does it constitute a recommendation to any holder of Crompton Common
Stock as to how such holder should vote with respect to the Merger. The Salomon
Brothers Opinion does not imply any conclusion as to the likely trading range
for Crompton Common Stock following the consummation of the Merger, which may
vary depending upon, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities.
The following is a brief summary of the material analyses performed by
Salomon Brothers in preparation of the Salomon Brothers Opinion and reviewed
with the Crompton Board.
Historical Trading Analysis. As part of its analysis, Salomon Brothers
reviewed the recent stock market performance of Crompton and Uniroyal and
compared such performance to that of an index of nine selected publicly traded
chemical companies (Cabot Corp., Cytec Industries, Ferro Corp., FMC Corp.,
Lubrizol Corp., McWhorter Technologies, Rohm and Haas Co., Witco Corp. and
Wellman (collectively, the "Comparable Companies")) that Salomon Brothers deemed
to be comparable to Uniroyal for purposes of its analysis. Salomon Brothers also
compared the recent stock market performance of Crompton and Uniroyal to that of
the S&P Industrial Average (400 stocks). Salomon Brothers also noted that the
public trading price per share of Uniroyal Common Stock during the period
beginning March 20, 1995 and ending March 29, 1996 ranged from $7.25 to $12.25.
Salomon Brothers reviewed the historical ratio of the public trading price
per share of Uniroyal Common Stock to the public trading price per share of
Crompton Common Stock during the period beginning March 17, 1995 and ending
March 29, 1996. Such analysis indicated that during such period the ratio of the
public trading price per share of Crompton Common Stock to the public trading
price per share of Uniroyal Common Stock ranged from 0.54 to 0.84 (with an
average of 0.65), and was 0.66 as of the last day thereof. Salomon Brothers also
reviewed the historical implied Exchange Ratio calculated pursuant to the Merger
Agreement as of each of the days during the period beginning January 2, 1996 and
ending April 26, 1996, based upon an assumed Acquiror Transaction Value equal to
the average closing price on the NYSE Composite Tape of Crompton Common Stock
for the twenty NYSE trading days ending on the respective date of calculation.
Salomon Brothers observed that such implied Exchange Ratio declined from
approximately 1.15 to 1.02 during such period and compared such range of implied
Exchange Ratios to selected ranges within the "collar" of .9091 to 1.111
provided for in the Merger Agreement.
Public Market Valuation. Salomon Brothers compared certain available
financial and market data of the Comparable Companies with similar data of
Crompton and Uniroyal. Such financial and market data included, among other
things, equity value (equity market capitalization) based upon closing stock
prices as of March 29, 1996, stock price as a multiple of (i) 1997 estimated
earnings per
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share (based upon First Call median estimates), (ii) 1996 estimated earnings per
share (based upon First Call median estimates) and (iii) latest twelve months
("LTM") earnings per share, and firm value (equity market capitalization plus
total debt, preferred stock and minority interests less cash and equity
investments) as a multiple of (x) LTM earnings before interest and taxes
("EBIT"), (y) LTM earnings before interest, taxes, depreciation and amortization
("EBITDA") and (z) LTM sales. These multiples were as follows: (1) price to 1997
estimated earnings per share was 13.9x for Crompton and 5.9x for Uniroyal,
compared to those of the Comparable Companies which ranged from 9.5x to 14.1x
(with a median of 12.4x); (2) price to 1996 estimated earnings per share was
15.4x for Crompton and 7.4x for Uniroyal, compared to those of the Comparable
Companies which ranged from 10.8x to 17.6x (with a median of 14.1x); (3) price
to LTM earnings per share was 17.4x for Crompton and 9.9x for Uniroyal, compared
to those of the Comparable Companies which ranged from 10.2 to 25.1x (with a
median of 14.6x); (4) firm value to LTM EBIT was 11.5x for Crompton and 8.7x for
Uniroyal, compared to those of the Comparable Companies which ranged from 8.0x
to 14.4x (with a median of 10.2x); (5) firm value to LTM EBITDA was 9.5x for
Crompton and 5.9x for Uniroyal, compared to those of the Comparable Companies
which ranged from 5.4x to 8.6x (with a median of 7.0x); and (6) firm value to
LTM sales was 124.1% for Crompton and 113.9% for Uniroyal, compared to those of
the Comparable Companies which ranged from 67.9% to 147.7% (with a median of
116.2%).
Salomon Brothers then derived from this and other data (based upon the
relative comparability of the financial performance of the Comparable Companies
to that of Uniroyal) a range of 1996 price to earnings multiples deemed most
meaningful for its analysis and applied these multiples to the 1996 estimated
earnings per share of Uniroyal (based on projections of Uniroyal's management as
adjusted to reflect certain assumptions of Crompton's management). This analysis
resulted in a range of per share implied equity values for Uniroyal Common Stock
of $12.65 to $13.80 (compared to the March 29, 1996 market price per share of
Uniroyal Common Stock of $9.63).
No company used in the Comparable Companies analysis was identical to either
Crompton or Uniroyal. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which they are
being compared. Mathematical analysis is not, in itself, a meaningful method of
ensuring comparable company data. In addition, this analysis did not reflect any
potential synergies resulting from the combination of the two companies.
Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF")
methodology, Salomon Brothers arrived at a range of values for Uniroyal by
estimating the present value of future free cash flows that Uniroyal could
produce over a 5-year period from 1996 through 2000, under various assumptions,
if Uniroyal were to perform on a stand-alone basis (without giving effect to the
Merger) in accordance with Uniroyal's management forecasts through 2000, on the
one hand (the "Management Case"), and in accordance with Uniroyal's management
forecasts through 2000 as adjusted to reflect certain assumptions of Crompton's
management, on the other hand (the "Adjusted Case"). As part of the DCF
analysis, Salomon Brothers used discount rates of 11% to 12%. Such valuation
ranges were based upon the sum of (x) the present value of free cash flows over
the 5-year period from 1996 to 2000 plus (y) the present value of the (a) final
year's projected EBITDA multiplied by (b) numbers representing various terminal
or exit multiples (ranging from 5x to 6x). This DCF analysis resulted in an
implied equity value of the Uniroyal Common Stock of $18.33 to $24.61 per share,
under the Management Case, and $10.64 to $16.14 per share, under the Adjusted
Case.
Analysis of Selected Mergers/Acquisition Transactions. Salomon Brothers also
analyzed certain publicly available financial, operating and stock market
information for various merger or acquisition transactions in the chemical
industry over the past ten years, analyzing in particular the following six of
such acquiror/target transactions that Salomon Brothers considered to be most
comparable to the Merger: Occidental/Indspec, Lyondell/Occidental HDPE, Ciba
Geigy/Dr. Maag, Ferro/Synpro, Witco/OSi, Specialties Inc. and
Sentrachem/Hampshire Chem (the "Precedent Transactions"). For
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each of the Precedent Transactions, Salomon Brothers calculated the multiples
of, among other things, firm value to LTM revenue, firm value to LTM EBITDA,
firm value to LTM EBIT and equity value to net earnings based upon the price
paid in each respective transaction. Salomon Brothers then derived from this
data the ranges of the implied valuation multiples of revenues, EBITDA, EBIT and
net income deemed most meaningful for its analysis on a segment basis, which
were as follows across all segments: revenues (from 0.8x to 1.9x), EBITDA (from
5.4x to 8.0x), EBIT (from 7.7x to 11.5x) and net income (from 9.3x to 14.1x).
Salomon Brothers then applied the multiples derived from the Precedent
Transactions to Uniroyal's revenues, EBITDA, EBIT and net income for fiscal 1995
on a segment-by-segment basis. This analysis resulted in an equity value
reference range per share of Uniroyal Common Stock of $12.60 to $20.12.
Contribution Analysis. Salomon Brothers compared the relative ownership of
the stockholders of Crompton and the stockholders of Uniroyal of approximately
65% and 35% (based upon an assumed Exchange Ratio of 1.0157), respectively, in
the combined company following consummation of the Merger to the relative
balance sheet and income statement contributions of each of Crompton and
Uniroyal to the combined company to (i) revenue, EBITDA and EBIT (in each case,
based upon projections for 1996 provided by Crompton and Uniroyal management (as
adjusted to reflect certain assumptions of Crompton's management)), (ii) pre-tax
income, net income, funds from operations (net income plus depreciation and
amortization) and free cash flow (funds from operations minus capital
expenditures) (in each case, based upon projections for the 5-year period from
1996 to 2000 provided by Crompton and Uniroyal management (as adjusted to
reflect certain assumptions of Crompton's management)) and (iii) total assets,
net debt and stockholders' equity (in each case, as of December 31, 1995), as
well as certain other combined pro forma balance sheet and operating ratios. No
pro forma adjustments were made for the Merger, and Salomon Brothers assumed
that the Crompton and Uniroyal projections, including the adjustments to the
latter, were accurate. This analysis indicated that, for the year ending
December 1996, Crompton and Uniroyal would contribute approximately 36% and 64%,
respectively, of revenue of the combined company; approximately 28% and 72%,
respectively, of EBITDA of the combined company; approximately 32% and 68%,
respectively, of EBIT of the combined company; approximately 60% and 40%,
respectively, of net income of the combined company; approximately 37% and 63%,
respectively, of the funds from operations of the combined company;
approximately 56% and 44%, respectively, of the free cash flow of the combined
company; approximately 26% and 74%, respectively, of the total assets of the
combined company; and approximately 5% and 95% of the net debt of the combined
company. This analysis also indicted that, for the 5-year period from 1996 to
2000, Crompton and Uniroyal would have contributed in the aggregate over such
period approximately 53% and 47%, respectively, of pre-tax income of the
combined company; approximately 55% and 45%, respectively, of the net income of
the combined company; approximately 36% and 64%, respectively, of the funds from
operations of the combined company; and approximately 48% and 52%, respectively,
of the free cash flow of the combined company. Using the DCF methodology
described above, but applying such methodology to the combined company following
consummation of the Merger and utilizing terminal or exit multiples ranging from
5x to 6x for Uniroyal and from 7x to 9x for Crompton and discount rates of 11.5%
to 12.5%, in the case of Crompton, and 11.0% to 12.0%, in the case of Uniroyal,
Salomon Brothers noted that Crompton and Uniroyal would have contributed
approximately 54% to 57% and 43% to 46%, respectively, of the implied equity
value of the combined company under the Management Case, and approximately 64%
to 70% and 30% to 36%, respectively, under the Adjusted Case.
Pro Forma Combination Analysis. Salomon Brothers reviewed certain pro forma
financial effects resulting from the Merger for the projected 12-month periods
for 1996 through 2000, based upon the Adjusted Case projections. This analysis
was based upon certain assumptions, including an assumed Exchange Ratio of
1.0157, a $0.05 dividend and certain cost savings resulting from the combination
of $3.0 million to $4.0 million per annum for the 5-year period from 1996 to
2000, and that the stand-alone projections provided to Salomon Brothers by
Compton and Uniroyal management, respectively, and the adjustments to the
Uniroyal projections provided to Salomon Brothers by Crompton were accurate.
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This financial analysis indicated that the combined company's 1996, 1997, 1998,
1999 and 2000 projected earnings per share were, respectively, approximately
5.9%, 10.6%, 16.2%, 25.3% and 41.8% higher than the earnings per share projected
for Crompton as a stand-alone entity.
The summary set forth above does not purport to be a complete description of
Salomon Brothers' analyses. The preparation of a fairness opinion is not
susceptible to partial analysis or summary description. Salomon Brothers
believes that its analyses and the summary set forth above must be considered as
a whole and that selecting portions of its analyses and the factors considered
by it, without considering all such analyses and factors, or of the above
summary, without considering all factors and analyses, could create an
incomplete view of the processes underlying the analyses set forth in Salomon
Brothers' presentation to the Crompton Board and its opinion. Salomon Brothers
has not indicated that any of the analyses which it performed had a greater
significance than any other. The ranges of valuations resulting from any
particular analysis described above should not be taken to be the view of
Salomon Brothers of the actual values of Crompton and Uniroyal. In performing
its analyses, Salomon Brothers made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Crompton or Uniroyal. The
analyses performed by Salomon Brothers are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Salomon Brothers' analysis of the fairness to Crompton, from a financial
point of view, of the consideration to be paid to the stockholders of Uniroyal
in connection with the Merger. In addition, analyses relating to value of
businesses do not purport to be appraisals or to reflect the prices at which a
business actually might be sold, or the prices at which a company might actually
be sold, or the prices at which securities might trade at the present time or at
any time in the future.
Salomon Brothers is an internationally recognized investment banking firm
that provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon Brothers regularly engages in the
valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and for
other purposes. The Crompton Board retained Salomon Brothers based on Salomon
Brothers' expertise in the valuation of companies, as well as its familiarity
with Crompton and other chemical companies. Salomon Brothers, in the ordinary
course of its business, may actively trade the securities of Crompton and
Uniroyal for its own account and for the accounts of customers, and,
accordingly, may at any time hold a long or short position in such securities.
Salomon Brothers has in the past rendered and is currently rendering certain
investment banking and financial advisory services to Crompton, for which
Salomon Brothers has received and will receive customary compensation. Salomon
Brothers and Crompton have jointly identified and evaluated a number of
specialty chemical acquisition candidates during the last two years, of which
only Uniroyal has entered into a definitive agreement with Crompton for a
proposed transaction. Other than occasional reimbursement for expenses, Salomon
Brothers has not received any advisory fees from Crompton during the last two
years. Salomon Brothers may continue to provide investment banking and financial
advisory services to Crompton in the future.
Pursuant to a letter agreement, dated January 22, 1996, between Crompton and
Salomon Brothers, Crompton has agreed to pay Salomon Brothers the following cash
fees for the services rendered by Salomon Brothers in connection with the
Merger: (i) $500,000, payable (and heretofore paid) upon execution of the Merger
Agreement; (ii) an additional $6,125,000, payable upon consummation of the
Merger; and (iii) if, following or in connection with the termination or
abandonment of the Merger, Crompton receives a "break-up," "termination,"
"topping" or similar fee or payment (such as the "Termination Fee" that may
become payable to Crompton pursuant to the Merger Agreement under certain
circumstances as described under the caption "The Merger Agreement--Termination;
Effect of Termination"), an additional amount equal to the amount by which any
fee previously paid to Salomon Brothers pursuant to clause (i) above is exceeded
by 25% of the excess, if any, of the aggregate amount
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of all such fees and payments received by Crompton over the direct out-of-pocket
expenses incurred in connection with the Merger. Crompton has also agreed
pursuant to such letter agreement to reimburse Salomon Brothers for all
reasonable fees and disbursements of Salomon Brothers' counsel and all of
Salomon Brothers' reasonable travel and other out-of-pocket expenses incurred in
connection with the Merger or otherwise arising out of Salomon Brothers'
engagement under such letter agreement. Pursuant to an additional letter
agreement, dated January 22, 1996, Crompton has agreed to indemnify and hold
harmless Salomon Brothers and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Salomon
Brothers or any of its affiliates against certain liabilities and expenses,
including liabilities under the federal securities laws, incurred in connection
with its services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Uniroyal's management and the Uniroyal Board may be
deemed to have certain interests in the Merger that are in addition to or
potentially different from the interests of stockholders of Uniroyal generally.
The Uniroyal Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby. In considering the recommendation of the Uniroyal Board in respect of
the Merger Agreement and the transactions contemplated thereby, the Uniroyal
Stockholders should be aware of these interests which may present actual or
potential conflicts of interest with respect to the Merger.
Directorships. The Merger Agreement provides that, immediately after the
Effective Time, Crompton will take such action as may be necessary to cause
Robert J. Mazaika to be elected to the Crompton Board as Vice Chairman, and
Thomas M. Begel and Harry Corless, each currently a director of Uniroyal, to be
elected to the Crompton Board. Upon their election to the Crompton Board,
Messrs. Mazeika, Begel and Corless will receive such benefits and compensation
as the other members of the Crompton Board receive. See "The Merger
Agreement--Representations, Warranties and Covenants."
Indemnification; Directors and Officers Insurance. Pursuant to the Merger
Agreement, Crompton shall, to the fullest extent permitted by applicable law,
indemnify present and former officers, directors, employees, trustees or agents
of Uniroyal or any of its subsidiaries or divisions against all losses, claims,
damages, liabilities, costs or expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation against such persons in such
capacities. Crompton has also agreed to use its reasonable best efforts to cause
Uniroyal to maintain in effect for at least six years after the Effective Time
the current policies of directors' and officers' liability insurance maintained
by Uniroyal with respect to matters occurring prior to the Effective Time,
subject to certain limitations. See "The Merger Agreement--Representations,
Warranties and Covenants."
Employment Agreements. Messrs. Castaldi, Eisenberg, Ingulli, Johnson,
Krakower, Mazaika, Melore, and Stephenson (the "Executive Officers") are parties
to employment agreements (the "Employment Agreements") with Uniroyal. Each such
Employment Agreement continues until the Executive Officer's employment is
terminated by death, disability, by Uniroyal for Cause (as defined in the
Employment Agreement) or by the Executive for Good Reason (as defined in the
Employment Agreement) or otherwise. The Employment Agreements contain customary
employment terms and provide for a base annual salary, bonuses, employee benefit
plan participation, and fringe benefits. If Uniroyal terminates the Executive
Officer's employment in breach of his Employment Agreement or the Executive
Officer terminates his employment for Good Reason, Uniroyal will be required to
pay the Executive Officer an amount equal to the sum of (i) his then current
base salary, accrued to the date of termination, plus any amounts accrued under
any compensation plan of Uniroyal and (ii) a lump sum amount calculated
according to a formula taking into account such factors as his base salary, past
bonus payments and contributions, with respect to the Executive Officer, to any
of Uniroyal's qualified defined contribution plans; multiplied by a number
ranging from one to five, based upon certain circumstances.
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Crompton has confirmed that the Merger will constitute a change in control and
that a termination by any of the Executive Officers within one year of the
Merger without Good Reason will trigger severance becoming due to such Executive
Officer under the applicable Employment Agreement, with a severance multiplier
of one in the case of Messrs. Castaldi, Stephenson and Eisenberg and two in the
case of Messrs. Ingulli, Johnson, Krakower, Mazaika and Melore. If the Executive
Officer becomes entitled to any payment or benefit whether pursuant to the terms
of his Employment Agreement or any other plan, arrangement or agreement with
Uniroyal (or any person whose actions result in a subsequent change in control
or any person affiliated with Uniroyal or such person) in connection with any
termination of the Executive Officer's employment within one year following a
change of control (all such payments being called, collectively, the "Severance
Payment") which is subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code, Uniroyal will pay the Executive Officer an additional amount such
that the net amount retained by the Executive Officer after deduction of any
Excise Tax and any federal and state and local income tax upon such additional
payment shall be equal to the Severance Payment.
It is anticipated that Messrs. Castaldi, Krakower, Mazaika, and Melore will
terminate their employment with Uniroyal upon the Merger, which terminations
will be treated as being for Good Reason under the respective Employment
Agreements. The parties have agreed that these terminations will trigger
severance payments becoming due pursuant to the respective Employment Agreements
and Supplemental Executive Retirement Agreements and pro rata bonus payments
becoming due under an agreement between Crompton and Uniroyal, the respective
aggregates of which payments, at an assumed termination date of August 1, 1996,
are equal in amount to $2,484,552, $3,445,532, $14,225,336 and $2,546,317 for
Messrs. Castaldi, Krakower, Mazaika and Melore, respectively. These amounts
include any amounts required to compensate for any Excise Tax, discussed above.
The calculated amounts will be increased as necessary to take into account the
actual date of termination. Certain post-termination welfare benefits will be
provided in accordance with the Employment Agreements and the Uniroyal benefit
plans and arrangements.
Messrs. Eisenberg, Ingulli, Johnson, and Stephenson have agreed in principle
with Crompton to enter into amendments to their current employment agreements
with Uniroyal to provide, among other things, for the following: a sign-on bonus
payable on the Effective Time, based on the Executive Officer's base salary and
recent bonuses (which is estimated to be approximately $365,800, $914,700,
$746,134 and $355,750 for Messrs. Eisenberg, Ingulli, Johnson and Stephenson,
respectively); fully vested participation in Crompton's Supplemental Executive
Retirement Plan (which constitutes accelerated vesting for Messrs. Eisenberg and
Stephenson); participation in Crompton's annual bonus plan on a basis no less
favorable than similarly situated Crompton executives; a severance payment if
employment is terminated under certain circumstances within the first two years
after the Merger equal to the severance payment contained in his current
Employment Agreement minus the sign-on bonus paid to the Executive Officer;
stock options for 100,000 shares of Crompton Common Stock (options for 80,000
shares in the case of Mr. Johnson), vesting over a five-year period; grants of
restricted stock under the Crompton 1988 LTI Plan for the 1996-1998 Performance
Period comparable to similarly situated Crompton executives; and for Messrs.
Eisenberg and Stephenson, a doubling of their severance payment for certain
terminations.
Uniroyal Option Plans. As described below, Uniroyal maintains for the
benefit of the members of the Uniroyal Board and its executive officers (as well
as other key employees) certain benefit plans or arrangements that will become
operative upon a change in control of Uniroyal.
Options to purchase Uniroyal Common Stock granted under the Stock Option
Plan will become fully exercisable upon the Merger. Messrs. Eisenberg, Ingulli,
Krakower, Johnson, Mazaika, Melore and Stephenson hold options to purchase
93,184, 172,933, 124,541, 208,062, 438,720, 71,823 and 57,141 shares of Uniroyal
Common Stock, half of which are currently exercisable and the balance of which
would have become exercisable in November, 1996. Mr. Castaldi holds options to
purchase 150,000 shares of Uniroyal Common Stock, one-third of which are
currently exercisable and one-third of which would have become exercisable on
each of June 30, 1997 and June 30, 1998. Messrs. Begel,
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Bernhard, Corless and Kolton each hold options to purchase 16,000 shares of
Uniroyal Common Stock, 13,000 of which are currently exercisable, 1,000 of which
would have been exercisable in September, 1996, 1,000 of which would have been
exercisable in March, 1997 and 1,000 of which would have been exercisable in
March 1998. The potential realizable value of Messrs. Eisenberg's, Ingulli's,
Krakower's, Johnson's, Mazaika's, Melore's, Stephenson's, Castaldi's, Begel's,
Bernhard's, Corless' and Kolton's options which become exercisable upon the
Merger is approximately $174,720, $324,251, $233,516, $390,116, $822,600,
$134,670, $107,141, $390,625, $14,500, $14,500, $14,500 and $14,500,
respectively, calculated, for each such option, by subtracting the exercise
price of such option from $15, the per share valuation of Uniroyal Common Stock.
Pursuant to the terms of the Merger Agreement, all such options will be
converted into options with respect to Crompton Common Stock. Under the Restated
Purchase Right Plan, Messrs. Eisenberg, Ingulli, Krakower, Johnson, Mazaika,
Melore and Stephenson hold fully exercisable rights to purchase 34,709, 73,728,
56,397, 81,159, 165,397, 33,379 and 22,520 shares of Uniroyal Common Stock.
These purchase rights will, pursuant to the terms of the Merger Agreement, be
converted into options with respect to Crompton Common Stock. See "The Merger
Agreement--Exchange Procedures" and "The Merger Agreement--Uniroyal Stock
Options and Warrants."
Uniroyal Benefit Plans. Pursuant to the Merger Agreement, Crompton has
agreed to provide, for at least two years after the Effective Time, benefits to
the employees of Uniroyal and its subsidiaries that are no less favorable, in
the aggregate, as those provided to such employees immediately prior to the date
of the Merger Agreement. Crompton has also agreed that for purposes of
determining eligibility and vesting under its benefit and compensation plans,
non-unionized employees of Uniroyal and its subsidiaries (including the
Executive Officers) will be credited for all prior service with Uniroyal and its
subsidiaries, affiliates and predecessors. See "The Merger Agreement--Employee
Benefits."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for accounting
and financial reporting purposes. Consummation of the Merger is conditioned
upon, among other things, Crompton's receipt of a letter, in form and substance
reasonably satisfactory to Crompton, from KPMG Peat Marwick LLP, independent
certified public accountants of Crompton, confirming at the Effective Time its
letter dated the date of this Joint Proxy Statement/Prospectus to the effect
that the Merger will qualify as a pooling-of-interests for accounting and
financial reporting purposes under Opinion 16 of the Accounting Principles
Board, and Uniroyal's receipt of a letter, in form and substance reasonably
satisfactory to Uniroyal, from Deloitte & Touche LLP, independent auditors of
Uniroyal, confirming at the Effective Time its letter dated the date of this
Joint Proxy Statement/Prospectus to the same effect.
Under the pooling-of-interests method of accounting, the recorded assets and
liabilities of Crompton and Uniroyal will be carried forward to the combined
company at their historical recorded amounts subject to any adjustments required
to conform accounting policies of the two companies, income of the combined
company will include income of Uniroyal and Crompton for the entire fiscal year
in which the Merger occurs, and the reported income of the separate companies
for previous periods will be combined and restated as income of the combined
company. See "The Merger Agreement--Conditions" and "Unaudited Pro Forma
Financial Information."
It is a condition to the obligations of each of Uniroyal and Crompton to
consummate the Merger that such party obtain written undertakings ("Affiliate
Letters") at least 35 days prior to the other party's Special Meeting from each
person who may be at the Effective Time or was on the date of the Merger
Agreement an "affiliate" of the other party within the meaning of Rule 145 under
the Securities Act to the effect that, among other things, such person will not
sell, transfer or otherwise dispose of, or direct or cause the sale, transfer or
other disposition of, any shares of Uniroyal Common Stock or Crompton Common
Stock, or any securities exercisable, exchangeable or convertible therefor,
beneficially owned thereby during the 30 days prior to the Effective Time and
will not sell, transfer or
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otherwise dispose of, or direct or cause the sale, transfer or other disposition
of, any Crompton Common Stock, Crompton Exchange Options, or any securities
exercisable, exchangeable or convertible therefor, beneficially owned thereby as
a result of the Merger or otherwise until after such time as Crompton shall have
publicly released a report in the form of a quarterly earnings report,
registration statement filed with the Commission, a report filed with the
Commission or any other public filing, statement or announcement which includes
the combined financial results of Crompton and Uniroyal for a period of at least
30 days of combined operations of Crompton and Uniroyal following the Effective
Time. See "The Merger Agreement--Conditions."
REGULATORY APPROVALS
Under the HSR Act and the rules that have been promulgated thereunder by the
FTC, the Merger may not be consummated unless certain filings have been
submitted to the Antitrust Division and the FTC and certain waiting period
requirements have been satisfied. On May 14, 1996, Crompton and Uniroyal
submitted the required filings to the FTC and the Antitrust Division. On June
13, 1996, the applicable waiting period expired without the Antitrust Division
or FTC taking any action.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the consummation of the Merger, the Antitrust Division or the FTC could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the consummation of the Merger
or seeking the divestiture of substantial assets of Uniroyal or Crompton.
Uniroyal and Crompton believe that the consummation of the Merger will not
violate the antitrust laws. There can be no assurance, however, that a challenge
to the Merger on antitrust grounds will not be made, or, if such a challenge is
made, what the result will be.
Other than as described in this Joint Proxy Statement/Prospectus,
consummation of the Merger does not require the approval of any United States
Federal or state agency.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Crompton Common Stock issued in connection with the Merger
will be freely transferable, except that any shares of Crompton Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Crompton or Uniroyal prior to the Merger may be
sold by them only in transactions permitted by the resale provisions of Rule 145
under the Securities Act with respect to affiliates of Uniroyal, or Rule 144
under the Securities Act with respect to persons who are or become affiliates of
Crompton, or as otherwise permitted under the Securities Act. Persons who may be
deemed to be affiliates of Crompton or Uniroyal generally include individuals or
entities that control, are controlled by or are under common control with, such
person and generally include the executive officers and directors of such person
as well as principal stockholders of such person.
Affiliates of Uniroyal prior to the Merger (each a "Uniroyal Affiliate") may
not sell their shares of Crompton Common Stock acquired in connection with the
Merger, except pursuant to an effective registration under the Securities Act
covering such shares or in compliance with Rule 145 under the Securities Act or
another applicable exemption from the registration requirements of the
Securities Act. In general, Rule 145 under the Securities Act provides that a
Uniroyal Affiliate (together with certain related persons) would be entitled to
sell shares of Crompton Common Stock acquired in connection with the Merger only
through unsolicited "broker transactions" or in transactions directly with a
"market maker," as such terms are defined in Rule 144. Additionally, the number
of shares to be sold by a Uniroyal Affiliate (together with certain related
persons and certain persons acting in concert) within any three-month period for
purposes of Rule 145 under the Securities Act may not exceed the greater of 1
percent of the outstanding shares of Crompton Common Stock or the average weekly
trading volume of such shares during the four calendar weeks preceding such
sale. Rule 145 under the
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Securities Act will remain available to Uniroyal Affiliates if Crompton remains
current with its informational filings with the Commission under the Exchange
Act. Two years after the Effective Time, a Uniroyal Affiliate will be able to
sell such shares of Crompton Common Stock without being subject to such manner
of sale or volume limitations provided that Crompton is current with its
Exchange Act informational filings and such affiliate is not then an affiliate
of Crompton. Three years after the Effective Time, a Uniroyal Affiliate will be
able to sell such shares of Crompton Common Stock without any restrictions so
long as such affiliate had not been an affiliate of Crompton for at least three
months prior to the date of such sale. See "The Merger--Accounting Treatment."
UNIROYAL RIGHTS AGREEMENT AMENDMENT
In connection with the execution of the Merger Agreement, Uniroyal and the
Rights Agent executed the Rights Agreement Amendment, amending the Uniroyal
Rights Agreement so as to provide that none of Crompton and its affiliates will
become an "Acquiring Person" (as such term is defined in the Uniroyal Rights
Agreement) as a result of the execution of the Merger Agreement or the
consummation of the Merger pursuant to the terms thereof. Uniroyal has also
represented and warranted under the Merger Agreement that it has taken or will
take all action necessary, if any, in respect of the Uniroyal Rights Agreement
so as to provide that none of Crompton and its affiliates will become an
"Acquiring Person" and that no "Stock Acquisition Date," "Distribution Date" or
"Triggering Event" (as such terms are defined in the Uniroyal Rights Agreement)
will occur as a result of the execution of the Merger Agreement or the
consummation of the Merger pursuant thereto or the acquisition or transfer of
shares of Uniroyal Common Stock by Crompton. Further, Uniroyal has agreed under
the Merger Agreement that, during the period from the date thereof to the
Effective Time, Uniroyal will not, without the prior written consent of
Crompton, take any action that would reasonably be expected to result in the
representations and warranties regarding the Uniroyal Rights Agreement set forth
above becoming false or inaccurate, or to otherwise terminate, amend, modify or
make inapplicable as to any person or entity, the Uniroyal Rights Agreement or
redeem the rights issued thereunder. See "Comparison of Stockholder
Rights--Right Agreements."
The foregoing is a summary of the material provisions of the Rights
Agreement Amendment, a copy of which is filed as an exhibit to the Registration
Statement. See "Available Information." This summary is qualified in its
entirety by reference to the Rights Agreement Amendment which is incorporated
herein by this reference.
CERTAIN LITIGATION
Crompton, Uniroyal and the directors of Uniroyal have been 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 alleges,
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 is brought on
behalf of a purported class of persons consisting of the stockholders of
Uniroyal other than defendants. As relief, the Stockholder Action seeks, among
other things, an order enjoining consummation of the proposed Merger, or, in the
event it is consummated, rescission of the Merger, or an award of "rescissory or
compensatory damages" in an unspecified amount. The time for defendants to move
or answer has not yet elapsed. Defendants believe that the Stockholder Action is
without merit.
UNIROYAL STOCKHOLDERS SHOULD NOTE THE FOLLOWING. In the course of the
litigation, the defendants may raise as a defense to any claims asserted in the
Stockholder Action the circumstance that the Merger Proposal was approved and
ratified, upon full disclosure, by the requisite vote of the Uniroyal
Stockholders, if such is the case. Further, the defendants may contend that
those Uniroyal Stockholders who vote in favor of the Merger Proposal are barred
from receiving any proceeds from any potential award against the defendants in
the litigation, unless such award is based on a finding that the defendants
failed to make full disclosure in connection with the vote of Uniroyal
Stockholders.
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THE MERGER AGREEMENT
The following is a summary of material provisions of the Merger Agreement, a
copy of which is attached as Annex A to this Joint Proxy Statement/Prospectus.
This summary is qualified in its entirety by reference to the Merger Agreement
which is incorporated herein by this reference.
THE MERGER
The Merger Agreement provides that Subcorp will be merged with and into
Uniroyal as a result of which Uniroyal as the Surviving Corporation will become
a wholly owned subsidiary of Crompton, subject to the requisite approvals of
Crompton Stockholders and Uniroyal Stockholders and the satisfaction or waiver
of the other conditions to the Merger. The Merger will become effective at the
Effective Time upon the filing of a duly executed certificate of merger with the
Delaware Secretary of State or at such later time as shall be specified in the
certificate of merger. This filing is to be made on the Closing Date specified
by Crompton and Uniroyal, which date will be as soon as practicable, but in any
event within ten business days, following the date upon which all conditions set
forth in the Merger Agreement have been satisfied or waived, as the case may be,
or such other time as the parties may mutually agree. It is currently
anticipated that the Effective Time will occur shortly after the later of the
date of the Uniroyal Special Meeting and the date of the Crompton Special
Meeting assuming the Merger Agreement and the Merger are approved at such
meetings and all other conditions to the Merger have been satisfied or waived.
MERGER CONSIDERATION
Exchange Ratio. Upon consummation of the Merger pursuant to the Merger
Agreement, (i) each share of Uniroyal Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares, if any, held in the
treasury of Uniroyal or held by Crompton or any of its subsidiaries, which will
be cancelled) will be converted into and represent a number of shares of
Crompton Common Stock equal to the Exchange Ratio (as calculated below), and
(ii) each share of Uniroyal Preferred Stock issued and outstanding immediately
prior to the Effective Time (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) will be converted into and represent shares of Crompton
Common Stock (calculated by multiplying the Exchange Ratio by 6.667). On July
, 1996, pursuant to the Merger Agreement, the Exchange Ratio of was
calculated by Crompton and Uniroyal, with the consultation of their respective
financial and legal advisors, by dividing $15.00 by the Acquiror Transaction
Value, and rounding to four decimal places; provided, however, that
notwithstanding the foregoing, the Exchange Ratio could not be less than 0.9091
nor more than 1.1111. The Acquiror Transaction Value was $ . In the
event that prior to the Effective Time Crompton declares a stock dividend or
other distribution payable in shares of Crompton Common Stock or securities
convertible into shares of Crompton Common Stock, or effects a stock split,
reclassification, combination or other change with respect to Crompton Common
Stock, the Exchange Ratio will be adjusted to reflect such dividend,
distribution, stock split, reclassification, combination or other change.
Fractional Shares. No certificates for fractional shares of Crompton Common
Stock will be issued in the Merger, and to the extent that an outstanding share
of Uniroyal Common Stock or Uniroyal Preferred Stock would otherwise have become
a fractional share of Crompton Common Stock, the holder thereof, upon
presentation of such fractional interest represented by an appropriate
certificate for Uniroyal Common Stock or Uniroyal Preferred Stock to the
Exchange Agent as described under "Exchange Procedures" below, will be entitled
to receive a cash payment therefor in an amount equal to the value (determined
with reference to the closing price of Crompton Common Stock on the NYSE
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Composite Tape on the last full trading day immediately prior to the Effective
Time) of such fractional interest.
Conversion of Subcorp Common Stock. Each share of common stock, par value
$0.01 per share, of Subcorp issued and outstanding immediately prior to the
Effective Time will be converted into one share of common stock, par value $0.01
per share, of Uniroyal as the Surviving Corporation. Such newly issued shares
will thereupon constitute all of the issued and outstanding capital stock of the
Surviving Corporation.
EXCHANGE PROCEDURES
HOLDERS OF UNIROYAL COMMON STOCK AND HOLDERS OF UNIROYAL PREFERRED STOCK
SHOULD NOT SEND IN THEIR UNIROYAL STOCK CERTIFICATES UNTIL THEY RECEIVE A LETTER
OF TRANSMITTAL.
Promptly and, in any event, within three business days after the Effective
Time, a letter of transmittal will be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Uniroyal Common Stock or
Uniroyal Preferred Stock whose shares were converted into the right to receive
shares of Crompton Common Stock. This letter of transmittal must be used in
forwarding Certificates for surrender in exchange for certificates evidencing
shares of Crompton Common Stock to which a holder of shares of Uniroyal Common
Stock or Uniroyal Preferred Stock prior to the Effective Time has become
entitled and, if applicable, cash in lieu of any fractional share of Crompton
Common Stock. Such letters of transmittal will be accompanied by instructions
specifying other details of the exchange. After receipt of such letter of
transmittal, each holder of Certificates should surrender such Certificates to
Chemical Mellon Shareholder Services, the Exchange Agent for the Merger,
pursuant to and in accordance with the instructions accompanying such letter of
transmittal, and each such holder will receive in exchange therefor a
certificate evidencing the whole number of shares of Crompton Common Stock to
which such holder is entitled and a check representing the amount of cash
payable in lieu of any fractional share of Crompton Common Stock, if any, and
unpaid dividends and distributions, if any, which such holder has the right to
receive pursuant to the Merger Agreement, after giving effect to any required
withholding tax. No interest will be paid or accrued on the cash in lieu of
fractional shares, if any, and unpaid dividends and distributions, if any,
payable to holders of Certificates.
After the Effective Time, each Certificate, until so surrendered and
exchanged, will be deemed, for all purposes, to represent only the right to
receive upon surrender a certificate representing shares of Crompton Common
Stock and cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, as provided above. The holder of such unexchanged
Certificates will not be entitled to receive any dividends or other
distributions declared or made by Crompton having a record date after the
Effective Time until the Certificate is surrendered. Subject to applicable laws,
upon surrender of such unexchanged Certificates, such dividends and
distributions, if any, will be paid without interest and less the amount of any
withholding taxes which may be required thereon.
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Merger Agreement contains various representations, warranties and
covenants of Crompton, Subcorp and Uniroyal. The representations and warranties
made by the parties in the Merger Agreement will not survive the Effective Time,
although it is a condition of each party's obligations under the Merger
Agreement that the other parties' representations and warranties be true and
correct on and as of the Closing Date (except for those made as of a specified
time), except for such inaccuracies which have not had and would not reasonably
be expected to have in the reasonably foreseeable future a material adverse
effect on the representing or warranting party.
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Pursuant to the Merger Agreement, each of Crompton and Uniroyal has agreed
that it will (i) use its reasonable efforts to take all action and to do all
things necessary, proper or advisable to consummate the Merger and the
transactions contemplated by the Merger Agreement (including, without
limitation, satisfying their respective conditions precedent to the Merger);
(ii) file any Notification and Report Forms and related material required to be
filed by it with the FTC and the Antitrust Division under the HSR Act with
respect to the Merger (which filings required to date have been made), use its
reasonable efforts to obtain an early termination of the applicable waiting
period and promptly make any further filings pursuant thereto that may be
necessary, proper or advisable, provided that neither Crompton nor any of its
subsidiaries will be required under the Merger Agreement to divest or hold
separate any portion of their business or assets; (iii) use its reasonable
efforts to take any additional action that may be necessary, proper or advisable
in connection with any other notices to, filings with, and authorizations,
consents and approvals of any governmental authority that it may be required to
give, make or obtain; (iv) permit representatives of the other party to have
appropriate access at all reasonable times to its premises, properties, books,
records, contracts, tax records, documents, customers and suppliers; (v) unless
otherwise required by applicable laws or requirements of the National
Association of Securities Dealers or the NYSE (and in that event only if time
does not permit), at all times prior to the earlier of the Effective Time or
termination of the Merger Agreement pursuant to its terms, to consult with the
other before issuing any press release with respect to the Merger and not to
issue any such press release prior to such consultation; and (vi) use its best
efforts to cause the Merger to qualify for pooling-of-interests accounting
treatment for financial reporting purposes and to constitute a tax free
"reorganization" under Section 368(a) of the Code and to permit the respective
legal counsel of each of Crompton and Uniroyal to issue its opinion to that
effect.
Crompton covenants in the Merger Agreement (i) to take all action in
accordance with applicable laws and the Crompton Articles and Crompton By-Laws
necessary to convene a meeting of Crompton Stockholders as promptly as
practicable to consider and vote upon the approval of the Merger, the Merger
Agreement and the transactions contemplated thereby; (ii) to cooperate with
Uniroyal to, and to, prepare and file this Joint Proxy Statement/Prospectus with
the Commission on a confidential basis as soon as is reasonably practicable, to
cooperate with Uniroyal to, and to, prepare and file the Registration Statement
with the Commission as soon as is reasonably practicable following clearance of
this Joint Proxy Statement/Prospectus by the Commission and to cooperate with
Uniroyal to, and to, use all reasonable efforts to have the Registration
Statement be declared effective by the Commission as promptly as practicable, to
maintain the effectiveness of the Registration Statement through the Effective
Time, to cooperate with Uniroyal to, and to, take such other reasonable actions
(other than qualifying to do business in any jurisdiction in which it is not so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of shares of Crompton Common Stock in the Merger,
to use all reasonable efforts to mail at the earliest practicable date to
Crompton Stockholders this Joint Proxy Statement/Prospectus, which shall include
all information required under applicable laws to be furnished to Crompton
Stockholders in connection with the Merger and the transactions contemplated
thereby, and to advise Uniroyal promptly after it receives notice of (A) the
Registration Statement being declared effective or any supplement or amendment
thereto being filed with the Commission, (B) the issuance of any stop order in
respect of the Registration Statement, and (C) the receipt of any
correspondence, comments or requests from the Commission in respect of the
Registration Statement; (iii) during the period from the date of the Merger
Agreement to the Effective Time, and except as set forth in the Merger
Agreement, to conduct its operations in the ordinary course except as expressly
contemplated by the Merger Agreement and the transactions contemplated thereby,
and to use its reasonable efforts to maintain and preserve its business
organization and its material rights and franchises and to retain the services
of its officers and key employees and maintain relationships with customers,
suppliers and other third parties to the end that their goodwill and ongoing
business shall not be impaired in any material respect; (iv) from and after the
Effective Time, to cause the Surviving Corporation to indemnify and hold
harmless to the fullest extent permitted under applicable law each person who is
as of the date of the Merger Agreement, or has been at any time prior
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to such date, an officer, director, employee, trustee or agent of Uniroyal (or
any subsidiary or division thereof), including, without limitation, each person
controlling any of the foregoing persons (individually, an "Indemnified Party"
and collectively, the "Indemnified Parties"), against all losses, claims,
damages, liabilities, costs or expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation arising out of or pertaining to acts
or omissions, or alleged acts or omissions, by them in their capacities as such,
whether commenced, asserted or claimed before or after the Effective Time and
including, without limitation, liabilities arising under the Securities Act, the
Exchange Act and state corporation laws in connection with the Merger, to cause
the Surviving Corporation to keep in effect Uniroyal's current provisions in the
Uniroyal Certificate and Uniroyal Bylaws providing for exculpation of director
and officer liability and indemnification of the Indemnified Parties to the
fullest extent permitted under the DGCL, which provisions will not be amended
except as required by applicable law or except to make changes permitted by law
that would enlarge the Indemnified Parties' right of indemnification, and, in
the event of any actual or threatened claim, action, suit, proceeding or
investigation in respect of such acts or omissions, to cause the Surviving
Corporation to pay the reasonable fees and expenses of counsel selected by the
indemnified party, which counsel shall be reasonably acceptable to Crompton, in
advance of the final disposition of any such action to the full extent permitted
by applicable law, upon receipt of any undertaking required by applicable law,
and to cause the Surviving Corporation to cooperate in the defense of any such
matter; provided, however, that the Surviving Corporation will not be liable for
any settlement effected without its written consent (which consent shall not be
unreasonably withheld); (v) to use its reasonable best efforts to cause the
Surviving Corporation to maintain in effect for not less than six years after
the Effective Time the current policies of directors' and officers' liability
insurance maintained by Uniroyal with respect to matters occurring prior to the
Effective Time; provided, however, that the Surviving Corporation may substitute
therefor policies of at least the same coverage containing terms and conditions
which are no less advantageous to the covered officers and directors and that
the Surviving Corporation will not be required to pay an annual premium for such
insurance coverage in excess of four times the current annual premium paid by
Uniroyal for its existing coverage, but in such case shall purchase as much
coverage as possible for such amount; (vi) for a period of two years from and
after the Effective Time, to cause the Surviving Corporation or its subsidiaries
to provide for the benefit of employees of the Surviving Corporation or its
subsidiaries benefits that are no less favorable, in the aggregate, as those
provided to employees of Uniroyal or its subsidiaries immediately prior to the
date of the Merger Agreement; (vii) if any "Employee" (as defined in the Merger
Agreement) of Uniroyal or a Uniroyal subsidiary becomes a participant in any
employee benefit or compensation plan of Crompton, a Crompton subsidiary (other
than the Surviving Corporation) or a Crompton affiliate, to give such Employee
credit under such plan for all service with Uniroyal and its subsidiaries,
affiliates and predecessors which is recognized by Uniroyal and is rendered
prior to the time the Employee becomes such a participant, solely for purposes
of determining eligibility and vesting (but not for benefit accrual or any other
purposes); provided, however, such service need not be credited to the extent it
would result in a duplication of benefits, including, without limitation,
benefit accrual service under defined benefit plans; (viii) to the extent
employee benefit plans of Crompton or its subsidiaries or affiliates provide
medical or dental welfare benefits to Employees or "Former Employees" (as
defined in the Merger Agreement) of Uniroyal or a Uniroyal subsidiary after the
Effective Time, to provide that such plans waive any preexisting conditions and
actively-at-work exclusions and provide that any expenses incurred on or before
the Effective Time shall be taken into account under such plans for purposes of
satisfying applicable deductible, coinsurance and maximum out-of-pocket
provisions; (ix) to cause the Surviving Corporation and its subsidiaries to
honor all Uniroyal's existing agreements with any Employee or Former Employee
and to make severance payments to certain executive officers of Uniroyal; and
(x) to give prompt notice to Uniroyal of (A) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would cause any Crompton or
Subcorp representation or warranty contained in the Merger Agreement to be
untrue or inaccurate at or prior to the Effective Time and (B) any material
failure of Crompton to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under the Merger Agreement;
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(xi) to, as soon as practicable following the date of the Merger Agreement,
prepare and submit to the NYSE a listing application covering the shares of
Crompton Common Stock issuable in the Merger, and to use its reasonable best
efforts to obtain, prior to the Effective Time, approval for the listing of such
shares of Crompton Common Stock, subject to official notice of issuance; (xii)
immediately after the Effective Time, to take such action as may be necessary to
cause (A) Robert J. Mazaika, Uniroyal's Chairman, President and Chief Executive
Officer, to be elected to the Board of Directors of Crompton as Crompton's "Vice
Chairman," (B) Thomas M. Begel, a director of Uniroyal, to be elected to the
Board of Directors of Crompton and (C) Harry Corless, a director of Uniroyal, to
be elected to the Board of Directors of Crompton, each of the foregoing to be
elected to a different class of the Crompton Board; and (xiii) to use its
reasonable best efforts to cause each such person who may be at the Effective
Time or was on the date of the Merger Agreement an "affiliate" of Crompton
within the meaning of Rule 145 under the Securities Act, to execute and deliver
to Uniroyal no less than 35 days prior to the date of the Crompton Special
Meeting written undertakings in the form reasonably acceptable to Uniroyal.
Uniroyal covenants in the Merger Agreement (i) to take all action in
accordance with applicable laws and the Uniroyal Certificate and Uniroyal Bylaws
necessary to convene a meeting of Uniroyal Stockholders as promptly as
practicable to consider and vote upon the approval of the Merger, the Merger
Agreement and the transactions contemplated thereby; (ii) (A) to promptly
furnish Crompton with all information concerning Uniroyal as may be required for
inclusion in the Registration Statement, (B) to cooperate with Crompton in the
preparation of the Registration Statement in a timely fashion and use all
reasonable efforts to have the Registration Statement declared effective by the
Commission as promptly as practicable, (C) if at any time prior to the Effective
Time, any information pertaining to Uniroyal contained in or omitted from the
Registration Statement makes such statements contained in the Registration
Statement false or misleading, to promptly so inform Crompton and provide
Crompton with the information necessary to make statements contained therein not
false and misleading, (D) to use all reasonable efforts to cooperate with
Crompton in the preparation and filing of this Joint Proxy Statement/Prospectus
with the Commission on a confidential basis, and (E) to use all reasonable
efforts to mail at the earliest practicable date to Uniroyal Stockholders this
Joint Proxy Statement/Prospectus, which shall include all information required
under applicable laws to be furnished to Uniroyal Stockholders in connection
with the Merger and the transactions contemplated thereby; (iii) during the
period from the date of the Merger Agreement to the Effective Time, to conduct
its operations in the ordinary course except as expressly contemplated by the
Merger Agreement and the transactions contemplated thereby and use its
reasonable efforts to maintain and preserve its business organization and its
material rights and franchises and to retain the services of its officers and
key employees and maintain relationships with customers, suppliers and other
third parties to the end that their goodwill and ongoing business shall not be
impaired in any material respect; (iv) to use its reasonable best efforts to
cause each such person who may be at the Effective Time or was on the date of
the Merger Agreement an "affiliate" of Uniroyal within the meaning of Rule 145
under the Securities Act, to execute and deliver to Crompton no less than 35
days prior to the date of the Uniroyal Special Meeting written undertakings in
the form reasonably acceptable to Crompton; (v) to give prompt notice to
Crompton of (A) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any Uniroyal representation or warranty
contained in the Merger Agreement to be untrue or inaccurate at or prior to the
Effective Time and (B) any material failure of Uniroyal to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it thereunder; and (vi) prior to the Closing and with the participation of
Crompton, to use its best efforts to enter into amendments (reasonably
satisfactory to Crompton) to the existing employment agreements of Alfred F.
Ingulli, Eric W. Johnson, William A. Stephenson and Joseph B. Eisenberg to
reflect the amendments described under the caption "The Merger--Interests of
Certain Persons in the Merger."
Uniroyal also covenants in the Merger Agreement that, during the period from
the date of the Merger Agreement to the Effective Time or the earlier
termination of the Merger Agreement pursuant to its terms, Uniroyal will not,
except as otherwise expressly contemplated by the Merger Agreement
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and the transactions contemplated thereby or as set forth therein, without the
prior written consent of Crompton: (i) do or effect any of the following actions
with respect to its securities: (A) adjust, split, combine or reclassify its
capital stock, (B) make, declare or pay any dividend or distribution on, or
directly or indirectly redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock (except in connection with the use of shares
of capital stock of Uniroyal to pay the exercise price or tax withholding in
connection with stock-based employee benefit plans of Uniroyal or any of its
subsidiaries), (C) grant any person any right or option to acquire any shares of
its capital stock, (D) issue, deliver or sell or agree to issue, deliver or sell
any additional shares of its capital stock or any securities or obligations
convertible into or exchangeable or exercisable for any shares of its capital
stock or such securities (except pursuant to the exercise of outstanding
warrants, options or rights to purchase Uniroyal Common Stock), or (E) enter
into any agreement, understanding or arrangement with respect to the sale or
voting of its capital stock; (ii) sell, transfer, lease, pledge, mortgage,
encumber or otherwise dispose of any of its property or assets which are
material, individually or in the aggregate, other than in the ordinary course of
business consistent with past practice; (iii) make or propose any changes in the
Uniroyal Certificate, Uniroyal Bylaws or other organizational documents; (iv)
merge or consolidate with any other person or acquire a material amount of
assets or capital stock of any other person or enter into any confidentiality
agreement with any person, other than in connection with the Merger Agreement
and the transactions contemplated thereby; (v) incur, create, assume or
otherwise become liable for indebtedness for borrowed money, other than in the
ordinary course of business consistent with past practice, or assume, guarantee,
endorse or otherwise as an accommodation become responsible or liable for
obligations of any other individual, corporation or other entity, other than in
the ordinary course of business consistent with past practice; (vi) enter into
or modify any employment, severance, termination or similar agreements or
arrangements with, or grant any bonuses, salary increases, severance or
termination pay to, any officer, director, consultant or employee other than
salary increases and bonuses granted in the ordinary course of business
consistent with past practice, or otherwise increase the compensation or
benefits provided to any officer, director, consultant or employee except as may
be required by applicable law, the Merger Agreement, any applicable collective
bargaining agreement or a binding written contract in effect on the date of the
Merger Agreement; (vii) change its method of doing business or change any method
or principle of accounting in a manner that is inconsistent with past practice;
(viii) settle any actions, whether pending as of the date of the Merger
Agreement or thereafter made or brought involving an amount in excess of
$250,000; (ix) modify, amend or terminate, or waive, release or assign any
material rights or claims with respect to, any material contract to which
Uniroyal is a party or any confidentiality agreement to which Uniroyal is a
party; (x) incur or commit to any capital expenditures, obligations or
liabilities in respect thereof, other than in the ordinary course of business
consistent with past practice; (xi) take any action to exempt under or make not
subject to (A) Section 203 of the DGCL or (B) any other state takeover law or
state law that purports to limit or restrict business combinations or the
ability to acquire or vote shares, any person or entity (other than Crompton or
its subsidiaries) or any action taken thereby, which person, entity or action
would have otherwise been subject to the restrictive provisions thereof and not
exempt therefrom; (xii) take any action that would reasonably be expected to
result in the representations and warranties set forth in the Merger Agreement
regarding actions to be taken by Uniroyal in respect of the Rights Agreement
becoming false or inaccurate, or to otherwise terminate, amend, modify or make
inapplicable as to any person or entity, the Rights Agreement or redeem the
Rights issued thereunder; (xiii) permit or cause any subsidiary to do any of the
foregoing or agree or commit to do any of the foregoing; or (xiv) agree in
writing or otherwise to take any of the foregoing actions.
NO NEGOTIATION OR SOLICITATION
Pursuant to the Merger Agreement, each of Uniroyal and Crompton agreed that,
during the term of the Merger Agreement, it will not, and will not authorize or
permit any of its subsidiaries or any of its or its subsidiaries' directors,
officers, employees, agents or representatives, directly or indirectly, to (i)
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solicit, initiate, encourage or facilitate, or furnish or disclose non-public
information in furtherance of, any inquiries or the making of any proposal with
respect to any recapitalization, merger, consolidation or other business
combination involving it, or acquisition of any of its capital stock or any
material portion of its assets (except as set forth in the Merger Agreement and
except for acquisition of assets in the ordinary course of business consistent
with past practice), or any combination of the foregoing (a "Competing
Transaction"), (ii) negotiate, explore or otherwise engage in discussions with
any person (other than the other party or such other party's directors,
officers, employees, agents and representatives) with respect to any Competing
Transaction or (iii) enter into any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to consummate the Merger or any other
transactions contemplated by the Merger Agreement; provided that it may (i)
furnish information to, and negotiate or otherwise engage in discussions with,
any party who delivers a written proposal for a Competing Transaction if and so
long as its Board of Directors determines in good faith by a majority vote,
based upon advice of its outside legal counsel, that failing to take such action
would reasonably be expected to constitute a breach of the fiduciary duties of
the Board and determines in good faith by a majority vote that such a proposal
is more favorable to its stockholders in the aggregate and from a financial
point of view than the transactions contemplated by the Merger Agreement
(including any adjustment to the terms and conditions of such transactions
proposed by the other party in response to such Competing Transaction) and (ii)
take a position with respect to the Merger or a Competing Transaction, or amend
or withdraw such position, in compliance with Rule 14d-9 or Rule 14e-2
promulgated under the Exchange Act with regard to a Competing Transaction.
Further, pursuant to the Merger Agreement each of Uniroyal and Crompton agreed
to immediately cease all existing activities, discussions and negotiations with
any parties conducted prior to the date of the Merger Agreement with respect to
any of the foregoing, and agreed that, from and after the execution of the
Merger Agreement, it will promptly advise the other party in writing of the
receipt, directly or indirectly, of any inquiries, discussions, negotiations, or
proposals relating to a Competing Transaction (including the status, but not the
specific terms thereof) and promptly furnish to the other party a copy of any
such proposal or inquiry in addition to any information provided to or by any
third party relating thereto.
CONDITIONS
The obligations of Crompton and Uniroyal to consummate the Merger are
subject to fulfillment (or waiver by the parties) of the following conditions,
among others, (i) approval by Uniroyal Stockholders (which approval may not be
legally waived) and approval by Crompton Stockholders of the Merger Proposal;
(ii) no temporary restraining order, preliminary or permanent injunction or
other order or decree which prevents the consummation of the Merger having been
issued and remaining in effect, and no statute, rule or regulation having been
enacted by any governmental authority which prevents the consummation of the
Merger; (iii) expiration or termination of all waiting periods under the HSR
Act, which expired on June 13, 1996, and all other material consents, approvals,
permits or authorizations required to be obtained prior to the Effective Time
from any governmental authority in connection with the execution and delivery of
the Merger Agreement and the consummation of the transactions contemplated
thereby having been obtained; (iv) the Commission having declared the
Registration Statement effective, and, at the Effective Time, no stop order or
similar restraining order having been threatened by the Commission or entered by
the Commission or any state securities administrator prohibiting the Merger; (v)
receipt by Uniroyal and Crompton of legal opinions to the effect that the Merger
will qualify as a tax-free reorganization for federal income tax purposes; (vi)
receipt by Crompton of a letter, in form and substance reasonably satisfactory
to Crompton, from KPMG Peat Marwick LLP with respect to qualification of the
Merger as a pooling-of-interests for accounting and financial reporting
purposes; (vii) receipt by Uniroyal of a letter, in form and substance
reasonably satisfactory to Uniroyal, from Deloitte & Touche LLP with respect to
qualification of the Merger as a pooling-of-interests for accounting and
financial reporting purposes; (viii) authorization for inclusion on the NYSE of
the shares of Crompton Common Stock to be issued in the Merger, subject to
official notice of issuance; (ix) execution of certain employment agreements
with certain officers of Uniroyal
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(see "The Merger--Interests of Certain Persons in the Merger"); and (x) no
action having been instituted by any governmental authority which seeks to
prevent consummation of the Merger or which seeks material damages in connection
with the transactions contemplated by the Merger Agreement which continues to be
outstanding.
The obligations of Uniroyal to consummate the Merger and the transactions
contemplated by the Merger Agreement are further subject to the receipt of
certain closing certificates and fulfillment (or waiver by Uniroyal) of the
following conditions: (i) the representations and warranties of each of Crompton
and Subcorp shall be true and correct on the date of the Merger Agreement and on
and as of the Closing Date (except for those made as of a specified time),
except for such inaccuracies which have not had and would not reasonably be
expected to have in the reasonably foreseeable future a material adverse effect
on Crompton; (ii) each of Crompton and Subcorp shall have performed in all
material respects each obligation and agreement and shall have complied in all
material respects with each covenant to be performed and complied with by it
under the Merger Agreement at or prior to the Effective Time; (iii) each person
who may be at the Effective Time or was on the date of the Merger Agreement an
"affiliate" of Crompton within the meaning of Rule 145 under the Securities Act,
shall have executed and delivered to Uniroyal at least 35 days prior to the date
of the Crompton Special Meeting written undertakings in the form reasonably
acceptable to Uniroyal; and (iv) Crompton shall have entered into satisfactory
arrangements with respect to the consolidated indebtedness of the combined
company.
The obligations of Crompton to consummate the Merger and the other
transactions contemplated by the Merger Agreement are further subject to the
receipt of certain closing certificates and fulfillment (or waiver by Crompton
and Subcorp) of the following conditions: (i) the representations and warranties
of Uniroyal shall be true and correct on the date of the Merger Agreement and on
and as of the Closing Date (except for those made as of a specified time),
except for such inaccuracies which have not had and would not reasonably be
expected to have in the reasonably foreseeable future a material adverse effect
on Uniroyal; (ii) Uniroyal shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects with
each covenant to be performed and complied with by it under the Merger Agreement
at or prior to the Effective Time; and (iii) each person who may be at the
Effective Time or was on the date of the Merger Agreement an "affiliate" of
Uniroyal within the meaning of Rule 145 under the Securities Act, shall have
executed and delivered to Crompton at least 35 days prior to the date of the
Uniroyal Special Meeting written undertakings in the form reasonably acceptable
to Crompton.
For a discussion of the circumstances under which the foregoing conditions
may be waived by the parties, see "--Amendment and Waiver."
UNIROYAL STOCK OPTIONS AND WARRANTS
Crompton and Uniroyal covenant in the Merger Agreement to cause each
unexpired and unexercised Uniroyal Option granted to current or former
directors, officers, employees, consultants or independent contractors of
Uniroyal or its subsidiaries by Uniroyal to be automatically converted at the
Effective Time into a Crompton Exchange Option. See "The Merger--Interests of
Certain Persons in the Merger--Uniroyal Options." Crompton further covenants to
file with the Commission, as soon as reasonably practicable after the Closing
Date, a registration statement on Form S-8 or other appropriate form under the
Securities Act to register shares of Crompton Common Stock issuable upon
exercise of the Crompton Exchange Options and to use its reasonable best efforts
to cause such registration statement to remain effective until the exercise or
expiration of such options. Uniroyal, as the Surviving Corporation, further
covenants to take all such actions as may be necessary to cause each unexpired
and unexercised Uniroyal Warrant to be converted into a Crompton Exchange
Warrant.
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EMPLOYEE BENEFITS
Crompton has agreed that, (i) for a period of two years from and after the
Effective Time, it will cause the Surviving Corporation or its subsidiaries to
provide for the benefit of employees of the Surviving Corporation or its
subsidiaries benefits that are no less favorable, in the aggregate, as those
provided to employees of Uniroyal or its subsidiaries immediately prior to the
date of the Merger Agreement; (ii) if any Employee (as defined below) becomes a
participant in any employee benefit or compensation plan of Crompton, a Crompton
subsidiary (other than the Surviving Corporation) or a Crompton affiliate, such
Employee will be given credit under such plan for all service with Uniroyal and
its subsidiaries, affiliates and predecessors which is recognized by Uniroyal
and is rendered prior to the time the Employee becomes such a participant,
solely for purposes of determining eligibility and vesting (but not for benefit
accrual or any other purposes); provided, however, such service need not be
credited to the extent it would result in a duplication of benefits, including,
without limitation, benefit accrual service under defined benefit plans; and
(iii) to the extent employee benefit plans of Crompton or its subsidiaries or
affiliates provide medical or dental welfare benefits to Employees or Former
Employees (as defined below) after the Effective Time, such plans will waive any
preexisting conditions and actively-at-work exclusions and will provide that any
expenses incurred on or before the Effective Time will be taken into account
under such plans for purposes of satisfying applicable deductible, coinsurance
and maximum out-of-pocket provisions. For purposes of the foregoing, (i)
"Employees" mean the employees of Uniroyal or a Uniroyal subsidiary whose terms
of employment are not subject to a collective bargaining agreement immediately
prior to the Effective Time, including, without limitation, any employee who is
absent at the Effective Time on short-term disability, long-term disability,
Workers' Compensation or an authorized leave (such as maternity, military,
family and medical leaves or other leaves where return to work is subject to
statutory requirements), and (ii) "Former Employees" mean any former employees
of Uniroyal or a Uniroyal subsidiary whose employment terminated prior to the
Effective Time (whether by retirement or otherwise).
Crompton has also agreed under the Merger Agreement to cause the Surviving
Corporation and its subsidiaries to honor all Uniroyal's existing agreements
with any Employee or Former Employee and to make severance payments to certain
executive officers of Uniroyal.
TERMINATION; EFFECT OF TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval and adoption of the Merger Agreement by
Uniroyal Stockholders and Crompton Stockholders (i) by mutual consent of
Crompton and Uniroyal; (ii) by either Crompton or Uniroyal if any permanent
injunction or other order or decree of a court or other competent governmental
authority preventing the consummation of the Merger becomes final and
non-appealable, provided that the party seeking to so terminate the Merger
Agreement used its reasonable efforts to remove such injunction, order or
decree; (iii) by either Crompton or Uniroyal if the Merger is not consummated
before December 31, 1996, unless that deadline is extended by the Boards of
Directors of both Crompton and Uniroyal, provided that a party shall not have a
right to so terminate the Merger Agreement if such party's failure or such
party's affiliate's failure to perform any material covenant or obligation under
the Merger Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date; (iv) by either Crompton or Uniroyal if
at the Uniroyal Special Meeting (including any adjournment or postponement
thereof) the requisite vote of the Uniroyal Stockholders to approve the Merger
and the transactions contemplated by the Merger Agreement shall not have been
obtained; (v) by either Crompton or Uniroyal if at the Crompton Special Meeting
(including any adjournment or postponement thereof) the requisite vote of the
Crompton Stockholders to approve the Merger and the transactions contemplated by
the Merger Agreement shall not have been obtained; (vi) by Crompton or Uniroyal
(provided that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained herein) if there
shall have been a material breach of any of the covenants or agreements or any
of the representations or warranties set forth in the Merger Agreement on the
part of the other party, which breach is not cured within thirty (30) days
following
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written notice given by the terminating party to the party committing such
breach, or which breach, by its nature, cannot be cured prior to the Closing; or
(vii) by either Crompton or Uniroyal if the Board of Directors of Uniroyal shall
reasonably determine that a Competing Transaction in respect of Uniroyal is more
favorable to Uniroyal Stockholders in the aggregate and from a financial point
of view than the transactions contemplated by the Merger Agreement and Uniroyal
shall have delivered to Crompton a written notice of the determination by the
Uniroyal Board of Directors to so terminate the Merger Agreement; provided,
however, that Uniroyal may not so terminate the Merger Agreement unless (A) five
business days shall have elapsed after delivery to Crompton of the notice
referred to above, (B) at the end of such five business-day period the Uniroyal
Board of Directors shall continue to believe that such Competing Transaction is
more favorable to Uniroyal Stockholders in the aggregate and from a financial
point of view than the transactions contemplated by the Merger Agreement, (C) at
the time of such termination, Uniroyal shall have paid to Crompton the
Termination Fee (as defined below) and (D) promptly thereafter Uniroyal shall
enter into a definitive acquisition, merger or similar agreement to effect such
Competing Transaction.
The Merger Agreement provides that if the Merger Agreement is terminated (I)
by Crompton or Uniroyal pursuant to clause (vii) in the paragraph above, (II) by
Crompton pursuant to clause (iii) above if (A) Uniroyal's or Uniroyal's
affiliate's failure to perform any material covenant or obligation under the
Merger Agreement has been the cause of or resulted in the failure of the Merger
to have occurred on or before December 31, 1996, and (B) a Prior Event (as
defined below) shall have occurred prior to such termination and (C) a Competing
Transaction in respect of Uniroyal is consummated within one year following such
termination, (III) by Crompton pursuant to clause (vi) above if (A) Uniroyal's
or Uniroyal's affiliate's failure to perform any material covenant or obligation
under the Merger Agreement is the basis for such termination and (B) a Prior
Event shall have occurred prior to such termination and (C) a Competing
Transaction in respect of Uniroyal is consummated within one year following such
termination or (IV) by Crompton or Uniroyal pursuant to clause (iv) above if (A)
a Prior Event shall have occurred prior to such termination and (B) a Competing
Transaction in respect of Uniroyal is consummated within one year following such
termination; then in any such case Uniroyal will, in the case of a termination
by Crompton, within three business days following, in the case of clause (I) of
this paragraph, any such termination or, in the case of clauses (II), (III) or
(IV) of this paragraph, the consummation of the Competing Transaction in respect
of Uniroyal, or, in the case of a termination by Uniroyal, prior to, in the case
of clause (I) of this paragraph, such termination or, in the case of clause (IV)
of this paragraph, the consummation of the Competing Transaction in respect of
Uniroyal, pay to Crompton in cash by wire transfer in immediately available
funds to an account designated by Crompton a termination fee in an amount equal
to $50 million (the "Termination Fee").
As used above, a "Prior Event" means any of the following events: (1) any
person (other than Crompton or any of its subsidiaries) shall have commenced (as
such term is defined in Rule 14d-2 under the Exchange Act), or shall have filed
a registration statement under the Securities Act, with respect to, a tender
offer or exchange offer to purchase any shares of Uniroyal Common Stock such
that, upon consummation of such offer, such person would beneficially own or
control 10% or more of the then outstanding Uniroyal Common Stock; (2) Uniroyal
or any of its subsidiaries shall have entered into, authorized, recommended,
proposed or publicly announced an intention to enter into, authorize, recommend,
or propose, an agreement, arrangement or understanding with any person (other
than Crompton or any of its subsidiaries) to, or any person (other than Crompton
or any of its subsidiaries) shall have publicly announced a bona fide intention
to, (A) effect any Competing Transaction, (B) purchase, lease or otherwise
acquire 10% or more of the assets of Uniroyal or any of its subsidiaries or (C)
purchase or otherwise acquire (including by way of merger, consolidation, tender
or exchange offer or similar transaction) beneficial ownership of securities
representing 10% or more of the voting power of Uniroyal or any of its
subsidiaries; or (3) any person (other than Crompton or any subsidiary of
Crompton) shall have acquired beneficial ownership or the right to acquire
beneficial ownership of a number of shares of Uniroyal Common Stock in addition
to the number of shares of Uniroyal Common
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Stock beneficially owned by such person on the date of the Merger Agreement
equal to 10% or more of the voting power of Uniroyal.
AMENDMENT AND WAIVER
The Merger Agreement may be amended in writing by the parties thereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after adoption of the Merger Proposal by Crompton Stockholders and
Uniroyal Stockholders, but after each such approval, no amendment shall be made
which by law requires further approval by the Crompton Stockholders or Uniroyal
Stockholders, as the case may be, without such further approval.
At any time prior to the Effective Time, Crompton (with respect to Uniroyal)
and Uniroyal (with respect to Crompton and Subcorp) by action taken or
authorized by their respective Boards of Directors may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of such party, (ii) waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or any document delivered pursuant
thereto, and (iii) waive compliance with any of the agreements or conditions
contained therein, provided such waiver or extension is set forth in a written
instrument signed on behalf of such party.
EXPENSES
Except as otherwise provided in the Merger Agreement, Crompton and Uniroyal
will pay their own costs and expenses associated with the transactions
contemplated by the Merger Agreement, except that Uniroyal and Crompton have
agreed to share equally (i) the filing fees in connection with the filing of
this Joint Proxy Statement and the Registration Statement with the Commission
and (ii) the expenses incurred in connection with printing and mailing of this
Joint Proxy Statement/Prospectus to the Crompton Stockholders and Uniroyal
Stockholders.
RIGHTS OF DISSENTING STOCKHOLDERS
CROMPTON STOCKHOLDERS
Crompton Stockholders will not be entitled to dissenters' appraisal rights
under Massachusetts law or any other statute in connection with the Merger. See
"Comparison of Stockholder Rights--Rights of Dissenting Stockholders."
UNIROYAL STOCKHOLDERS; HOLDERS OF UNIROYAL PREFERRED STOCK
Uniroyal Stockholders. Holders of Uniroyal Common Stock will not be entitled
to dissenters' appraisal rights under Delaware law or any other statute in
connection with the Merger.
Holders of Uniroyal Preferred Stock. In the event the Merger is consummated,
record holders of Uniroyal Preferred Stock who meet and comply with the
requirements of Section 262 of the DGCL will be entitled to dissenters'
appraisal rights in respect of their shares of Uniroyal Preferred Stock. Holders
of Uniroyal Preferred Stock will have the right to obtain a cash payment for the
"fair value" of their shares (excluding any element of value arising from the
accomplishment or expectation of the Merger). Such "fair value" would be
determined in judicial proceedings, the result of which cannot be predicted. In
order to exercise dissenters' appraisal rights, dissenting stockholders must
comply with the procedural requirements of Section 262 of the DGCL, a
description of which is provided immediately below and the full text of which is
attached to this Joint Proxy Statement/Prospectus as Annex D and is incorporated
herein by reference. Failure to take any of the steps required under Section 262
of the DGCL on a timely basis may result in the loss of dissenters' appraisal
rights. Except as set forth above, stockholders of Uniroyal will have no
appraisal rights in connection with the Merger.
The dissenters' appraisal rights described below are available to holders of
record of Uniroyal Preferred Stock. A person having a beneficial interest in
shares of Uniroyal Preferred Stock held of record in the name of another person,
such as a broker or nominee, must act promptly to cause the record holder to
follow the steps summarized below properly and in a timely manner to perfect
whatever dissenters' appraisal rights the beneficial owner may have.
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THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO DISSENTERS' APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY
BY THE FULL TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS ANNEX D TO
THIS JOINT PROXY STATEMENT/PROSPECTUS. ALL REFERENCES IN SECTION 262 AND IN THIS
SUMMARY TO A "STOCKHOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF UNIROYAL
PREFERRED STOCK AS TO WHICH DISSENTERS' APPRAISAL RIGHTS ARE ASSERTED.
Under the DGCL, holders of shares of Uniroyal Preferred Stock who follow the
procedures set forth in Section 262 will be entitled to have their shares of
Uniroyal Preferred Stock appraised by the Delaware Court of Chancery and to
receive payment of the "fair value" of such shares, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, as determined by such court.
Under Section 262, a corporation, not less than 20 days prior to the meeting
at which a proposed merger is to be voted on, must notify each of its
stockholders entitled to dissenters' appraisal rights as of the record date of
the meeting that such appraisal rights are available and include in such notice
a copy of Section 262. This Joint Proxy Statement/Prospectus shall constitute
such notice to the holders of shares of Uniroyal Preferred Stock and a copy of
Section 262 is attached to this Joint Proxy Statement/Prospectus as Annex D. Any
stockholder who wishes to exercise such appraisal rights or who wishes to
preserve his right to do so, should review the following discussion and Annex D
carefully because failure to comply timely and properly with the procedures
specified will result in the loss of dissenters' appraisal rights under the
DGCL. Moreover, because of the complexity of the procedures for exercising the
right to seek appraisal of the Uniroyal Preferred Stock, holders of Uniroyal
Preferred Stock who consider exercising such rights should seek the advice of
legal counsel.
A holder of shares of Uniroyal Preferred Stock wishing to exercise his
dissenters' appraisal rights must deliver to Uniroyal, as the Surviving
Corporation in the Merger, prior to the vote on the Merger Proposal at the
Uniroyal Special Meeting, a written demand for appraisal of his shares of
Uniroyal Preferred Stock. A proxy or vote against the Merger will not constitute
such a demand. In addition, a holder of shares of Uniroyal Preferred Stock
wishing to exercise his dissenters' appraisal rights must hold of record such
shares on the date the written demand for appraisal is made, must continue to
hold such shares until the date of consummation of the Merger and must not vote
in favor of the Merger Proposal or consent thereto in writing pursuant to
Section 228 of the DGCL.
Only a holder of record of shares of Uniroyal Preferred Stock is entitled to
assert appraisal rights for the shares of Uniroyal Preferred Stock registered in
that holder's name. A demand for appraisal should be executed by or on behalf of
the holder of record, fully and correctly, as his name appears on his stock
certificates. If the shares of Uniroyal Preferred Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the shares of Uniroyal
Preferred Stock are owned of record by more than one person, as in a joint
tenancy and tenancy in common, the demand should be executed by or on behalf of
all joint owners. An authorized agent, including one or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is agent for such owner or owners. A
record holder, such as a broker, who holds shares of Uniroyal Preferred Stock as
nominee for several beneficial owners may exercise appraisal rights with respect
to the shares of Uniroyal Preferred Stock held for one or more beneficial owners
while not exercising such rights with respect to the shares of Uniroyal
Preferred Stock held for other beneficial owners; in such case, the written
demand should set forth the number of shares of Uniroyal Preferred Stock as to
which appraisal is sought and where no number of shares of Uniroyal Preferred
Stock is expressly mentioned the demand will be presumed to cover all shares of
Uniroyal Preferred Stock held in the name of the record owner. Stockholders who
hold their shares of Uniroyal Preferred Stock in brokerage accounts or other
nominee forms and who wish to exercise appraisal rights are urged to consult
with their brokers to determine the appropriate procedures for the making of a
demand for appraisal by such a nominee.
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All written demands for appraisal should be sent or delivered to Uniroyal,
c/o Uniroyal Chemical Company, Inc. at Benson Road, Middlebury, Connecticut
06749, Attention: Secretary.
Within 120 days after the consummation of the Merger, but not thereafter,
Uniroyal or any stockholder entitled to dissenters' appraisal rights under
Section 262 may file a petition in the Delaware Court of Chancery demanding a
determination of the "fair value" of the shares of Uniroyal Preferred Stock held
by any such stockholders. Uniroyal is under no obligation to and has no present
intention to file a petition with respect to the appraisal of the fair value of
the shares of Uniroyal Preferred Stock. Accordingly, it is the obligation of the
holders of the Uniroyal Preferred Stock to initiate all necessary action to
perfect their dissenters' appraisal rights within the time prescribed in Section
262.
Within 120 days after the consummation of the Merger, any holders of the
Uniroyal Preferred Stock who have complied with the requirements for exercise of
dissenters' appraisal rights will be entitled, upon written request, to receive
from Uniroyal a statement setting forth the aggregate number of shares of
Uniroyal Preferred Stock with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such statement must
be mailed to such holders of the Uniroyal Preferred Stock within ten days after
a written request therefor has been received by Uniroyal or within ten days
after the expiration of the 20-day period for delivery of demands for appraisal
by holders of the Uniroyal Preferred Stock outlined above, whichever is later.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise the "fair value" of their shares
of Uniroyal Preferred Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the "fair value."
Stockholders considering seeking appraisal should be aware that the "fair value"
of their shares of Uniroyal Preferred Stock as determined under Section 262
could be more than, the same as or less than the consideration they would
receive pursuant to the Merger Agreement if they did not seek appraisal of their
shares of Uniroyal Preferred Stock. In determining fair value, the Delaware
Court of Chancery is to take into account all relevant factors. In Weinberger v.
UOP, Inc., the Delaware Supreme Court discussed the factors that could be
considered in determining fair value in an appraisal proceeding, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered, and that "fair price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
stated that, in making this determination of fair value, the court must consider
market value, asset value, dividends, earnings prospects, the nature of the
enterprise and any other facts which could be ascertained as of the date of the
merger that throw any light on future prospects of the merged corporation. In
Weinberger, the Delaware Supreme Court stated that "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation, may be
considered." In addition, Delaware courts have decided that the statutory
appraisal remedy, depending on factual circumstances, may or may not be a
dissenter's exclusive remedy. The costs of the action may be determined by the
court and taxed upon the parties as the court deems equitable. The court may
also order that all or a portion of the expenses incurred by any stockholder in
connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all of the shares of
Uniroyal Preferred Stock entitled to appraisal.
Any holder of shares of Uniroyal Preferred Stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the consummation of the
Merger, be entitled to vote the shares of Uniroyal Preferred Stock subject to
such demand for any purpose or be entitled to the payment of dividends or other
distributions on those shares (except dividends or other distributions payable
to holders of record of shares of Uniroyal Preferred Stock as of a date on or
prior to the date of consummation of the Merger).
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If any stockholder who demands appraisal of his or its shares of Uniroyal
Preferred Stock under Section 262 fails to perfect, or effectively withdraws or
loses, his or its right to appraisal, as provided in the DGCL, the shares of
Uniroyal Preferred Stock of such stockholder will be converted into the right to
receive a number of shares of Crompton Common Stock equal to 6.667 multiplied by
the Exchange Ratio (with cash in lieu of fractional shares) in accordance with
the Merger Agreement. A stockholder will fail to perfect, or effectively lose or
withdraw, his right to appraisal if no petition for appraisal is filed within
120 days after the consummation of the Merger, or if the stockholder delivers to
Uniroyal a written withdrawal of his demand for appraisal and acceptance of the
Merger, except that any such attempt to withdraw made more than 60 days after
the consummation of the Merger will require the written approval of Uniroyal.
Failure of a stockholder to follow the steps required by Section 262 of the
DGCL for perfecting dissenters' appraisal rights may result in the loss of such
rights (in which event the shares of Uniroyal Preferred Stock of such
stockholder will be converted into the right to receive a number of shares of
Crompton Common Stock equal to 6.667 multiplied by the Exchange Ratio (with cash
in lieu of fractional shares) in accordance with the Merger Agreement).
Consequently, any holder of Uniroyal Preferred Stock wishing to exercise
appraisal rights is urged to consult legal counsel before attempting to exercise
such rights. See "Comparison of Stockholder Rights--Rights of Dissenting
Stockholders."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income tax
consequences of the Merger and does not purport to be a complete analysis or
listing of all potential tax effects relative to a decision whether to vote for
the Merger. The discussion does not address all aspects of federal income
taxation that may be applicable to certain Uniroyal Stockholders and holders of
Uniroyal Preferred Stock subject to special federal income tax treatment,
including, without limitation, foreign persons, insurance companies, tax-exempt
entities, retirement plans and persons who acquired their Uniroyal Common Stock
or Uniroyal Preferred Stock pursuant to the exercise of employee stock options
or otherwise as compensation. The discussion addresses neither the effect of
applicable state, local or foreign tax laws, nor the effect of any federal tax
laws other than those pertaining to federal income tax. Because of the
complexity of the tax laws, and because the tax consequences of any particular
stockholder may be affected by matters not discussed herein, each Uniroyal
Stockholder and holder of Uniroyal Preferred Stock is urged to consult his tax
adviser with respect to his particular circumstances and with respect to the
specific tax consequences of the Merger to him, including the applicability and
effect of state, local and foreign tax laws, estate tax laws and proposed
changes in applicable tax laws.
Crompton has received an opinion from Wachtell to the effect that, based on
the assumptions set forth therein, under currently applicable laws, the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code and, accordingly, (i) no gain or loss will be recognized by the
stockholders of Uniroyal upon the conversion of their shares of Uniroyal Common
Stock or Uniroyal Preferred Stock (together, "Uniroyal Capital Stock") solely
into shares of Crompton Common Stock pursuant to the terms of the Merger to the
extent of such conversion; (ii) the tax basis of the shares of Crompton Common
Stock into which shares of Uniroyal Capital Stock are converted pursuant to the
Merger will be the same as the basis of such shares of Uniroyal Capital Stock
exchanged therefor; (iii) the holding period for shares of Crompton Common Stock
into which shares of Uniroyal Capital Stock are converted will include the
period that such shares of Uniroyal Capital Stock were held by the holder,
provided such shares were a capital asset of the holder; and (iv) the receipt of
cash in lieu of fractional shares of Crompton Common Stock by a Uniroyal
stockholder will be treated as if the fractional shares were distributed as part
of the exchange and then were redeemed by Crompton.
The receipt of cash in lieu of a fractional share of Crompton Common Stock
by a Uniroyal Stockholder or a holder of Uniroyal Preferred Stock pursuant to
the Merger or receipt of cash in respect of shares of Uniroyal Preferred Stock
as to which dissenters' appraisal rights have been perfected in connection with
the Merger by a holder thereof will generally result in taxable capital gain or
loss to
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such stockholder for federal income tax purposes based on the difference between
the amount of cash received by such stockholder and such stockholder's basis in
such fractional share as set forth above or such stockholder's basis in such
dissenting shares of Uniroyal Preferred Stock, as the case may be.
It is a condition to the Merger that Uniroyal receive an opinion from
Skadden, Arps, Slate, Meagher & Flom ("Skadden") and Crompton receive an opinion
from Wachtell to the effect that, based on the facts, representations and
assumptions set forth in such opinions, the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code. In delivering
their opinions, Wachtell has, and Skadden will, rely upon certain facts,
assumptions, representations and warranties of Uniroyal, Crompton (on its own
and on behalf of Subcorp) and others.
The opinion of Wachtell is, and the opinion of Skadden will be, based on the
Code, regulations and rulings in effect as of the date of such opinion, current
administrative rulings and practice and judicial precedent, all of which are
subject to change. Any such change, which may or may not be retroactive, could
alter the tax consequences discussed herein. Such opinions neither bind the
Internal Revenue Service (the "IRS") nor preclude the IRS from adopting a
contrary position. The parties will not request and the Merger is not
conditioned upon a ruling from the IRS in connection with any of the federal
income tax consequences of the Merger.
THE COMPANIES
BUSINESS OF UNIROYAL
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.
BUSINESS OF CROMPTON
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
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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 Joint Proxy Statement/Prospectus. See
"Index to Financial Statements of Crompton & Knowles Corporation."
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.
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.
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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.
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.
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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 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 Joint
Proxy Statement/Prospectus. See "Index to Financial Statements of Crompton &
Knowles Corporation."
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.
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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
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
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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.
In the first quarter of 1996, Crompton's specialty equipment business
reported a 29% 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 will rescind the current open authorization of 1.3
million shares in July 1996.
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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 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 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.
RECENT DEVELOPMENTS
ISSUANCE OF CROMPTON COMMON STOCK
In connection with the Merger and in order for the Merger to qualify as a
pooling-of-interests for accounting and financial reporting purposes, Crompton
intends to issue 1,000,000 shares of Crompton Common Stock either by private
placement or through a public offering to be completed prior to the Effective
Time.
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
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<PAGE>
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 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.
Crompton Second Quarter Earnings
On July 17, 1996, Crompton issued a press release relating to its second
quarter earnings. Crompton announced that, for the second quarter ended June
29, 1996, sales decreased five percent to $167.6 million from $175.6 million
last year. Earnings for the quarter were $9.7 million, or 20 cents per share,
compared with $12.1 million, or 25 cents per share, last year. Specialty
chemical segment sales in the quarter declined four percent to $96.9 million
from $101.2 million last year. Operating profit for the segment was $13.0
million, compared with $13.1 million in 1995. Domestic dye sales were five
percent below the prior year, including a four percent decline in price from
the second quarter of 1995. International dye sales were twelve percent lower,
while specialty ingredients sales rose seven percent. The specialty process
equipment and controls segment posted sales of $70.7 million in the second
quarter, five percent lower than the prior year's sales of $74.4 million.
Operating profit was $6.4 million, compared with $11.1 million in the second
quarter of 1995. The decline in operating profits was primarily attributable
to lower U.S. demand for extrusion equipment. The equipment backlog at
the end of the second quarter was $89 million, compared with $92 million at
the end of the first quarter.
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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 of Crompton & Knowles Corporation."
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
April 1, 1995 and March 30, 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
March 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 THREE MONTHS ENDED
------------------------------------------------------------------------ --------------------
DECEMBER 28, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
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................. $450,228 517,718 558,348 589,757 665,513 168,193 164,840
Income before
extraordinary charges and
cumulative effect of
accounting changes....... $ 35,941 43,265 51,958 50,916 40,493 13,196 9,468
Net income................ $ 35,941 34,465 51,958 50,916 40,493 13,196 9,468
Income per common share
before extraordinary
charges and cumulative
effect of accounting
changes.................. $ 0.73 0.87 1.00 1.00 0.84 0.27 0.20
Net income per common
share.................... $ 0.73 0.69 1.00 1.00 0.84 0.27 0.20
Weighted average number of
shares outstanding....... 49,317 49,967 52,176 51,152 48,448 48,921 48,318
CONSOLIDATED BALANCE SHEET
DATA:
Total assets.............. $308,562 350,715 363,246 432,328 484,138 521,518
Long-term debt............ $ 76,118 24,000 14,000 54,000 64,000 74,000
Cash dividends declared
per common share......... $ 0.25 0.31 0.38 0.46 0.525 0.12 0.135
</TABLE>
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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 Joint Proxy Statement/Prospectus. See "Index to Financial
Statements of Crompton & Knowles Corporation."
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
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<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
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<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.
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<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%.
FIRST QUARTER RESULTS
Overview
Consolidated net sales of $164.8 million for the first quarter of 1996
declined 2% from the comparable 1995 period. Net earnings of $9.5 million
declined 28% versus the first quarter of 1995. Net earnings per common share of
$.20 were 26% lower than the $.27 reported last year.
Gross margin as a percentage of net sales decreased to 29.1% from 30.7% in
the first quarter of 1995 as a result of lower margins in both of Crompton's
segments. Consolidated operating profit of $16.8 million declined 25% from the
first quarter of 1995 as the specialty chemicals segment decreased 18% and the
specialty process equipment and controls segment decreased 29%.
Specialty Chemicals
Crompton's specialty chemicals segment reported sales of $96.1 million which
represents a decline of 6% from the first quarter of 1995. The decrease was
attributable to the impact of lower unit volume (4%) and lower selling prices
(2%).
Domestic dyes sales of $46.5 million declined 11% from the comparable 1995
quarter primarily due to lower unit volume (8%) and lower selling prices (3%).
International dyes sales of $23.5 million declined 4% versus the first quarter
of 1995 primarily as a result of lower selling prices. Specialty ingredients
sales of $26.1 million rose 1% primarily as a result of increased unit volume.
The percentage of sales outside the United States was 26%, versus 25% in the
comparable 1995 period.
Operating profit of $12.8 million for the first quarter of 1996 decreased
18% from 1995. The decrease was attributable primarily to the impact of lower
unit volume and pricing. The percentage of operating profit outside the United
States declined to 11% from 17% in 1995.
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Specialty Process Equipment and Controls
Crompton's specialty process equipment and controls segment reported sales
of $68.7 million, which represents an increase of 5% from the first quarter of
1995. Approximately 21% was attributable to the incremental impact of
acquisitions offset partially by lower unit volume in the domestic business.
Export sales shipped from the U.S. accounted for 28% of total segment sales
versus 18% in the comparable period in 1995 as shipments to the Far East
increased significantly. International sales increased substantially as a result
of acquisitions and accounted for 16% of total segment sales versus 1% in the
first quarter of 1995.
Operating profit for the first quarter of 1996 declined 29% to $7.1 million
primarily attributable to lower unit volume in the domestic business.
International operating profit was not significant in either the first quarter
of 1996 or the first quarter of 1995. The order backlog for extruders and
related equipment at the end of the first quarter of 1996 amounted to $92
million (including ER-WE-PA backlog of $24 million) compared to $72 million at
December 30, 1995.
Other
Selling, general and administrative expenses of $27.1 million increased 7%
versus the comparable period in 1995 primarily due to the impact of
acquisitions. Depreciation and amortization of $4.0 million increased 8% versus
1995 primarily as a result of a higher fixed asset base including acquisitions.
Interest expense increased $469 thousand primarily as a result of increased
borrowings. Other income of $252 thousand approximated the level for the first
quarter of 1995. The effective tax rate of 36.9% decreased slightly versus the
comparable 1995 period.
Liquidity and Capital Resources
The March 30, 1996 working capital balance of $124.4 million decreased $1.8
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
62 days in the first quarter of 1996, an increase from 55 days for all of 1995.
Inventory turnover averaged 2.9 for the first quarter of 1996 compared with 2.8
for all of 1995.
Cash flows from operating activities of $14.3 million increased $9.9 million
from the first quarter of 1995 primarily attributable to decreases in working
capital requirements partially offset by lower earnings. Cash provided by
operating activities and increased borrowings were used to finance the
acquisition of ER-WE-PA, fund capital expenditures and pay cash dividends.
Crompton's debt to total capital ratio increased to 35% 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. Crompton'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 $1.5 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 Crompton's foreign operations.
Research and Development
Research and development expenditures totaled $3.5 million for the first
quarter of 1996 compared to $3.4 million in the comparable 1995 period.
76
<PAGE>
HISTORICAL AND UNAUDITED PRO FORMA COMBINED CAPITALIZATION
The following table sets forth the historical capitalization of Crompton and
Uniroyal as of March 30, and March 31, 1996, respectively, and the pro forma
combined capitalization as of March 30, 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 March 30, 1996, or Uniroyal's results of
operations since March 31, 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, or any future date.
The following table should be read in conjunction with the historical
financial statements of Crompton and Uniroyal which are contained elsewhere or
incorporated by reference herein, and the unaudited pro forma combined financial
information, the related notes, and the other information contained elsewhere in
this Joint Proxy Statement/Prospectus. See "Unaudited Pro Forma Combined
Financial Information."
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------- PRO FORMA
MARCH 30, 1996 MARCH 31, 1996 ---------------------------------
CROMPTON UNIROYAL ADJUSTMENTS COMBINED
-------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
(UNAUDITED)
Short-term debt:
Notes payable.............. $ 57,886 69,171 -- 127,057
Current portion of long-
term debt.................. -- 11,503 -- 11,503
-------------- -------------- ----------- ---------
Total short-term
debt.................. 57,886 80,674 -- 138,560
Long-term debt............... 74,000 898,564 40,750(1)(2) 1,013,314(6)
-------------- -------------- ----------- ---------
Total debt............. $131,886 979,238 40,750 1,151,874
-------------- -------------- ----------- ---------
Stockholders' equity
(deficit):
Preferred stock............ $-- 4,172 (4,172)(3) --
Common stock............... 5,336 254 2,202(3)(4) 7,792
Additional paid-in
capital.................. 59,557 177,004 (10,249)(1)(3)(4)(5) 226,312
Retained earnings
(deficit)................ 237,098 (444,446) (55,000)(2) (262,348)(7)
Pension liability
adjustment............... -- (3,617) -- (3,617)
Cumulative translation
adjustment............... 4,797 (22,038) -- (17,241)
Treasury stock............. (62,890) (10,861) 26,469(1)(5) (47,282)
Deferred compensation...... (2,040) -- -- (2,040)
-------------- -------------- ----------- --------
Total stockholders'
equity (deficit)..... 241,858 (299,532) (40,750) (98,424)
-------------- -------------- ----------- --------
Total capitalization... $373,744 679,706 -- 1,053,450
-------------- -------------- ----------- ---------
-------------- -------------- ----------- ---------
Ratio of total debt to total
capitalization............. 35.3% 144.1% 109.3%
-------------- -------------- ---------
-------------- -------------- ---------
</TABLE>
77
<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 per share, net of estimated fees of $750,000. The estimated offering
price of $15 per share is based on the mid-point of the share price range of
Crompton Common Stock to be issued to effect the Merger. The net proceeds of
$14,250,000 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 6.667 shares of Crompton Common Stock for each share
of Uniroyal Preferred Stock as provided for in the Merger Agreement, the
conversion rate resulting in the mid-point number of shares of Crompton
Common Stock to be issued.
(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 one share of Crompton Common Stock
for each share of Uniroyal Common Stock, the conversion rate resulting in
the mid-point number of shares of Crompton Common Stock to be issued.
(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."
78
<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 or
incorporated by reference in this Joint Proxy Statement/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 March 30, 1996 or
Uniroyal's results of operations since March 31, 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.
79
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 30, 1996 (CROMPTON) AND
MARCH 31, 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............ $ 2,599 21,747 -- 24,346
Accounts receivable.................. 123,779 172,392 -- 296,171
Inventories.......................... 163,210 198,464 -- 361,674
Other current assets................. 25,589 50,987 -- 76,576
-------- ---------- ----------- ---------
Total current assets............. 315,177 443,590 -- 758,767
Property, plant and equipment, net..... 135,051 385,829 -- 520,880
Intangible assets...................... 60,525 233,903 -- 294,428
Deferred income taxes.................. -- 69,833 -- 69,833(10)
Other assets........................... 10,765 64,347 -- 75,112
-------- ---------- ----------- ---------
$521,518 1,197,502 -- 1,719,020
-------- ---------- ----------- ---------
-------- ---------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................ $ 57,886 69,171 -- 127,057
Accounts payable..................... 60,991 99,441 -- 160,432
Current portion of long-term debt.... -- 11,503 -- 11,503
Accrued liabilities.................. 71,951 100,118 -- 172,069
-------- ---------- ----------- ---------
Total current liabilities........ 190,828 280,233 -- 471,061
Long-term debt......................... 74,000 898,564 40,750(1)(2) 1,013,314(11)
Accrued postretirement liability....... 7,635 180,590 -- 188,225
Other liabilities...................... 7,197 137,647 -- 144,844
Stockholders' equity (deficit):
Preferred stock...................... -- 4,172 (4,172)(3) --
Common stock......................... 5,336 254 2,202(3)(4) 7,792
Additional paid-in capital........... 59,557 177,004 (10,249)(1)(3)(4)(5) 226,312
Retained earnings (deficit).......... 237,098 (444,446) (55,000)(2) (262,348)(12)
Pension liability adjustment......... -- (3,617) -- (3,617)
Cumulative translation adjustment.... 4,797 (22,038) -- (17,241)
Treasury stock....................... (62,890) (10,861) 26,469(1)(5) (47,282)
Deferred compensation................ (2,040) -- -- (2,040)
-------- ---------- ----------- ---------
Total stockholders' equity
(deficit)...................... 241,858 (299,532) (40,750) (98,424)
-------- ---------- ----------- ---------
$521,518 1,197,502 -- 1,719,020
-------- ---------- ----------- ---------
-------- ---------- ----------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
80
<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) 0.42
-------- -------- ---------
-------- -------- ---------
Weighted average shares outstanding(8).... 52,176 10,847 64,197
-------- -------- ---------
-------- -------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
81
<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) (2.63)
-------- --------- ---------
-------- --------- ---------
Weighted average shares
outstanding(8)....................... 51,152 10,543 61,973
-------- --------- ---------
-------- --------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
82
<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 2.08
-------- ---------- ---------
-------- ---------- ---------
Weighted average shares
outstanding(8)........................ 48,448 18,461 67,187
-------- ---------- ---------
-------- ---------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
83
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED APRIL 1, 1995 (CROMPTON)
AND APRIL 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................................. $168,193 274,322 -- 442,515
Operating costs and expenses:
Cost of products sold................... 116,559 174,194 (15,843)(6) 274,910
Selling, general and administrative..... 25,422 50,346 (10,854)(6) 64,914
Depreciation and amortization........... 3,725 -- 15,490(6) 19,215
Research & development.................. -- -- 11,768(6) 11,768
-------- -------- ------- ---------
Operating profit.......................... 22,487 49,782 (561) 71,708
Interest expense.......................... 1,568 29,630 -- 31,198
Other expense (income).................... (228) (2,593) (561)(6) (3,382)
-------- -------- ------- ---------
Income before income taxes and
extraordinary charge.................... 21,147 22,745 -- 43,892
Income taxes (benefit).................... 7,951 (71,091)(10) -- (63,140)
-------- -------- ------- ---------
Income before extraordinary charge........ $ 13,196 93,836 -- 107,032
-------- -------- ------- ---------
-------- -------- ------- ---------
Income per common share before
extraordinary charge.................... $ 0.27 6.90 1.70
-------- -------- ---------
-------- -------- ---------
Weighted average shares outstanding (8)... 48,921 13,590 62,789
-------- -------- ---------
-------- -------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
84
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 30, 1996 (CROMPTON)
AND MARCH 31, 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................................... $164,840 295,628 -- 460,468
Operating costs and expenses:
Cost of products sold..................... 116,948 194,427 (16,836)(6) 294,539
Selling, general and administrative....... 27,094 53,637 (12,118)(6) 68,613
Depreciation and amortization............. 4,009 -- 16,582(6) 20,591
Research & development.................... -- -- 12,933(6) 12,933
-------- -------- ------- ---------
Operating profit............................ 16,789 47,564 (561) 63,792
Interest expense............................ 2,037 26,954 -- 28,991
Other expense (income)...................... (252) 1,133 (561)(6) 320
-------- -------- ------- ---------
Income before income taxes and
extraordinary charge...................... 15,004 19,477 -- 34,481
Income taxes................................ 5,536 7,791 -- 13,327
-------- -------- ------- ---------
Income before extraordinary charge.......... $ 9,468 11,686 -- 21,154
-------- -------- ------- ---------
-------- -------- ------- ---------
Income per common share before
extraordinary charge...................... $ 0.20 0.47 0.29
-------- -------- ---------
-------- -------- ---------
Weighted average shares outstanding(8)...... 48,318 24,559 73,499
-------- -------- ---------
-------- -------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Information.
85
<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 per share, net of estimated fees of $750,000. The
estimated offering price of $15 per share is based on the mid-point of the
share price range of Crompton Common Stock to be issued to effect the
Merger. The net proceeds of $14,250,000 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 6.667 shares of Crompton Common Stock for each
share of Uniroyal Preferred Stock as provided for in the Merger Agreement,
the conversion rate resulting in the mid-point number of shares of Crompton
Common Stock to be issued.
(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 one share of Crompton Common Stock
for each share of Uniroyal Common Stock as provided for in the Merger
Agreement, the conversion rate resulting in the mid-point number of shares
of Crompton Common Stock to be issued.
(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 one share of Crompton Common Stock for each share of
Uniroyal Common Stock, and 6.667 shares of Crompton Common Stock for each
share of Uniroyal Preferred Stock as provided for in the Merger Agreement,
the conversion rates resulting in the mid-point number of shares of
Crompton Common Stock to be issued to effect the Merger.
Based on the maximum exchange ratio of 1.1111, the pro forma income (loss)
per common share before extraordinary charges and cumulative effect of
accounting changes would be $.41, $(2.58) and $2.02 for the years ended
1993, 1994 and 1995, respectively, and $1.66 and $.28 for the three months
ended April 1995 and March 1996, respectively.
Based on the minimum exchange ratio of .9091, the pro forma income (loss)
per common share before extraordinary charges and cumulative effect of
accounting changes would be $.43, $(2.67) and $2.14 for the years ended
1993, 1994 and 1995, respectively, and $1.74 and $.30 for the three months
ended April 1995 and March 1996, respectively.
(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
86
<PAGE>
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 half of fiscal 1996 was approximately $6 million. The first
half profitability is seasonally low due to Uniroyal's Crop Protection
business.
(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, 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."
87
<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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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
[GRAPH]
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
[GRAPH]
<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 $127,651, all of which shares
are forfeitable. Dividends are paid on restricted shares from the date of grant
but do not vest and are not distributed until the underlying shares are
distributed.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER TOTAL STOCK
OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM
UNDERLYING EMPLOYEES EXERCISE -------------------
OPTIONS IN FISCAL PRICE EXPIRATION 5%($) 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.
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<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
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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.
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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) %, giving effect to the issuance of up to shares of Crompton Common
Stock in the Merger.
(16) %, giving effect to the issuance of up to shares of Crompton Common
Stock in the Merger.
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COMPARISON OF STOCKHOLDER RIGHTS
As a result of the Merger, Uniroyal Stockholders and holders of Uniroyal
Preferred Stock will receive shares of common stock of Crompton, a Massachusetts
corporation, in exchange for their shares of common stock and preferred stock,
respectively, of Uniroyal, a Delaware corporation. The following is a summary of
certain material differences between the rights of holders of Uniroyal Common
Stock and Uniroyal Preferred Stock and the rights of holders of Crompton Common
Stock. These differences arise in part from the differences between the DGCL and
the Massachusetts Business Corporation Law (the "MBCL"). Additional differences
arise from the governing instruments of the two companies (in the case of
Uniroyal, the Uniroyal Certificate, the Uniroyal By-laws and the Uniroyal Rights
Agreement, and, in the case of Crompton, the Crompton Articles, the Crompton
By-Laws and the Crompton Rights Agreement). Although it is impractical to
compare all of the aspects in which the DGCL and the MBCL and the companies'
governing instruments differ with respect to stockholders' rights, the following
discussion summarizes the material differences between them.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
The DGCL and Uniroyal's By-Laws provide that any action required or
permitted to be taken at an annual or special meeting of stockholders may be
taken without such a meeting, without prior notice and without a vote, if a
consent or consents in writing setting forth the action to be taken is signed by
the holders of outstanding stock representing the number of shares necessary to
take such action at a meeting at which all shares entitled to vote were present.
The Uniroyal Certificate does not provide otherwise. In addition, Uniroyal's
By-Laws require prompt notice to all stockholders who have not consented in
writing.
Under the MBCL any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if all stockholders entitled to
vote consent to the action in writing. Neither the Crompton Articles nor the
Crompton By-Laws provide otherwise.
AMENDMENT OF CHARTER DOCUMENTS
Under the DGCL, charter amendments require the approval of the directors and
the vote of the holders of a majority of the outstanding stock and a majority of
each class of stock outstanding and entitled to vote thereon as a class, unless
the certificate of incorporation requires a greater proportion. The Uniroyal
Certificate does not require a greater proportion. In addition, the DGCL
requires a class vote when, among other things, an amendment will alter or
change the powers, preferences or special rights of a class of stock so as to
affect them adversely.
Under the MBCL, amendments to a corporation's articles of organization
relating to certain changes in capital stock or in the corporate name require
the vote of at least a majority of each class of stock outstanding and entitled
to vote thereon. Amendments relating to other matters require a vote of at least
two-thirds of each class outstanding and entitled to vote thereon or, if the
articles of organization so provide, a greater or lesser proportion but not less
than a majority of the outstanding shares of each class entitled to vote
thereon. Under the MBCL, the articles of organization or by-laws may provide
that all outstanding classes of stock vote as a single class, but the separate
vote of any class of stock, the rights of which would be adversely affected by
the amendment, is also required. The Crompton Articles require the affirmative
vote of the holders of at least 80% of the voting power of the outstanding
shares of capital stock of Crompton entitled to vote generally in elections of
directors, voting as a single class, to amend the provisions of the Crompton
Articles regarding composition of the Crompton Board of Directors or the voting
requirements for certain "Business Combinations" involving an "Interested
Stockholder" (as such terms are defined in the Crompton Articles).
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VOTING RIGHTS OF PREFERRED STOCKHOLDERS
Under the Uniroyal Certificate, holders of Uniroyal's Series A Preferred
Stock have no general voting rights. If, however, the company is in arrears of
four or more quarterly dividends, then the number of Directors shall be
increased by one and the holders of Series A Preferred Stock, as a class, are
entitled to elect one Director. The Uniroyal Certificate also entitles holders
of Series A Preferred Stock to vote on all proposed changes to the Uniroyal
Certificate which would adversely affect the preferences, rights, powers or
privileges of the Series A Preferred Stock and to vote on the issuance of any
class of shares prior to it with respect to dividends or liquidation.
The Uniroyal Certificate provides the holders of Series B Preferred Stock
with no general voting rights, except that a majority, voting as a class, must
consent to (i) amendments of the Uniroyal Certificate that would adversely
affect the preferences, rights, powers or privileges of the Series B Preferred
Stock, and (ii) the creation, authorization, or issuance of any class of stock
prior to the Series B Preferred Stock.
Under the terms of the Merger, holders of Uniroyal Preferred Stock will
receive shares of Crompton Common Stock. These shares carry voting rights as
described elsewhere herein and in greater detail in Crompton's governing
instruments. In general, the Crompton Articles entitle stockholders to one vote
per share of Crompton Common Stock.
STOCKHOLDER VOTING
The DGCL generally requires a majority vote of the shares of stock of each
constituent corporation outstanding and entitled to vote in order to effectuate
a merger between two Delaware corporations or between a Delaware corporation and
a corporation organized under the laws of another state (a "foreign"
corporation).
The MBCL provides that a merger between two or more Massachusetts
corporations must be approved by two-thirds of the shares of each class of stock
of each constituent corporation outstanding and entitled to vote thereon or by
such lesser proportion (but not less than a majority) thereof as a corporation's
articles of organization may provide. Where the merger is between one or more
Massachusetts corporations and one or more foreign corporations and the
surviving corporation is to be a foreign corporation, the foregoing vote is
required for the domestic corporation under the MBCL, but the foreign
corporation is required only to comply with the applicable provisions of its
jurisdiction of incorporation. In addition, the Crompton Articles require in the
event of a "Business Combination" involving an "Interested Stockholder" (as
those terms are defined in the Crompton Articles) the affirmative vote of the
holders of at least 80% of the voting power of the then outstanding shares of
voting stock, voting together as a single class. An exception to this
requirement applies when a majority of the "Continuing Directors" (as defined in
the Crompton Articles) approves the "Business Combination" and a set of specific
price-related conditions are met.
CONTROL SHARE STATUTES
The DGCL does not have a control share statute, and the Uniroyal governing
instruments contain no comparable provisions.
Massachusetts has adopted a "control share" statute under which a person who
acquires voting stock of a Massachusetts corporation which results in such
person's voting power exceeding certain specified amounts (20%, 33 1/3% and 50%)
would lose the right to vote such stock unless the stockholders of the
corporation so authorize. Such authorization requires the affirmative vote of
the holders of a majority of all shares entitled to vote generally in the
election of directors, excluding the acquiring person's shares. Any person
making such a control share acquisition may file a statement with the
corporation demanding that the corporation call a stockholders' meeting to vote
on whether to reinstate that person's voting rights. Stockholders who vote not
to reinstate such voting rights may demand certain appraisal rights in the event
such voting rights are reinstated. In the absence of an affirmative
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election to opt out by amending its articles of organization or by-laws, the
control share statute applies to a Massachusetts corporation which has (i) 200
stockholders of record, (ii) its principal executive office or substantial
assets within Massachusetts and (iii) either more than 10% of its stockholders
of record residing within Massachusetts or more than 10% of its issued and
outstanding shares held by Massachusetts residents. To date, Crompton has not so
opted out.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
Section 203 of The DGCL ("Section 203") prohibits a Delaware corporation
from engaging in a "business combination" with an "interested stockholder" (as
defined below) for three years following the date that such person becomes an
interested stockholder. With certain exceptions, an interested stockholder is a
person or group who or which owns 15% or more of the corporation's outstanding
voting stock (including any rights to acquire stock pursuant to an option,
warrant, agreement, arrangement or understanding, or upon the exercise of
conversion or exchange rights, and stock with respect to which the person has
voting rights only), or is an affiliate or associate of the corporation which
was the owner of 15% or more of such voting stock at any time within the
previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to 10% or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested stockholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); and receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the time on which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
an interested stockholder (excluding shares held by certain affiliates of the
corporation and certain employee stock plans); or (iii) at or subsequent to the
time such person becomes an interested stockholder, the business combination is
approved by both the board of directors and 66 2/3% of the outstanding voting
stock of the corporation (excluding shares held by the interested stockholder).
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, is quoted on an
interdealer quotation system such as Nasdaq or is held of record by more than
2,000 stockholders. A Delaware corporation may elect in its original certificate
of incorporation, or by amending its certificate of incorporation or bylaws,
that it will not be governed by Section 203. Any such amendment must be approved
by the stockholders and may not be further amended by the board of directors.
Uniroyal is subject to the provisions of Section 203 and has not elected not to
be governed by Section 203.
Crompton is subject to the provisions of Chapter 110F of the Massachusetts
General Laws, an anti-takeover law. In general, this statute prohibits a
publicly held Massachusetts corporation with sufficient ties to Massachusetts
from engaging in a "business combination" with an "interested stockholder" (as
defined below) for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless either (i) prior to
the date on which such stockholder becomes an interested stockholder the board
of directors approves either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) the
interested stockholder owns 90% of the corporation's outstanding voting stock
upon consummation of the
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transaction which made him an interested stockholder (excluding shares held by
certain affiliates of the corporation); or (iii) on or after the date such
person becomes an interested stockholder, the business combination is approved
by both the board of directors and two-thirds of the outstanding voting stock of
the corporation (excluding shares held by the interested stockholder). An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 5% or
more of the corporation's voting stock. A "business combination" includes
mergers, stock and asset sales, and other transactions resulting in a financial
benefit to the stockholder. Crompton has not elected not to be governed by
Chapter 110F. Crompton, however, may at any time amend the Crompton Articles or
Crompton By-Laws to elect not to be governed by Chapter 110F by a vote of the
holders of a majority of its voting stock, but such an amendment would not be
effective for twelve months and would not apply to a business combination with
any person who became an interested stockholder prior to the date of the
amendment.
APPRAISAL RIGHTS
The DGCL provides for dissenters' appraisal rights only in the case of a
statutory merger or consolidation of the corporation where the petitioning
stockholder has neither voted in favor of or consented in writing to the
transaction. In addition, no dissenters' appraisal rights are available where
the corporation is to be the surviving corporation and a vote of its
stockholders is not required under DGCL Section 251(f). Unless otherwise
provided for in a corporation's certificate of incorporation, there are no
dissenters' appraisal rights for shares of stock listed on a national securities
exchange or held by more than 2,000 holders of record, unless such stockholders
would be required to accept anything other than shares of stock of the surviving
corporation, shares of another corporation so listed or held by such number of
holders or record, cash in lieu of fractional shares of such stock or any
combination thereof. The Uniroyal governing instruments do not provide
otherwise.
Under the MBCL, a stockholder of a Massachusetts corporation who complies
with statutory procedures is entitled to demand payment for his or her stock and
an appraisal in the event that the corporation has voted (i) to sell, lease or
exchange all or substantially all of its property and assets, (ii) to adopt any
amendment of its articles of organization which adversely affects the rights of
such stockholder or (iii) to merge or consolidate with another corporation,
unless a vote of stockholders was not required to approve such merger or
consolidation. The Crompton governing instruments do not provide otherwise.
AMENDMENT OF BY-LAWS
Under the DGCL, the stockholders of a corporation entitled to vote and, when
provided in the certificate of incorporation, the directors of the corporation,
have the power to adopt, amend and repeal the by-laws of a corporation. The
Uniroyal Certificate does not grant the directors of Uniroyal such power.
Under the MBCL, stockholders have the power to make, amend or repeal by-laws
and, if authorized in the articles of organization of the corporation, the
by-laws may provide that directors may also make, amend or repeal by-laws,
except with respect to any provision thereof which by law, the articles of
organization or the by-laws requires action by stockholders. Any by-law adopted
by the directors of the corporation may be amended or repealed by the
stockholders. The Crompton Articles provide that a majority of the Board of
Directors then in office shall have power to make, alter, amend, or repeal the
Crompton By-Laws, except with respect to any provision thereof which by law, the
Crompton Articles, or the Crompton By-Laws requires action by the stockholders.
Under the Crompton Articles, amendment of the Crompton Articles relating to the
Board of Directors requires the affirmative vote of the holders of at least 80%
of the voting power of the then outstanding shares of capital stock of Crompton
entitled to vote generally in the election of directors, voting together as a
single class. The Crompton By-Laws provide similarly.
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LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
The DGCL allows a corporation to include in its certificate of incorporation
a provision that limits or eliminates the personal liability of directors to the
corporation and its stockholders for monetary damages for breach of fiduciary
duty as a director. It does not, however, permit a corporation to limit or
eliminate the personal liability of a director for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) intentional or negligent payment of unlawful dividends
or unlawful stock purchases or redemptions or (iv) any transaction from which
the director derived an improper personal benefit. Uniroyal's Certificate of
Incorporation provides for limitations on directors' liability to Uniroyal to
the fullest extent permitted by the DGCL.
The DGCL provides that a corporation may, and the Uniroyal By-Laws provide
that Uniroyal shall, indemnify any person party to any action, suit or
proceeding by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another organization
by, among other things, a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, provided that such officer
or director acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation. Uniroyal's
By-Laws permit the Uniroyal Board to purchase and maintain insurance on behalf
of present or past directors, officers, employees or agents.
The MBCL allows a corporation to include in its articles of organization a
provision that limits or eliminates the personal liability of directors to the
corporation and its stockholders for monetary damages for breach of fiduciary
duty as a director. The Crompton Articles include provisions eliminating the
personal liability of Crompton's directors for monetary damages resulting from
breaches of their fiduciary duty except (i) for any breach of the director's
duty of loyalty to Crompton 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 Sections 61 and 62 of the MBCL, or (iv) with respect to any
transaction from which the director derived an improper personal benefit.
The MBCL also provides that indemnification of directors, officers,
employees and other agents of a corporation, and persons who serve at its
request as directors, officers, employees or other agents of another
organization, may be provided by it to whatever extent specified in or
authorized by (i) the articles of organization, (ii) a by-law adopted by the
stockholders or (iii) a vote adopted by the holders of a majority of the shares
of stock entitled to vote on the election of directors. Crompton's By-Laws
provide for indemnification of its directors and officers to the full extent
permitted by the MBCL. The Crompton By-Laws also authorize the Board to purchase
insurance on behalf of any such person or persons whether or not they are
entitled to indemnification and whether or not Crompton could indemnify them.
CLASSIFIED BOARD OF DIRECTORS
The DGCL permits, but does not require, a classified board of directors,
with staggered terms under which one-half or one-third of the directors are
elected for terms of two or three years, respectively. Neither the Uniroyal
Certificate nor the Uniroyal By-Laws provides for a classified board.
The MBCL generally requires that publicly-held Massachusetts corporations
have a classified board of directors consisting of three classes as nearly equal
in size as possible, unless those corporations elect to opt out of the statute's
coverage. Crompton has not opted out of this provision, and its Board of
Directors is divided into three classes, each of which serves a three year term.
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CUMULATIVE VOTING FOR DIRECTORS
The DGCL permits cumulative voting for directors to the extent provided for
in a Delaware corporation's certificate of incorporation. The Uniroyal
Certificate does not provide for cumulative voting.
While the MBCL does not expressly prohibit cumulative voting, it is
generally understood that cumulative voting is not permitted in Massachusetts
corporations. The Crompton governing instruments do not provide for cumulative
voting.
REMOVAL OF DIRECTORS
Under the DGCL, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors, except (i) unless the certificate
of incorporation otherwise provides, in the case of a corporation having a
classified board, stockholders may effect such removal only for cause and (ii)
in the case of a corporation having cumulative voting, if less than the entire
board is to be removed, no director may be removed without cause if the votes
cast against his removal would be sufficient to elect him if then cumulatively
voted at an election of the entire board of directors. The Uniroyal governing
documents do not provide otherwise.
Under the MBCL, unless the articles of organization or by-laws provide
otherwise, (i) directors selected by stockholders may be removed with or without
cause by the vote of the holders of a majority of the shares entitled to vote in
the election of directors, provided that the directors of a class elected by a
particular class of stockholders may be removed only by the vote of the holders
of a majority of the shares of the particular class of stockholders entitled to
vote for the election of such directors; and (ii) any director elected by the
stockholders may be removed from office for cause by vote of a majority of the
directors then in office. A director may be removed for cause only after
reasonable notice and an opportunity to be heard before the body proposing to
remove such director. Furthermore, the MBCL provides that stockholders of a
corporation having a classified board may remove directors only for cause by a
vote of a majority of shares outstanding and entitled to vote. Crompton
currently maintains a classified board. Under the Crompton Certificate and
Crompton By-Laws, any director may be removed from office by stockholder vote at
any time, with or without assigning any cause, but only by the affirmative vote
of the holders of at least 80% of the voting power of the then outstanding
shares of Crompton capital stock entitled to vote generally in the election of
directors, voting together as a single class. In addition, any director may be
removed from office for cause by vote of a majority of the directors then in
office.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
The DGCL provides that vacancies and newly created directorships may be
filled by a majority of the directors then in office (even though less than a
quorum) unless (i) otherwise provided in the certificate of incorporation or
by-laws of the corporation, or (ii) the certificate of incorporation directs
that a particular class is to elect such director, in which case any other
directors elected by such class, or a sole remaining directors, shall fill such
vacancy. In addition, if, at the time of filling any vacancy or newly created
directorship, the directors then in office constitute less than a majority of
the whole board, the Delaware Court of Chancery may, upon application of
stockholders holding at least ten percent of the shares outstanding at the time
and entitled to vote for such directors, summarily order an election to be held
to fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office. Such elections are to be
conducted in accordance with the procedures provided by the DGCL. Unless
otherwise provided in the certificate of incorporation or bylaws, when one or
more directors resign from the board, a majority of directors then in office,
including those who have so resigned, may vote to fill the vacancy. The Uniroyal
Certificate provides that vacancies created by reason of death, removal or
resignation may be filled by the remaining directors.
106
<PAGE>
The MBCL provides that, unless otherwise provided in a corporation's
articles of organization, any vacancy in the board of directors (including a
vacancy resulting from the enlargement of the board) may be filled in the manner
prescribed in the by-laws or in the absence of such a by-law, by the directors.
The Crompton By-Laws provide that any such vacancy shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors. Under the Crompton By-Laws,
any director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the numbers of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
SPECIAL MEETINGS
Under the DGCL, special meetings of stockholders may be called by the board
of directors and by such other person or persons authorized to do so by the
corporation's certificate of incorporation or bylaws. Under the Uniroyal
By-Laws, a special meeting of stockholders may be called by the president and
shall be called by the president or secretary at the request in writing of
stockholders owning a majority in amount of the Uniroyal Common Stock issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. When any contract to which Uniroyal is a
party, or any other obligation of Uniroyal, requires the corporation to take
action which it may not do without the approval of the Uniroyal stockholders,
such requests shall be made as soon as is reasonably practicable. Written notice
of a special meeting stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called, must be given not less than
ten or more than sixty days before the date of the meeting, to each stockholder
entitled to vote at such meeting. Business transacted at any special meeting of
stockholders is limited to the purposes stated in the notice.
Under the MBCL, special meetings of stockholders of a corporation with a
class of voting stock registered under the Exchange Act may be called by the
president or by the directors and, unless otherwise provided in the articles of
organization or by-laws, shall be called by the clerk, or in case of the death,
absence, incapacity or refusal of the clerk, by any other officer, upon written
application of one or more stockholders who hold at least 40% in interest of the
capital stock entitled to vote thereat. In case none of the officers is able and
willing to call a special meeting, the supreme judicial or superior court, upon
application of one or more stockholders who hold at least 40% in interest, or
such other percentage as specified in the corporation's articles of organization
or by-laws, of the capital stock entitled to vote thereat, will have
jurisdiction in equity to authorize one or more of such stockholders to call a
meeting by giving such notice as is required by law. The Crompton By-Laws
provide that special meetings of the stockholders may be called by the President
or the Board of Directors. Special meetings of the stockholders may also be
called by the clerk, or in the case of the death, absence, incapacity or refusal
of the clerk, by another officer, upon written application of one or more
stockholders who are entitled to vote and who hold at least 40% of the interest
of the capital stock entitled to vote at the meeting. Each call of a meeting is
to state the place, date, hour, and purpose of the meeting.
INSPECTION RIGHTS
The DGCL provides that any stockholder, upon written demand stating the
purpose of the inspection, shall have the right to inspect for any proper
purpose the corporation's stock ledger, a list of its stockholders, and, its
other books and records.
The MBCL generally provides that a stockholder may inspect a corporation's
articles of organization, its by-laws, records of its meetings of incorporators
and stockholders, a list of its stockholders, and its other stock and transfer
records for any proper purpose.
107
<PAGE>
ELECTION OF DIRECTORS
The DGCL requires that the board consist of more than one member and that
directors shall be elected by a plurality of the votes of shares entitled to
vote and present in person or represented by proxy at the meeting. The Uniroyal
Certificate provides that Uniroyal's Board of Directors will consist of not less
than three, and no more than five, directors. The number of directors may be
changed only by amending the Certificate. Uniroyal's Board of Directors
currently consists of five directors.
The Crompton Articles provide that Crompton's Board of Directors will
consist of not less than six or more than fifteen directors, with the exact
number to be fixed by majority resolution of the Board of Directors, and that
directors shall be elected by a plurality of the votes properly cast for the
election thereof. The Crompton Articles also provide that any alteration of this
provision requires the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares voting together as a class.
Crompton's Board of Directors currently consist of nine directors.
DIVIDENDS
Under the DGCL, a corporation generally is permitted to declare and pay
dividends out of surplus or out of net profits for the current and/or preceeding
fiscal year, provided such dividends will not reduce capital below the amount of
capital represented by all classes of stock having a preference upon the
distribution of assets. Under the Uniroyal Certificate, holders of the Uniroyal
Common Stock and Uniroyal Preferred Stock shall be entitled to receive dividends
when, as and if declared by the Uniroyal Board. However, under the Uniroyal
Certificate, dividends on the Series B Preferred Stock cumulate and must be paid
in full before dividends may be paid with respect to the Series A Preferred
Stock and the Uniroyal Common Stock. Furthermore, dividends on the Series A
Preferred Stock also cumulate and must be paid in full before dividends may be
paid on the Uniroyal Common Stock.
Under the MBCL, the payment of dividends is generally permissible if such
action is not taken when the corporation is insolvent, does not render the
corporation insolvent and does not violate the corporation's articles of
incorporation. The Crompton Articles provide that dividends on Crompton Common
Stock shall be payable when and as declared by the Crompton Board.
STOCKHOLDER RIGHTS PLAN
Crompton. Crompton has distributed one preferred share purchase right on
each outstanding share of Crompton Common Stock. The rights entitle the
stockholders to certain rights in the event of certain transactions involving
Crompton. See "Description of Crompton Capital Stock--Preferred Share Purchase
Rights."
Uniroyal. On April 29, 1993, the Board of Directors of Uniroyal declared a
dividend of one preferred stock purchase right on each outstanding share of
Uniroyal Common Stock. The rights, which expire on April 29, 2003, were issued
on April 29, 1993 to stockholders of record on that date and were authorized to
be issued in respect of each share of Uniroyal Common Stock subsequently issued.
Under certain circumstances each right will entitle the holder to purchase one
one-hundredth of a share of Series C Junior Participating Preferred Stock, par
value $0.01 per share, of Uniroyal at an exercise price of $60 per one
one-hundredth of a share, subject to adjustment. The rights will not be
exercisable or transferable apart from the Uniroyal Common Stock until the
earlier to occur of either: (i) ten days following Uniroyal becoming aware that
a person or group has acquired 15% or more of the outstanding Uniroyal Common
Stock (the "Stock Acquisition Date"), or (ii) ten business days following
commencement of a tender or exchange offer which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding Uniroyal Common
Stock. The rights will not have any voting rights or be entitled to dividends.
If, after the Stock Acquisition Date, Uniroyal is acquired in a merger or
other business combination transaction or 50% or more of its consolidated assets
or earning power is sold, each holder of a right shall thereafter have the right
to receive on exercise of the right, that number of shares of common stock
108
<PAGE>
of the acquiring company which at the time of such transaction would have a
market value of two times the exercise price of the right. In addition, in the
event a person or group shall become the beneficial owner of 15% or more of the
outstanding Uniroyal Common Stock (an "Acquiring Person") (except pursuant to an
offer for all outstanding shares of Uniroyal Common Stock which the independent
directors determine to be fair to and otherwise in the best interests of
Uniroyal and its stockholders), each holder of a right other than an Acquiring
Person shall have the right, upon exercise of a right, to purchase shares of
Uniroyal Common Stock having a market value equal to two times the exercise
price of the right. Notwithstanding the foregoing, any 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 rights. The rights are redeemable at $.01
per right at any time prior to ten days following the time that a person or
group acquires beneficial ownership of 15% or more of the outstanding Uniroyal
Common Stock.
109
<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.
110
<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.
LEGAL MATTERS
The validity of the shares of Crompton Common Stock to be issued in the
Merger will be passed upon for Crompton by Wachtell, Lipton, Rosen & Katz,
special counsel to Crompton.
Certain federal income tax matters related to the Merger will be passed upon
for Uniroyal by Skadden, Arps, Slate, Meagher & Flom, and for Crompton by
Wachtell, Lipton, Rosen & Katz.
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 incorporated by reference herein and in the
Registration Statement in reliance upon the report of Deloitte & Touche LLP,
independent auditors, given upon the authority of such firm as experts in
accounting and auditing.
STOCKHOLDER PROPOSALS
Any Crompton Stockholder who intends to present a proposal at Crompton's
1997 Annual Meeting of Stockholders for inclusion in the proxy statement and
form of proxy relating to that meeting is advised that the proposal must be
received by Crompton at its principal executive offices not later than November
15, 1996. Crompton will not be required to include in its proxy statement a form
of proxy or stockholder proposal which is received after that date or which
otherwise fails to meet the requirements for stockholder proposals established
by regulations of the Commission.
Any Uniroyal Stockholder who intends to present a proposal at Uniroyal's
1997 Annual Meeting of Stockholders for inclusion in the proxy statement and
form of proxy relating to that meeting is advised that the proposal must be
received by Uniroyal at its principal executive offices not later than October
11, 1996. Uniroyal will not be required to include in its proxy statement a form
of proxy or stockholder proposal which is received after that date or which
otherwise fails to meet the requirements for stockholder proposals established
by regulations of the Commission. If the Merger is consummated, there will be no
1997 Annual Meeting of Uniroyal Stockholders.
111
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF CROMPTON & KNOWLES CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS:
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:
Consolidated Statements of Earnings (Unaudited) for the quarters ended March 30,
1996 and April 1, 1995........................................................... F-17
Consolidated Balance Sheets (Unaudited) at March 30, 1996 and December 30, 1995.... F-18
Consolidated Statements of Cash Flows (Unaudited) for the quarters ended March 30,
1996 and April 1, 1995........................................................... F-19
Notes to Consolidated Financial Statements for the Quarter ended March 30, 1996
(Unaudited)...................................................................... F-20
</TABLE>
F-1
<PAGE>
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>
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>
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>
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>
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>
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>
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Revolving credit loans.................................. $60,000 $50,000
Industrial revenue bonds................................ 4,000 4,000
------- -------
Total long-term debt.............................. $64,000 $54,000
------- -------
------- -------
</TABLE>
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>
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 may be granted
under the 1988 plan at prices not less than 100% of the market value on the date
of the
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
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 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,
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
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.
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
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
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
-------- -------- --------
-------- -------- --------
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
-------- -------- --------
-------- -------- --------
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Information by Major Geographic Segment
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
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>
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
</TABLE>
<TABLE>
<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>
UNAUDITED CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
QUARTERS ENDED MARCH 30, 1996 AND APRIL 1, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 30, APRIL 1,
1996 1995
--------- --------
<S> <C> <C>
Net sales.............................................................. $ 164,840 $168,193
Cost of products sold................................................ 116,948 116,559
Selling, general and administrative.................................. 27,094 25,422
Depreciation and amortization........................................ 4,009 3,725
Interest............................................................. 2,037 1,568
Other income......................................................... (252) (228)
--------- --------
Total costs and expenses......................................... 149,836 147,046
--------- --------
--------- --------
Earnings before income taxes........................................... 15,004 21,147
Income taxes........................................................... 5,536 7,951
Net earnings........................................................... $ 9,468 $ 13,196
Net earnings per common share.......................................... $ .20 $ .27
Dividends per common share............................................. $ .135 $ .12
Average shares outstanding............................................. 48,318 48,921
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
UNAUDITED CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 30, 1996 AND DECEMBER 30, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 30,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................... $ 2,599 $ 918
Accounts receivable................................................ 123,779 112,693
Inventories........................................................ 163,210 154,846
Other current assets............................................... 25,589 23,038
--------- ------------
Total current assets........................................... 315,177 291,495
NON-CURRENT ASSETS
Property, plant and equipment...................................... 135,051 129,991
Cost in excess of acquired net assets.............................. 60,525 51,922
Other assets....................................................... 10,765 10,730
--------- ------------
$ 521,518 $484,138
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable...................................................... $ 57,886 $ 60,439
Accounts payable................................................... 60,991 49,415
Accrued expenses................................................... 41,916 35,136
Income taxes payable............................................... 8,141 3,747
Other current liabilities.......................................... 21,894 16,578
--------- ------------
Total current liabilities...................................... 190,828 165,315
NON-CURRENT LIABILITIES
Long-term debt..................................................... 74,000 64,000
Accrued postretirement liability................................... 7,635 7,559
Deferred income taxes.............................................. 7,197 7,217
STOCKHOLDERS' EQUITY
Common stock....................................................... 5,336 5,336
Additional paid-in capital......................................... 59,557 59,440
Retained earnings.................................................. 237,098 234,113
Accumulated translation adjustment................................. 4,797 6,320
Treasury stock at cost............................................. (62,890) (62,972)
Deferred compensation.............................................. (2,040) (2,190)
--------- ------------
Total stockholders' equity..................................... 241,858 240,047
--------- ------------
--------- ------------
$ 521,518 $484,138
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
UNAUDITED CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTERS ENDED MARCH 30, 1996 AND APRIL 1, 1995
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 30, APRIL 1,
1996 1995
--------- --------
<S> <C> <C>
Increase (decrease) to cash
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings......................................................... $ 9,468 $ 13,196
Adjustments to reconcile net earnings to net cash provided by
operations:
Depreciation and amortization...................................... 4,009 3,726
Deferred compensation.............................................. 150 473
Changes in assets and liabilities, net............................. 663 (12,979)
Net cash provided by operations................................ 14,290 4,416
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions......................................................... (10,025) (8,633)
Capital expenditures................................................. (2,967) (5,733)
Other investing activities........................................... (635) 457
Net cash used by investing activities.......................... (13,627) (13,909)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings................................... 10,000 --
Change in notes payable.............................................. (2,510) 19,851
Net treasury stock activity.......................................... 35 (3,607)
Dividends paid....................................................... (6,483) (5,814)
Net cash provided by financing activities...................... 1,042 10,430
CASH
Effect of exchange rates on cash..................................... (24) 34
Change in cash....................................................... 1,681 971
Cash at beginning of period.......................................... 918 1,832
Cash at end of period................................................ $ 2,599 $ 2,803
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 30, 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
$3,640 in 1996 and $3,269 at December 30, 1995.
Accumulated depreciation amounted to $102,385 in 1996 and $99,292 at
December 30, 1995.
Accumulated amortization of cost in excess of acquired net assets amounted
to $8,665 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
5,334,321 shares and 5,351,962 shares were held in the treasury at March 30,
1996 and December 30, 1995, respectively.
INVENTORIES
Components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 30,
1996 1995
--------- ------------
<S> <C> <C>
Finished goods...................................... $ 95,816 $ 89,177
Work in process..................................... 31,030 30,316
Raw materials and supplies.......................... 36,364 35,353
--------- ------------
$ 163,210 $154,846
--------- ------------
--------- ------------
</TABLE>
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. The acquisition has 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
purchase price over fair value of net assets acquired in the amount of $8,392 is
being
F-20
<PAGE>
amortized over forty years. The operating results are included in the
consolidated statements of earnings since the date of acquisition.
BUSINESS SEGMENT DATA
QUARTER ENDED
---------------------
MARCH 30, APRIL 1,
1996 1995
--------- --------
SALES
Specialty chemicals................................... $ 96,083 $102,542
Specialty process equipment and controls.............. 68,757 65,651
$ 164,840 $168,193
OPERATING PROFIT
Specialty chemicals................................... $ 12,791 $ 15,591
Specialty process equipment and controls.............. 7,106 10,057
General corporate expense............................. (3,108) (3,161)
16,789 22,487
Interest expense...................................... (2,037) (1,568)
Other income.......................................... 252 228
Earnings before income taxes.......................... $ 15,004 $ 21,147
SUBSEQUENT EVENT
On April 30, 1996 the Company entered into an agreement and plan of merger
with Uniroyal Chemical Corporation ("Uniroyal"), a $1.1 billion manufacturer of
chemicals and polymers including rubber chemicals, crop protection chemicals and
chemicals and additives for the plastics and lubricants industries. Under the
terms of the agreement and subject to the conditions contained therein, among
other things, each share of Uniroyal common stock will be exchanged for common
stock of the Company valued at $15 based on the average price of the Company's
stock over a period of twenty trading days ending with the third trading day
preceding the date of the mailing of proxy materials. However, the Company will
issue no more than 1.1111 shares, nor less than .9091 shares, for each share of
Uniroyal common stock. Each share of Uniroyal'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 the Company's common stock equal to the exchange ratio
multiplied by 6.667.
The merger agreement provides that Uniroyal would be required to pay the
Company a termination fee of $50 million if the merger agreement is terminated
(i) under certain circumstances following receipt of a proposal for a competing
transaction and a competing transaction is consummated within one year following
such termination or (ii) after Uniroyal's determination to terminate the merger
agreement to pursue a competing transaction that would be more favorable to
Uniroyal stockholders than the proposed merger with the Company.
The merger is subject to the satisfaction or waiver of various conditions,
including approval by the stockholders of both Uniroyal and the Company,
Hart-Scott-Rodino and other regulatory approvals and availability of tax-free
status and pooling of interests accounting treatment. The anticipated closing
date of the merger is during the Company's third calendar quarter.
F-21
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
CROMPTON & KNOWLES CORPORATION
("Crompton"),
TIGER MERGER CORP.
a wholly owned direct subsidiary of Crompton
("Subcorp"),
and
UNIROYAL CHEMICAL CORPORATION
("Uniroyal")
April 30, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGREEMENT AND PLAN OF MERGER.......................................................... A-1
PRELIMINARY STATEMENTS................................................................ A-1
AGREEMENT............................................................................. A-1
ARTICLE I: THE MERGER................................................................. A-1
1.1 The Merger................................................................... A-1
1.2 Effective Time............................................................... A-1
1.3 Effects of the Merger........................................................ A-2
1.4 Certificate of Incorporation and Bylaws...................................... A-2
1.5 Directors and Officers....................................................... A-2
1.6 Additional Actions........................................................... A-2
ARTICLE II: CONVERSION OF SECURITIES.................................................. A-2
2.1 Conversion of Capital Stock.................................................. A-2
2.2 Exchange Ratio; Fractional Shares............................................ A-3
2.3 Exchange of Certificates..................................................... A-3
(a) Exchange Agent......................................................... A-3
(b) Exchange Procedures.................................................... A-3
(c) Distributions with Respect to Unexchanged Shares....................... A-4
(d) No Further Ownership Rights in Uniroyal Common Stock and Uniroyal
Preferred Stock........................................................ A-4
(e) Termination of Exchange Fund........................................... A-5
(f) No Liability........................................................... A-5
(g) Investment of Exchange Fund............................................ A-5
2.4 Treatment of Stock Options and Warrants...................................... A-5
2.5 Dissenter's Rights........................................................... A-6
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF
CROMPTON AND SUBCORP.................................................... A-7
3.1 Organization and Standing.................................................... A-7
3.2 Subsidiaries................................................................. A-7
3.3 Corporate Power and Authority................................................ A-7
3.4 Capitalization of Crompton................................................... A-8
3.5 Conflicts, Consents and Approval............................................. A-8
3.6 Brokerage and Finder's Fees.................................................. A-9
3.7 Opinion of Financial Advisor................................................. A-9
3.8 Accounting Matters........................................................... A-9
3.9 Employee Benefit Plans....................................................... A-9
3.10 Crompton SEC Documents....................................................... A-11
3.11 Taxes........................................................................ A-11
3.12 Registration Statement....................................................... A-12
3.13 Compliance with Law.......................................................... A-12
3.14 Litigation................................................................... A-12
3.15 No Material Adverse Change................................................... A-12
3.16 Board Meeting................................................................ A-13
3.17 Undisclosed Liabilities...................................................... A-13
3.18 Labor Relations.............................................................. A-13
3.19 Operation of Crompton's Business............................................. A-13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.20 Permits; Compliance.......................................................... A-13
3.21 Environmental Matters........................................................ A-13
3.22 Uniroyal Stock Ownership..................................................... A-14
3.23 Contracts.................................................................... A-14
3.24 State Takeover Laws.......................................................... A-14
3.25 Crompton Rights Agreement.................................................... A-14
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF UNIROYAL................................ A-15
4.1 Organization and Standing.................................................... A-15
4.2 Subsidiaries................................................................. A-15
4.3 Corporate Power and Authority................................................ A-15
4.4 Capitalization of Uniroyal................................................... A-16
4.5 Conflicts; Consents and Approvals............................................ A-16
4.6 No Material Adverse Change................................................... A-16
4.7 Uniroyal SEC Documents....................................................... A-17
4.8 Taxes........................................................................ A-17
4.9 Compliance with Law.......................................................... A-17
4.10 Registration Statement....................................................... A-18
4.11 Litigation................................................................... A-18
4.12 Brokerage and Finder's Fees; Expenses........................................ A-18
4.13 Opinion of Financial Advisor................................................. A-18
4.14 Accounting Matters........................................................... A-18
4.15 Employee Benefit Plans....................................................... A-18
4.16 Contracts.................................................................... A-20
4.17 Labor Relations.............................................................. A-20
4.18 Undisclosed Liabilities...................................................... A-20
4.19 Operation of Uniroyal's Business............................................. A-20
4.20 Permits; Compliance.......................................................... A-20
4.21 Environmental Matters........................................................ A-21
4.22 Crompton Stock Ownership..................................................... A-21
4.23 Board Meeting................................................................ A-21
4.24 DGCL Section 203 and State Takeover Laws..................................... A-21
4.25 Uniroyal Rights Agreement.................................................... A-21
ARTICLE V: COVENANTS OF THE PARTIES................................................... A-22
5.1 Mutual Covenants............................................................. A-22
(a) General................................................................ A-22
(b) HSR Act................................................................ A-22
(c) Other Governmental Matters............................................. A-22
(d) Pooling-of-Interests................................................... A-22
(e) Tax-Free Treatment..................................................... A-22
(f) Public Announcements................................................... A-22
(g) Access................................................................. A-22
5.2 Covenants of Crompton........................................................ A-22
(a) Crompton Stockholders Meeting.......................................... A-22
(b) Preparation of Joint Proxy Statement................................... A-23
(c) Conduct of Crompton's Operations....................................... A-23
(d) Indemnification........................................................ A-23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(e) Directors' and Officers' Insurance..................................... A-24
(f) Employee Benefits...................................................... A-24
(g) Notification of Certain Matters........................................ A-24
(h) No Solicitation........................................................ A-25
(i) [Intentionally Omitted]................................................ A-25
(j) Listing Application.................................................... A-25
(k) Directors of Crompton.................................................. A-25
(l) Affiliates of Crompton................................................. A-25
(m) Change in Control...................................................... A-26
5.3 Covenants of Uniroyal........................................................ A-26
(a) Uniroyal Stockholders Meeting.......................................... A-26
(b) Information for the Registration Statement and Preparation of Joint
Proxy Statement........................................................ A-26
(c) Conduct of Uniroyal's Operations....................................... A-26
(d) No Solicitation........................................................ A-28
(e) Affiliates of Uniroyal................................................. A-28
(f) Notification of Certain Matters........................................ A-28
ARTICLE VI: CONDITIONS................................................................ A-29
6.1 Mutual Conditions............................................................ A-29
6.2 Conditions to Obligations of Uniroyal........................................ A-30
6.3 Conditions to Obligations of Crompton and Subcorp............................ A-30
ARTICLE VII: TERMINATION AND AMENDMENT................................................ A-31
7.1 Termination.................................................................. A-31
7.2 Effect of Termination........................................................ A-32
7.3 Amendment.................................................................... A-33
7.4 Extension; Waiver............................................................ A-33
ARTICLE VIII: MISCELLANEOUS........................................................... A-33
8.1 Survival of Representations and Warranties................................... A-33
8.2 Notices...................................................................... A-33
8.3 Interpretation............................................................... A-34
8.4 Counterparts................................................................. A-34
8.5 Entire Agreement............................................................. A-34
8.6 Third Party Beneficiaries.................................................... A-34
8.7 Governing Law................................................................ A-34
8.8 Specific Performance......................................................... A-34
8.9 Assignment................................................................... A-34
8.10 Expenses..................................................................... A-35
8.11 Incorporation of Disclosure Schedules........................................ A-35
8.12 Severability................................................................. A-35
8.13 Subsidiaries................................................................. A-35
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of the 30th day of April, 1996, by and among Crompton & Knowles
Corporation, a Massachusetts corporation ("Crompton"), Tiger Merger Corp., a
Delaware corporation and a wholly owned subsidiary of Crompton ("Subcorp"), and
Uniroyal Chemical Corporation, a Delaware corporation ("Uniroyal").
PRELIMINARY STATEMENTS
A. Crompton desires to acquire the specialty chemical business and other
businesses operated by Uniroyal through the merger (the "Merger") of Subcorp
with and into Uniroyal, with Uniroyal as the surviving corporation, pursuant to
which each share of Uniroyal Common Stock (as defined in Section 4.4) and each
share of Uniroyal Preferred Stock (as defined in Section 2.1(c)) outstanding at
the Effective Time (as defined in Section 1.2) will be converted into the right
to receive shares of Crompton Common Stock (as defined in Section 3.4) as more
fully provided herein.
B. Uniroyal desires to combine its specialty chemical and other businesses
with the specialty chemical and related businesses operated by Crompton and for
the holders of shares of Uniroyal Common Stock ("Uniroyal Stockholders") to have
a continuing equity interest in the combined Crompton/Uniroyal businesses.
C. The parties intend that the Merger constitute a tax-free "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
D. The parties intend that the Merger be accounted for as a
pooling-of-interests for financial reporting purposes.
E. The respective Boards of Directors of Crompton, Subcorp and Uniroyal have
determined the Merger in the manner contemplated herein to be desirable and in
the best interests of their respective stockholders and, by resolutions duly
adopted, have approved and adopted this Agreement.
AGREEMENT
Now, therefore, in consideration of these premises and the mutual and
dependent promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, and in
accordance with the provisions of the Delaware General Corporation Law (the
"DGCL"), Subcorp shall be merged with and into Uniroyal as soon as practicable
following the satisfaction or waiver of the conditions set forth in Article VI.
Following the Merger, the separate corporate existence of Subcorp shall cease
and Uniroyal shall continue its existence under the laws of the State of
Delaware. Uniroyal, in its capacity as the corporation surviving the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Effective Time. The Merger shall be consummated by filing with the
Secretary of State of the State of Delaware (the "Delaware Secretary of State")
a certificate of merger (the "Certificate of Merger") in such form as is
required by and executed in accordance with Section 251(c) of the DGCL. The
Merger shall become effective (the "Effective Time") when the Certificate of
Merger has been filed with the Delaware Secretary of State or at such later time
as shall be specified in the Certificate of
A-1
<PAGE>
Merger. Prior to the filing referred to in this Section 1.2, a closing (the
"Closing") shall be held at the offices of Crompton, One Station Place, Metro
Center, Stamford, Connecticut, or such other place as the parties may agree on
the date (the "Closing Date") specified by the parties, which date shall be as
soon as practicable, but in any event within ten business days, following the
date upon which all conditions set forth in Article VI hereof have been
satisfied or waived or such other time as the parties may mutually agree.
1.3 Effects of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
1.4 Certificate of Incorporation and Bylaws. The Certificate of Merger shall
provide that at the Effective Time (i) the Certificate of Incorporation of the
Surviving Corporation as in effect immediately prior to the Effective Time shall
be amended as of the Effective Time so as to contain the provisions, and only
the provisions, contained immediately prior thereto in the Certificate of
Incorporation of Subcorp, except for Article I thereof which shall continue to
read "The name of the corporation is 'Uniroyal' ", and (ii) the By-laws of
Uniroyal in effect immediately prior to the Effective Time shall be the By-laws
of the Surviving Corporation, amended as of the Effective Time so as to contain
the provisions, and only the provisions, contained in the Bylaws of Subcorp
immediately prior thereto; in each case until amended in accordance with
applicable law.
1.5 Directors and Officers. From and after the Effective Time, the officers
of Uniroyal shall be the officers of the Surviving Corporation and the directors
of Subcorp shall be the directors of the Surviving Corporation, in each case
until their respective successors are duly elected and qualified. Prior to the
Effective Time, Uniroyal shall deliver to Crompton evidence satisfactory to
Crompton of the resignations of the directors of Uniroyal, such resignations to
be effective as of the Effective Time.
1.6 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary or desirable to
carry out the provisions of this Agreement, the proper officers and directors of
Crompton and Uniroyal shall take all such necessary action.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Crompton, Subcorp or Uniroyal:
(a) Each share of common stock, $0.01 par value, of Subcorp issued and
outstanding immediately prior to the Effective Time shall be converted into
one share of common stock, $0.01 par value, of the Surviving Corporation.
Such newly issued shares shall thereafter constitute all of the issued and
outstanding capital stock of the Surviving Corporation.
(b) Each share of Uniroyal Common Stock (other than shares to be
cancelled in accordance with Section 2.1(d)) issued and outstanding
immediately prior to the Effective Time shall be converted into and
represent a number of shares of Crompton Common Stock equal to the Exchange
Ratio (as defined below).
(c) Each share of the Series A Cumulative Redeemable Preferred Stock,
$0.01 par value per share, of Uniroyal (the "Uniroyal Series A Preferred
Stock") issued and outstanding immediately prior to the Effective Time
(other than shares to be cancelled in accordance with Section 2.1(d) and
other than Dissenting Shares covered by Section 2.5) shall be converted into
and represent a number of shares of Crompton Common Stock equal to the
Exchange Ratio multiplied by 6.667.
A-2
<PAGE>
Each share of the Series B Preferred Stock, $0.01 par value per share, of
Uniroyal (the "Uniroyal Series B Preferred Stock," and, together with the
Uniroyal Series A Preferred Stock, the "Uniroyal Preferred Stock") issued
and outstanding immediately prior to the Effective Time (other than shares
to be cancelled in accordance with Section 2.1(d) and other than Dissenting
Shares covered by Section 2.5) shall be converted into and represent a
number of shares of Crompton Common Stock equal to the Exchange Ratio
multiplied by 6.667.
(d) Each share of capital stock of Uniroyal held in the treasury of
Uniroyal or held by Crompton or any of its subsidiaries shall be cancelled
and retired and no payment shall be made in respect thereof.
2.2 Exchange Ratio; Fractional Shares. The "Exchange Ratio" shall equal
$15.00 divided by the "Acquiror Transaction Value" (as defined below), rounded
to four decimal places; provided, however, that notwithstanding the foregoing,
the Exchange Ratio shall not be less than 0.9091 nor more than 1.1111. The term
"Acquiror Transaction Value" shall mean the average closing price on the New
York Stock Exchange ("NYSE") Composite Tape of Crompton Common Stock for the
twenty (20) New York Stock Exchange trading days ending with the third New York
Stock Exchange trading day immediately preceding the date of mailing of the
Joint Proxy Statement (as defined in Section 3.12). No certificates for
fractional shares of Crompton Common Stock shall be issued as a result of the
conversions provided for in Section 2.1(b) and in Section 2.1(c). To the extent
that an outstanding share of Uniroyal Common Stock or Uniroyal Preferred Stock
would otherwise have become a fractional share of Crompton Common Stock, the
holder thereof, upon presentation of such fractional interest represented by an
appropriate certificate for Uniroyal Common Stock or Uniroyal Preferred Stock to
the Exchange Agent pursuant to Section 2.3, shall be entitled to receive a cash
payment therefor in an amount equal to the value (determined with reference to
the closing price of Crompton Common Stock on the NYSE Composite Tape on the
last full trading day immediately prior to the Effective Time) of such
fractional interest. Such payment with respect to fractional shares is merely
intended to provide a mechanical rounding off of, and is not a separately
bargained for, consideration. If more than one certificate representing shares
of Uniroyal Common Stock or Uniroyal Preferred Stock shall be surrendered for
the account of the same holder, the number of shares of Crompton Common Stock
for which certificates have been surrendered shall be computed on the basis of
the aggregate number of shares represented by the certificates so surrendered.
In the event that prior to the Effective Time Crompton shall declare a stock
dividend or other distribution payable in shares of Crompton Common Stock or
securities convertible into shares of Crompton Common Stock, or effect a stock
split, reclassification, combination or other change with respect to Crompton
Common Stock, the Exchange Ratio set forth in this Section 2.2 shall be adjusted
to reflect such dividend, distribution, stock split, reclassification,
combination or other change.
2.3 Exchange of Certificates.
(a) Exchange Agent. At or prior to the Effective Time, Crompton shall
deposit with an exchange agent designated by Crompton and reasonably
acceptable to Uniroyal (the "Exchange Agent"), for the benefit of Uniroyal
Stockholders and holders of Uniroyal Preferred Stock, for exchange in
accordance with this Section 2.3, certificates representing shares of
Crompton Common Stock issuable pursuant to Section 2.1 in exchange for
outstanding shares of Uniroyal Common Stock and Uniroyal Preferred Stock and
shall from time-to-time deposit cash in an amount reasonably expected to be
paid pursuant to Section 2.2 (such shares of Crompton Common Stock and cash,
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. Promptly and, in any event, within three (3)
business days after the Effective Time, Crompton shall cause the Exchange
Agent to mail to each holder of record of a certificate or certificates (the
"Certificates") which immediately prior to the Effective Time
A-3
<PAGE>
represented outstanding shares of Uniroyal Common Stock or Uniroyal
Preferred Stock whose shares were converted into the right to receive shares
of Crompton Common Stock pursuant to Section 2.1(b) or Section 2.1(c) (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form
and have such other provisions as Crompton may reasonably specify) and (ii)
instructions for effecting the surrender of the Certificates in exchange for
certificates representing shares of Crompton Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent, together with a duly
executed letter of transmittal, the holder of such Certificate shall be
entitled to receive in exchange therefor (x) a certificate representing that
number of shares of Crompton Common Stock which such holder has the right to
receive pursuant to Section 2.1 and (y) a check representing the amount of
cash in lieu of fractional shares, if any, and unpaid dividends and
distributions, if any, which such holder has the right to receive pursuant
to the provisions of this Article II, after giving effect to any required
withholding tax, and the shares represented by the Certificate so
surrendered shall forthwith be cancelled. No interest will be paid or
accrued on the cash in lieu of fractional shares, if any, and unpaid
dividends and distributions, if any, payable to holders of shares of
Uniroyal Common Stock or Uniroyal Preferred Stock. In the event of a
transfer of ownership of shares of Uniroyal Common Stock or Uniroyal
Preferred Stock which is not registered on the transfer records of Uniroyal,
a certificate representing the proper number of shares of Crompton Common
Stock, together with a check for the cash to be paid in lieu of fractional
shares, if any, and unpaid dividends and distributions, if any, may be
issued to such transferee if the Certificate representing such shares of
Uniroyal Common Stock or Uniroyal Preferred Stock held by such transferee is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.3, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon surrender a
certificate representing shares of Crompton Common Stock and cash in lieu of
fractional shares, if any, and unpaid dividends and distributions, if any,
as provided in this Article II.
(c) Distributions with Respect to Unexchanged Shares. Notwithstanding
any other provisions of this Agreement, no dividends or other distributions
declared or made after the Effective Time with respect to shares of Crompton
Common Stock having a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate, and no cash payment in lieu of
fractional shares shall be paid to any such holder, until the holder shall
surrender such Certificate as provided in this Section 2.3. Subject to the
effect of Applicable Laws (as defined in Section 3.13), following surrender
of any such Certificate, there shall be paid to the holder of the
certificates representing whole shares of Crompton Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of
Crompton Common Stock and not paid, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date
subsequent to surrender, the amount of dividends or other distributions with
a record date after the Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to such whole shares of
Crompton Common Stock, less the amount of any withholding taxes which may be
required thereon.
(d) No Further Ownership Rights in Uniroyal Common Stock and Uniroyal
Preferred Stock. All shares of Crompton Common Stock issued upon surrender
of Certificates in accordance with the terms hereof (including any cash paid
pursuant to this Article II) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Uniroyal Common
Stock or Uniroyal Preferred Stock represented thereby, and from and after
the Effective Time there shall be no further registration of transfers on
the stock transfer books of Uniroyal of shares of Uniroyal Common Stock or
Uniroyal Preferred Stock. If, after the Effective Time, Certificates are
presented
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to the Surviving Corporation for any reason, they shall be cancelled and
exchanged as provided in this Section 2.3.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to Uniroyal Stockholders and holders of Uniroyal
Preferred Stock for one (1) year after the Effective Time shall be delivered
to Crompton or the Surviving Corporation, upon demand thereby, and holders
of shares of Uniroyal Common Stock or Uniroyal Preferred Stock who have not
theretofore complied with this Section 2.3 shall thereafter look only to
Crompton for payment of any claim to shares of Crompton Common Stock, cash
in lieu of fractional shares thereof, or dividends or distributions, if any,
in respect thereof.
(f) No Liability. None of Crompton, the Surviving Corporation or the
Exchange Agent shall be liable to any person in respect of any shares of
Uniroyal Common Stock or Uniroyal Preferred Stock (or, in each case,
dividends or distributions with respect thereto) or cash from the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificates shall not have been
surrendered prior to seven years after the Effective Time of the Merger (or
immediately prior to such earlier date on which any cash, any cash in lieu
of fractional shares or any dividends or distributions with respect to whole
shares of Uniroyal Common Stock or Uniroyal Preferred Stock in respect of
such Certificate would otherwise escheat to or become the property of any
Governmental Authority (as defined in Section 3.5)), any such cash,
dividends or distributions in respect of such Certificate shall, to the
extent permitted by Applicable Law, become the property of Crompton, free
and clear of all claims or interest of any person previously entitled
thereto.
(g) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Crompton, on a daily
basis. Any interest and other income resulting from such investments shall
be paid to Crompton upon termination of the Exchange Fund pursuant to
Section 2.3(e).
2.4 Treatment of Stock Options and Warrants.
(a) Prior to the Effective Time, Crompton and Uniroyal shall take all
such actions as may be necessary to cause each unexpired and unexercised
option or right to purchase shares of Uniroyal Common Stock under stock
option plans and stock purchase plans of Uniroyal in effect on the date
hereof which has been granted to current or former directors, officers,
employees, consultants or independent contractors of Uniroyal or its
subsidiaries by Uniroyal (each, a "Uniroyal Option") to be automatically
converted at the Effective Time into an option (a "Crompton Exchange
Option") to purchase that number of shares of Crompton Common Stock equal to
the number of shares of Uniroyal Common Stock issuable immediately prior to
the Effective Time upon exercise of the Uniroyal Option (without regard to
actual restrictions on exercisability) multiplied by the Exchange Ratio,
with an exercise price equal to the exercise price which existed under the
corresponding Uniroyal Option divided by the Exchange Ratio, and with other
terms and conditions that are the same as the terms and conditions of such
Uniroyal Option immediately before the Effective Time (including, without
limitation, the acceleration of the exercisability of each such option upon
the consummation of the Merger and the length of the period of continuing
exercisability of each such option after any termination of the employment
of the respective optionee); provided that with respect to any Uniroyal
Option that is an "incentive stock option" within the meaning of Section 422
of the Code, the foregoing conversion shall be carried out in a manner
satisfying the requirements of Section 424(a) of the Code. In connection
with the issuance of Crompton Exchange Options, Crompton shall (i) reserve
for issuance the number of shares of Crompton Common Stock that will become
subject to Crompton Exchange Options pursuant to this Section 2.4 and (ii)
from and after the Effective Time, upon exercise of Crompton Exchange
Options, make available for issuance all shares of Crompton Common Stock
covered thereby,
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subject to the terms and conditions applicable thereto. A list of certain
optionees whose termination will be treated as "for Good Reason" or "without
Cause" (as defined in the Uniroyal Options) in determining the length of the
post-termination period of continuing exercisability has been agreed upon by
Crompton and Uniroyal and provided to Crompton by Uniroyal on the date
hereof. Crompton shall cause the committee administering its stock incentive
plan to grant Crompton Exchange Options in accordance with this Section 2.4.
(b) The Surviving Corporation shall take all such actions as may be
necessary to cause each unexpired and unexercised warrant to purchase shares
of Uniroyal Common Stock under the Warrant Agreement, dated as of October
30, 1989, between Uniroyal and Avery, Inc. (each, a "Uniroyal Warrant") to
be converted into a warrant (a "Crompton Exchange Warrant") to purchase that
number of shares of Crompton Common Stock equal to the number of shares of
Uniroyal Common Stock issuable immediately prior to the Effective Time upon
exercise of the Uniroyal Warrant (without regard to actual restrictions on
exercisability) multiplied by the Exchange Ratio, with an exercise price
equal to the exercise price which existed under the corresponding Uniroyal
Warrant divided by the Exchange Ratio, and with other terms and conditions
that are the same as the terms and conditions of such Uniroyal Warrant
immediately before the Effective Time. In connection with the issuance of
Crompton Exchange Warrants, Crompton shall (i) reserve for issuance the
number of shares of Crompton Common Stock that will become subject to
Crompton Exchange Warrants pursuant to this Section 2.4 and (ii) from and
after the Effective Time, upon exercise of Crompton Exchange Warrants, make
available for issuance all shares of Crompton Common Stock covered thereby,
subject to the terms and conditions applicable thereto.
(c) Uniroyal agrees to issue treasury shares of Uniroyal, to the extent
available, upon the exercise of Uniroyal Options or Uniroyal Warrants prior
to the Effective Time.
(d) Crompton agrees to file with the Securities and Exchange Commission
(the "Commission") as soon as reasonably practicable after the Closing Date
a registration statement on Form S-8 or other appropriate form under the
Securities Act to register shares of Crompton Common Stock issuable upon
exercise of the Crompton Exchange Options and use its reasonable best
efforts to cause such registration statement to remain effective until the
exercise or expiration of such options.
2.5 Dissenter's Rights. Notwithstanding anything in this Agreement to the
contrary, Uniroyal Preferred Stock outstanding immediately prior to the
Effective Time and held by a holder who has delivered a written demand for
appraisal of such shares in accordance with Section 262 of the DGCL, if such
Section 262 provides for appraisal rights for such Uniroyal Preferred Stock in
the Merger ("Dissenting Shares"), shall not be converted as provided in Section
2.1 hereof, unless and until such holder fails to perfect or effectively
withdraws or otherwise loses his right to appraisal and payment under the DGCL.
If, after the Effective Time, any such holder fails to perfect or effectively
withdraws or loses his right to appraisal, such Dissenting Shares shall
thereupon be treated as if they had been converted as of the Effective Time into
the right to receive the Crompton Common Stock, as provided in Section 2.1
hereof, and to which such holder is entitled, without interest or dividends
thereon. Uniroyal shall give Crompton prompt notice of any demands received by
Uniroyal for appraisal of Uniroyal Preferred Stock, and, prior to the Effective
Time, Crompton shall have the right to participate in all negotiations and
proceedings with respect to such demands. Prior to the Effective Time, Uniroyal
shall not, except with the prior written consent of Crompton, make any payment
with respect to, or offer to settle, any such demands.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CROMPTON AND SUBCORP
In order to induce Uniroyal to enter into this Agreement, Crompton and
Subcorp hereby represent and warrant to Uniroyal that the statements contained
in this Article III are true, correct and complete.
3.1 Organization and Standing. Each of Crompton and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation with full power and authority (corporate and
other) to own, lease, use and operate its properties and to conduct its business
as and where now owned, leased, used, operated and conducted. Each of Crompton
and its subsidiaries is duly qualified to do business and in good standing in
each jurisdiction in which the nature of the business conducted by it or the
property it owns, leases or operates makes such qualification necessary, except
where the failure to be so qualified or in good standing in such jurisdiction
would not have a material adverse effect on Crompton. Neither Crompton nor any
of its subsidiaries is in default in the performance, observance or fulfillment
of any provision of, in the case of Crompton, its Articles of Organization, as
amended and restated (the "Crompton Articles"), or By-Laws, or, in the case of
any subsidiary of Crompton, its Certificate of Incorporation, By-laws or other
organizational documents.
3.2 Subsidiaries. As of the date hereof, other than immaterial interests,
Crompton does not own, directly or indirectly, any equity or other ownership
interest in any corporation, partnership, joint venture or other entity or
enterprise, except as set forth in Section 3.2 to the disclosure schedule (the
"Crompton Disclosure Schedule") delivered by Crompton to Uniroyal and dated the
date hereof. Section 3.2 to the Crompton Disclosure Schedule sets forth as to
each subsidiary of Crompton: (i) its name and jurisdiction of incorporation or
organization, (ii) its authorized capital stock or share capital, and (iii) the
number of issued and outstanding shares of its capital stock or share capital.
Except as set forth in Section 3.2 to the Crompton Disclosure Schedule, Crompton
owns, directly or indirectly, each of the outstanding shares of capital stock
(or other ownership interests having by their terms ordinary voting power to
elect a majority of directors or others performing similar functions with
respect to such subsidiary) of each of Crompton's subsidiaries. Except as set
forth in Section 3.2 to the Crompton Disclosure Schedule, each of the
outstanding shares of capital stock of each of Crompton's subsidiaries is duly
authorized, validly issued, fully paid and nonassessable, and is owned, directly
or indirectly, by Crompton free and clear of all liens, pledges, security
interests, claims or other encumbrances, other than liens imposed by law which
could not reasonably be expected to have, in the aggregate, a material adverse
effect on Crompton. Other than as set forth in Section 3.2 to the Crompton
Disclosure Schedule, there are no outstanding subscriptions, options, warrants,
puts, calls, agreements, understandings, claims or other commitments or rights
of any type relating to the issuance, sale or transfer of any securities of any
subsidiary of Crompton, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of any
subsidiary of Crompton; and no subsidiary of Crompton has any obligation of any
kind to issue any additional securities or to pay for securities of any
subsidiary of Crompton or any predecessor thereof.
3.3 Corporate Power and Authority. Each of Crompton and Subcorp has all
requisite corporate power and authority to enter into this Agreement and,
subject to authorization of the Merger and the transactions contemplated hereby
by the holders of Crompton Common Stock ("Crompton Stockholders"), to consummate
the transactions contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of each of
Crompton and Subcorp, subject to authorization of the Merger and the
transactions contemplated hereby by Crompton Stockholders. This Agreement has
been duly executed and delivered by each of Crompton and Subcorp, and
constitutes the legal, valid and binding obligation of each of Subcorp and
Crompton enforceable against each of them
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in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
3.4 Capitalization of Crompton. As of the date hereof, Crompton's authorized
capital stock consisted solely of (a) 250,000,000 shares of common stock, $0.10
par value per share ("Crompton Common Stock"), of which (i) 48,026,751 shares
were issued and outstanding, (ii) 5,334,321 shares were issued and held in
treasury (which does not include the shares reserved for issuance as set forth
in clause (a)(iii) below) and (iii) 2,601,077 shares were reserved for issuance
upon the exercise or conversion of options, warrants or convertible securities
granted or issuable by Crompton, and (b) 250,000 shares of preferred stock,
without par value, none of which was issued and outstanding or reserved for
issuance and 67,000 shares of which are designated as "Series A Junior
Participating Preferred Stock." Each outstanding share of Crompton capital stock
is, and all shares of Crompton Common Stock to be issued in connection with the
Merger will be, duly authorized and validly issued, fully paid and
nonassessable, and each outstanding share of Crompton capital stock has not
been, and all shares of Crompton Common Stock to be issued in connection with
the Merger will not be, issued in violation of any preemptive or similar rights.
As of the date hereof, other than as set forth in the first sentence hereof, in
the Crompton SEC Documents (as defined in Section 3.10) or in Section 3.4 to the
Crompton Disclosure Schedule, there are no outstanding subscriptions, options,
warrants, puts, calls, agreements, understandings, claims or other commitments
or rights of any type relating to the issuance, sale or transfer by Crompton of
any securities of Crompton, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of Crompton;
and Crompton has no obligation of any kind to issue any additional securities or
to pay for securities of Crompton or any predecessor. Crompton has no
outstanding bonds, debentures, notes or other similar obligations the holders of
which have the right to vote generally with holders of Crompton Common Stock.
3.5 Conflicts, Consents and Approval. Neither the execution and delivery of
this Agreement by Crompton or Subcorp nor the consummation of the transactions
contemplated hereby will:
(a) conflict with, or result in a breach of any provision of the
Crompton Articles or By-Laws of Crompton or the Certificate of Incorporation
or Bylaws of Subcorp;
(b) except as disclosed to Uniroyal on the date hereof, violate, or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with the giving of notice, the passage of time
or otherwise, would constitute a default) under, or entitle any party (with
the giving of notice, the passage of time or otherwise) to terminate,
accelerate, modify or call a default under, or result in the termination,
acceleration or cancellation of, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of Crompton or any of its subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, contract, undertaking, agreement, lease or other instrument
or obligation to which Crompton or any of its subsidiaries is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to Crompton or any of its subsidiaries or their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Crompton or any of its affiliates with any third
party or any court, arbitral tribunal, administrative agency or commission
or other governmental or regulatory body, agency, instrumentality or
authority (a "Governmental Authority"), other than (i) authorization of the
Merger and the transactions contemplated hereby by Crompton Stockholders,
(ii) authorization for inclusion of the shares of Crompton Common Stock to
be issued in the Merger and the transactions contemplated hereby on the
NYSE, subject to official notice of issuance, (iii) actions required by the
Hart-Scott-
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Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act"), and (iv) registrations
or other actions required under federal and state securities laws as are
contemplated by this Agreement;
except for any of the foregoing that are set forth in Section 3.5 to the
Crompton Disclosure Schedule and, in the case of (b), (c) and (d), for any of
the foregoing that would not, individually or in the aggregate, have a material
adverse effect on Crompton.
3.6 Brokerage and Finder's Fees. Except for Crompton's obligation to Salomon
Brothers Inc ("Salomon") (a copy of the written agreement relating to such
obligation having previously been provided to Uniroyal), Crompton has not
incurred and will not incur, directly or indirectly, any brokerage, finder's or
similar fee in connection with the transactions contemplated by this Agreement.
Other than the foregoing obligation to Salomon, Crompton is not aware of any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiation of this Agreement or in
connection with the transactions contemplated hereby. A bona fide written
estimate of the aggregate amount of all fees and expenses expected to be paid by
Crompton to all accountants and investment bankers in connection with the Merger
has been provided to Uniroyal on the date hereof.
3.7 Opinion of Financial Advisor. Crompton has received the opinion of
Salomon to the effect that, as of the date hereof, the Exchange Ratio is fair to
Crompton from a financial point of view.
3.8 Accounting Matters. To the best knowledge of Crompton and except as set
forth in Section 3.8 to the Crompton Disclosure Schedule, neither Crompton nor
any of its affiliates has taken or agreed to take any action that (without
giving effect to any actions taken or agreed to be taken by Uniroyal or any of
its affiliates) would prevent Crompton from accounting for the business
combination to be effected by the Merger as a pooling-of-interests for financial
reporting purposes in accordance with Accounting Principles Board Opinion No.
16, the interpretative releases issued pursuant thereto, and the pronouncements
of the Commission thereon.
3.9 Employee Benefit Plans.
(a) For purposes of this Section 3.9, the following terms have the
definitions given below:
"Controlled Group Liability" means any and all liabilities under (i)
Title IV of ERISA, (ii) section 302 of ERISA, (iii) sections 412 and 4971
of the Code, (iv) the continuation coverage requirements of section 601
et seq. of ERISA and section 4980B of the Code, and (v) corresponding or
similar provisions of foreign laws or regulations, in each case other
than pursuant to the Crompton Plans.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes the first entity, trade or business, or
that is a member of the same "controlled group" as the first entity,
trade or business pursuant to Section 4001(a)(14) of ERISA.
"Crompton Plans" means all employee benefit plans, programs,
policies, practices, and other arrangements providing benefits to any
employee or former employee or beneficiary or dependent thereof, whether
or not written, and whether covering one person or more than one
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person, sponsored or maintained by Crompton or any of its subsidiaries or
to which Crompton or any of its subsidiaries contributes or is obligated
to contribute. Without limiting the generality of the foregoing, the term
"Crompton Plans" includes all employee welfare benefit plans within the
meaning of Section 3(1) of ERISA and all employee pension benefit plans
within the meaning of Section 3(2) of ERISA.
(b) Section 3.9 to the Crompton Disclosure Schedule lists all Crompton
Plans. With respect to each Crompton Plan, Crompton has made available to
Uniroyal a true, correct and complete copy of: (i) each writing constituting
a part of such Crompton Plan, including without limitation all plan
documents, benefit schedules, trust agreements, and insurance contracts and
other funding vehicles; (ii) the most recent Annual Report (Form 5500
Series) and accompanying schedule, if any; (iii) the current summary plan
description, if any; (iv) the most recent annual financial report, if any;
and (v) the most recent determination letter from the IRS, if any.
(c) The Internal Revenue Service has issued a favorable determination
letter with respect to each Crompton Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code (a
"Qualified Crompton Plan") and there are no existing circumstances nor any
events that have occurred that could adversely affect the qualified status
of any Qualified Crompton Plan or the related trust.
(d) All contributions required to be made to any Crompton Plan by
Applicable Laws or by any plan document or other contractual undertaking,
and all premiums due or payable with respect to insurance policies funding
any Crompton Plan, for any period through the date hereof have been timely
made or paid in full and through the Closing Date will be timely made or
paid in full or, to the extent not required to be made or paid on or before
the date hereof or the Closing Date, as applicable, have been or will be
fully reflected in the Crompton SEC Documents filed or to be filed with the
Commission.
(e) Crompton and its subsidiaries have complied, and are now in
compliance, in all material respects, with all provisions of ERISA, the Code
and all laws and regulations applicable to the Crompton Plans. There is not
now, and there are no existing, circumstances that could give rise to, any
requirement for the posting of security with respect to a Crompton Plan or
the imposition of any lien on the assets of Crompton or any of its
subsidiaries under ERISA or the Code.
(f) Except as set forth in Section 3.9(f) to the Crompton Disclosure
Schedule, no Crompton Plan is subject to Title IV or Section 302 of ERISA or
Section 412 or 4971 of the Code. No Crompton Plan is a "multiemployer plan"
within the meaning of Section 4001(a)(3) of ERISA (a "Multiemployer Plan")
or a plan that has two or more contributing sponsors at least two of whom
are not under common control, within the meaning of Section 4063 of ERISA (a
"Multiple Employer Plan"), nor has Crompton or any of its subsidiaries or
any of their respective ERISA Affiliates, at any time within five years
before the date hereof, contributed to or been obligated to contribute to
any Multiemployer Plan or Multiple Employer Plan.
(g) There does not now exist, and there are no existing, circumstances
that could result in, any Controlled Group Liability that would be a
liability of Crompton or any of its subsidiaries following the Closing.
Without limiting the generality of the foregoing, neither Crompton nor any
of its subsidiaries nor any of their respective ERISA Affiliates has engaged
in any transaction described in Section 4069 or Section 4204 of ERISA.
(h) Except as disclosed in the Crompton SEC Documents filed with the
Commission as of the date hereof or as disclosed to Uniroyal on the date
hereof and except for health continuation coverage as required by Section
4980B of the Code or Part 6 of Title I of ERISA, neither
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Crompton nor any of its subsidiaries has any liability for life, health,
medical or other welfare benefits to former employees or beneficiaries or
dependents thereof.
(i) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in, cause
the accelerated vesting or delivery of, or increase the amount or value of,
any payment or benefit to any employee of Crompton or any of its
subsidiaries. Without limiting the generality of the foregoing and except as
set forth in Section 3.9(i) to the Crompton Disclosure Schedule, no amount
paid or payable by Crompton or any of its subsidiaries in connection with
the transactions contemplated hereby either solely as a result thereof or as
a result of such transactions in conjunction with any other events will be
an "excess parachute payment" within the meaning of Section 280G of the
Code.
(j) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted against the Crompton Plans, any fiduciaries thereof
with respect to their duties to the Crompton Plans or the assets of any of
the trusts under any of the Crompton Plans which could reasonably be
expected to result in any material liability of Crompton or any of its
subsidiaries to the Pension Benefit Guaranty Corporation, the Department of
Treasury, the Department of Labor or any Multiemployer Plan.
3.10 Crompton SEC Documents. Each of Crompton and its subsidiaries has
timely filed with the Commission all forms, reports, schedules, statements,
exhibits and other documents required to be filed by it since December 31, 1992
under the Securities Exchange Act of 1934, as amended (together with the rules
and regulations thereunder, the "Exchange Act") or the Securities Act (such
documents, as supplemented and amended since the time of filing, collectively,
the "Crompton SEC Documents"). The Crompton SEC Documents, including, without
limitation, any financial statements or schedules included therein, at the time
filed (and, in the case of registration statements and proxy statements, on the
dates of effectiveness and the dates of mailing, respectively) (a) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be. The
financial statements of Crompton included in the Crompton SEC Documents at the
time filed (and, in the case of registration statements and proxy statements, on
the date of effectiveness and the date of mailing, respectively) complied as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the Commission with respect thereto, were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q of the Commission), and fairly present (subject in the case of unaudited
statements to normal, recurring and year-end audit adjustments) in all material
respects the consolidated financial position of Crompton as at the dates thereof
and the consolidated results of its operations and cash flows for the periods
then ended.
3.11 Taxes. Except as set forth in Section 3.11 to the Crompton Disclosure
Schedule, (i) Crompton has duly filed all federal, and material state, local and
foreign income, franchise, excise, real and personal property and other tax
returns and reports (including, but not limited to, those filed on a
consolidated, combined or unitary basis) required to have been filed by Crompton
prior to the date hereof, (ii) all of the foregoing returns and reports are true
and correct in all material respects, and Crompton has paid or, prior to the
Effective Time, will pay all taxes required to be paid in respect of the periods
covered by such returns or reports to any federal, state, foreign, local or
other taxing authority, (iii) Crompton has paid or made adequate provision (in
accordance with generally accepted accounting principles) in the financial
statements of Crompton included in the Crompton SEC Documents for all taxes
payable in respect of all periods ending on or prior to December 31, 1995, (iv)
neither Crompton nor any of its subsidiaries will have any material liability
for any taxes in excess of the amounts so paid
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or reserves so established and neither Crompton nor any of its subsidiaries is
delinquent in the payment of any material tax, assessment or governmental charge
and none of them has requested any extension of time within which to file any
returns in respect of any fiscal year which have not since been filed, (v) no
deficiencies for any tax, assessment or governmental charge have been proposed
in writing, asserted or assessed (tentatively or definitely), in each case, by
any taxing authority, against Crompton or any of its subsidiaries for which
there are not adequate reserves (in accordance with generally accepted
accounting principles), (vi) as of the date of this Agreement, there are no
pending requests for waivers of the time to assess any such tax, other than
those made in the ordinary course and for which payment has been made or there
are adequate reserves (in accordance with generally accepted accounting
principles), (vii) the federal income tax returns of Crompton and its
subsidiaries have been audited by the Internal Revenue Service through the
fiscal year ending December 31, 1991, and (viii) Crompton has not filed an
election under Section 341(f) of the Code to be treated as a consenting
corporation. For purposes of this Agreement, the term "tax" shall include all
federal, state, local and foreign taxes including interest and penalties
thereon.
3.12 Registration Statement. None of the information provided by Crompton or
any of its subsidiaries for inclusion in the registration statement on Form S-4
to be filed with the Commission by Crompton under the Securities Act, including
the prospectus (as amended, supplemented or modified, the "Prospectus") relating
to shares of Crompton Common Stock to be issued in the Merger and the joint
proxy statement and form of proxies relating to the vote of Uniroyal
Stockholders with respect to the Merger and the vote of Crompton Stockholders
with respect to the Merger (collectively and as amended, supplemented or
modified, the "Joint Proxy Statement") contained therein (such registration
statement as amended, supplemented or modified, the "Registration Statement"),
at the time the Registration Statement becomes effective or, in the case of the
Joint Proxy Statement, at the date of mailing, will 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, in light of the
circumstances under which they are made, not misleading. Each of the
Registration Statement and Joint Proxy Statement, except for such portions
thereof that relate only to Uniroyal and its subsidiaries, will comply as to
form in all material respects with the provisions of the Securities Act and
Exchange Act.
3.13 Compliance with Law. Each of Crompton and its subsidiaries is in
compliance with, and at all times since December 31, 1992 has been in compliance
with, all applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated, or judgments, decisions or orders entered by any
Governmental Authority (collectively, "Applicable Laws") relating to it or its
business or properties, except for any such failures to be in compliance
therewith which, individually or in the aggregate, would not have a material
adverse effect on Crompton.
3.14 Litigation. Except as set forth in Section 3.14 to the Crompton
Disclosure Schedule or in the Crompton SEC Documents, there is no suit, claim,
action, proceeding or investigation (an "Action") pending or, to the knowledge
of Crompton, threatened against Crompton or any of its subsidiaries which,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on Crompton or a material adverse effect on the ability
of Crompton to consummate the transactions contemplated hereby. Neither Crompton
nor any of its subsidiaries is subject to any outstanding order, writ,
injunction or decree which, individually or in the aggregate, insofar as can be
reasonably foreseen, could have a material adverse effect on Crompton or a
material adverse effect on the ability of Crompton to consummate the
transactions contemplated hereby.
3.15 No Material Adverse Change. Except as set forth in the Crompton SEC
Documents filed with the Commission as of the date hereof or in Section 3.15 to
the Crompton Disclosure Schedule, since December 31, 1995, each of Crompton and
its subsidiaries has conducted its business in the ordinary course, consistent
with past practice, and there has been no (i) material adverse change in the
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assets, liabilities, results of operations, business or financial condition of
Crompton and its subsidiaries taken as a whole, (ii) material adverse effect on
the ability of Crompton to consummate the transactions contemplated hereby,
(iii) declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock, or (iv) material change in its
accounting principles, practices or methods.
3.16 Board Meeting. The Board of Directors of Crompton, at a meeting duly
called and held, has by the required vote of the directors then in office
determined that this Agreement and the transactions contemplated hereby,
including the Merger, taken together, are fair to and in the best interests of
Crompton and the Crompton Stockholders.
3.17 Undisclosed Liabilities. Except (i) as and to the extent disclosed or
reserved against on the consolidated balance sheet of Crompton as of December
31, 1995 or the notes thereto included in the Crompton SEC Documents or
otherwise disclosed in the Crompton SEC Documents filed with the Commission as
of the date hereof, (ii) as incurred after the date thereof in the ordinary
course of business consistent with prior practice and not prohibited by this
Agreement or (iii) as set forth in Section 3.17 to the Crompton Disclosure
Schedule, neither Crompton nor any of its subsidiaries have any liabilities or
obligations of any nature, whether known or unknown, absolute, accrued,
contingent or otherwise and whether due or to become due, that, individually or
in the aggregate, have or would reasonably be expected to have a material
adverse effect on Crompton.
3.18 Labor Relations. There is no unfair labor practice complaint against
Crompton or any of its subsidiaries pending before the NLRB and there is no
labor strike, dispute, slowdown or stoppage, or any union organizing campaign,
actually pending or, to the knowledge of Crompton, threatened against or
involving Crompton or any of its subsidiaries, except for any such proceedings
which would not have a material adverse effect on Crompton. Except as disclosed
in the Crompton SEC Documents, neither Crompton nor any of its subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. To the
knowledge of Crompton, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or threatened
involving employees of Crompton or any of its subsidiaries.
3.19 Operation of Crompton's Business. (a) Since December 31, 1995 through
the date of this Agreement, none of Crompton or any of its subsidiaries has
engaged in any transaction which, if done after execution of this Agreement,
would violate Section 5.2(c) hereof except as described or reflected in the
Crompton SEC Documents or as set forth in Section 3.19 to the Crompton
Disclosure Schedule.
3.20 Permits; Compliance. Each of Crompton and its subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
(collectively, "Permits") necessary to own, lease and operate its properties and
to carry on its business as it is now being conducted, except for any such
Permits the failure of which to possess, individually or in the aggregate, would
not reasonably be expected to have a material adverse effect on Crompton.
3.21 Environmental Matters.
(a) As used herein, the term "Environmental Laws" means all federal,
state, local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of
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chemicals, pollutants, contaminants, or industrial, toxic or hazardous
substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands
or demand letters, injunctions, judgments, licenses, notices or notice
letters, orders, permits, plans or regulations issued, entered, promulgated
or approved thereunder.
(b) Except as set forth in the Crompton SEC Documents filed with the
Commission as of the date hereof, there are, with respect to Crompton, its
subsidiaries or any predecessor of the foregoing, no past or present
violations of Environmental Laws, releases of any material into the
environment, actions, activities, circumstances, conditions, events,
incidents, or contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws, other than those which, individually
or in the aggregate, would not reasonably be expected to have a material
adverse effect on Crompton, and none of Crompton and its subsidiaries has
received any notice with respect to any of the foregoing, nor is any Action
pending or threatened in connection with any of the foregoing.
(c) Except as set forth in the Crompton SEC Documents filed with the
Commission as of the date hereof, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by Crompton or any
of its subsidiaries and no Hazardous Materials were released on or about any
real property previously owned, leased or used by Crompton or any of its
subsidiaries during the period the property was so owned, leased or used,
except in the normal course of Crompton's business.
3.22 Uniroyal Stock Ownership. Neither Crompton nor any of its subsidiaries
owns any shares of Uniroyal Common Stock or other securities convertible into
Uniroyal Common Stock.
3.23 Contracts. Except as set forth in Section 3.23 to the Crompton
Disclosure Schedule, none of Crompton, any of its subsidiaries, or, to the
knowledge of Crompton, any other party thereto is in violation of or in default
in respect of, nor has there occurred an event or condition which with the
passage of time or giving of notice (or both) would constitute a default by
Crompton under, any contract, agreement, guarantee, lease or executory
commitment (each a "Contract") to which it is a party, except such violations or
defaults under such Contracts which, individually or in the aggregate, would not
have a material adverse effect on Crompton.
3.24 State Takeover Laws. Prior to the date hereof, the Board of Directors
of Crompton has taken all action necessary to exempt under or make not subject
to any state takeover law or state law that purports to limit or restrict
business combinations or the ability to acquire or vote shares: (i) the
execution of this Agreement, (ii) the Merger and (iii) the transactions
contemplated hereby.
3.25 Crompton Rights Agreement. Crompton has taken or will take all action
necessary, if any, in respect of the Rights Agreement dated as of July 20, 1988,
as amended, between Crompton and The Chase Manhattan Bank, N.A. (the "Crompton
Rights Agreement"), so as to provide that none of Uniroyal and its affiliates
will become an "Acquiring Person" and that no "Stock Acquisition Date" or
"Distribution Date" (as such terms are defined in the Crompton Rights Agreement)
will occur as a result of the execution of this Agreement or the consummation of
the Merger pursuant to this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF UNIROYAL
In order to induce Subcorp and Crompton to enter into this Agreement,
Uniroyal hereby represents and warrants to Crompton and Subcorp that the
statements contained in this Article IV are true, correct and complete.
4.1 Organization and Standing. Each of Uniroyal and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation with full power and authority (corporate and
other) to own, lease, use and operate its properties and to conduct its business
as and where now owned, leased, used, operated and conducted. Each of Uniroyal
and its subsidiaries is duly qualified to do business and in good standing in
each jurisdiction in which the nature of the business conducted by it or the
property it owns, leases or operates makes such qualification necessary, except
where the failure to be so qualified or in good standing in such jurisdiction
would not have a material adverse effect on Uniroyal. Neither Uniroyal nor any
of its subsidiaries is in default in the performance, observance or fulfillment
of any provision of, in the case of Uniroyal, its Certificate of Incorporation,
as amended, or Bylaws, as amended and restated, or, in the case of any
subsidiary of Uniroyal, its Certificate of Incorporation, Bylaws or other
organizational documents.
4.2 Subsidiaries. As of the date hereof, other than immaterial interests,
Uniroyal does not own, directly or indirectly, any equity or other ownership
interest in any corporation, partnership, joint venture or other entity or
enterprise, except as set forth in Section 4.2 to the disclosure schedule (the
"Uniroyal Disclosure Schedule") delivered by Uniroyal to Crompton and dated the
date hereof. Section 4.2 to the Uniroyal Disclosure Schedule sets forth as to
each subsidiary of Uniroyal: (i) its name and jurisdiction of incorporation or
organization, (ii) the number of issued and outstanding shares of its capital
stock or share capital and (iii) the percentage of securities owned by its
immediate parent. Except as set forth in Section 4.2 to the Uniroyal Disclosure
Schedule, Uniroyal owns, directly or indirectly, each of the outstanding shares
of capital stock (or other ownership interests having by their terms ordinary
voting power to elect a majority of directors or others performing similar
functions with respect to such subsidiary) of each of Uniroyal's subsidiaries.
Each of the outstanding shares of capital stock of each of Uniroyal's
subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and is owned, directly or indirectly, by Uniroyal free and clear of all liens,
pledges, security interests, claims or other encumbrances, other than liens
imposed by law which could not reasonably be expected to have, in the aggregate,
a material adverse effect on Uniroyal. Other than as set forth in Section 4.2 to
the Uniroyal Disclosure Schedule, there are no outstanding subscriptions,
options, warrants, puts, calls, agreements, understandings, claims or other
commitments or rights of any type relating to the issuance, sale or transfer of
any securities of any subsidiary of Uniroyal, nor are there outstanding any
securities which are convertible into or exchangeable for any shares of capital
stock of any subsidiary of Uniroyal; and no subsidiary of Uniroyal has any
obligation of any kind to issue any additional securities or to pay for
securities of any subsidiary of Uniroyal or any predecessor thereof.
4.3 Corporate Power and Authority. Uniroyal has all requisite corporate
power and authority to enter into this Agreement and, subject to authorization
of the Merger and the transactions contemplated hereby by Uniroyal Stockholders,
to consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Uniroyal, subject to authorization of the Merger and the transactions
contemplated hereby by Uniroyal Stockholders. This Agreement has been duly
executed and delivered by Uniroyal and constitutes the legal, valid and binding
obligation of Uniroyal enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
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4.4 Capitalization of Uniroyal. As of the date hereof, Uniroyal's authorized
capital stock consisted solely of (a) 205,000,000 shares of common stock, $0.01
par value per share ("Uniroyal Common Stock"), of which (i) 24,286,043 shares
were issued and outstanding, (ii) 1,136,588 shares were issued and held in
treasury (which does not include the shares reserved for issuance set forth in
clause (a)(iii) below) and (iii) 1,959,108 shares were reserved for issuance
upon the exercise or conversion of outstanding options, warrants or convertible
securities other than purchase rights granted or issued by Uniroyal, and (b)
50,000,000 shares of preferred stock, $0.01 par value per share, of which (i)
29,721 shares are designated as "Series A Cumulative Redeemable Preferred
Stock," all of which were issued and outstanding, (ii) 12,000 shares are
designated as "Series B Preferred Stock," all of which were issued and
outstanding, and (iii) 2,050,000 shares are designated as "Series C Junior
Participating Preferred Stock," none of which was issued and outstanding. Each
outstanding share of Uniroyal capital stock is duly authorized and validly
issued, fully paid and nonassessable, and has not been issued in violation of
any preemptive or similar rights. As of the date hereof, other than as set forth
in the first sentence hereof, in the Uniroyal SEC Documents (as defined in
Section 4.7) or in Section 4.4 to the Uniroyal Disclosure Schedule, there are no
outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale or transfer by Uniroyal of any securities of Uniroyal, nor
are there outstanding any securities which are convertible into or exchangeable
for any shares of capital stock of Uniroyal; and Uniroyal has no obligation of
any kind to issue any additional securities or to pay for securities of Uniroyal
or any predecessor. Uniroyal has no outstanding bonds, debentures, notes or
other similar obligations the holders of which have the right to vote generally
with holders of Uniroyal Common Stock.
4.5 Conflicts; Consents and Approvals. Neither the execution and delivery of
this Agreement by Uniroyal, nor the consummation of the transactions
contemplated hereby will:
(a) conflict with, or result in a breach of any provision of the
Certificate of Incorporation, as amended, or Bylaws, as amended and
restated, of Uniroyal;
(b) except as disclosed to Crompton on the date hereof, violate, or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with the giving of notice, the passage of time
or otherwise, would constitute a default) under, or entitle any party (with
the giving of notice, the passage of time or otherwise) to terminate,
accelerate, modify or call a default under, or result in the termination,
acceleration or cancellation of, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of Uniroyal or any of its subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, contract, undertaking, agreement, lease or other instrument
or obligation to which Uniroyal or any of its subsidiaries is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Uniroyal or any of its subsidiaries or any of their
respective properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Uniroyal or any of its affiliates with any third
party or any Governmental Authority, other than (i) authorization of the
Merger and the transactions contemplated hereby by Uniroyal Stockholders,
(ii) actions required by the HSR Act and (iii) registrations or other
actions required under federal and state securities laws as are contemplated
by this Agreement;
except, in the case of (b), (c) and (d), for any of the foregoing that would
not, individually or in the aggregate, have a material adverse effect on
Uniroyal.
4.6 No Material Adverse Change. Except as set forth in the Uniroyal SEC
Documents filed with the Commission as of the date hereof or in Section 4.6 to
the Uniroyal Disclosure Schedule, since October 1, 1995, each of Uniroyal and
its subsidiaries has conducted its business in the ordinary course, consistent
with past practice, and there has been no (i) material adverse change in the
assets, liabilities, results of operations, business or financial condition of
Uniroyal and its subsidiaries taken as a whole, (ii) material adverse effect on
the ability of Uniroyal to consummate the transactions contemplated
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hereby, (iii) declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock, or (iv) material change in its
accounting principles, practices or methods.
4.7 Uniroyal SEC Documents. Each of Uniroyal and its subsidiaries has timely
filed with the Commission all forms, reports, schedules, statements, exhibits
and other documents required to be filed by it since December 31, 1992 under the
Exchange Act or the Securities Act (such documents, as supplemented and amended
since the time of filing, collectively, the "Uniroyal SEC Documents"). The
Uniroyal SEC Documents, including, without limitation, any financial statements
or schedules included therein, at the time filed (and, in the case of
registration statements and proxy statements, on the dates of effectiveness and
the dates of mailing, respectively) (a) did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (b) complied in
all material respects with the applicable requirements of the Exchange Act and
the Securities Act, as the case may be. The financial statements of Uniroyal
included in the Uniroyal SEC Documents at the time filed (and, in the case of
registration statements and proxy statements, on the date of effectiveness and
the date of mailing, respectively) complied as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto, were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto or,
in the case of unaudited statements, as permitted by Form 10-Q of the
Commission), and fairly present (subject in the case of unaudited statements to
normal, recurring and year-end audit adjustments) in all material respects the
consolidated financial position of Uniroyal as at the dates thereof and the
consolidated results of its operations and cash flows for the periods then
ended.
4.8 Taxes. Except as set forth in the Uniroyal SEC Documents or in Section
4.8 to the Uniroyal Disclosure Schedule, (i) Uniroyal has duly filed all
federal, and material state, local and foreign income, franchise, excise, real
and personal property and other tax returns and reports (including, but not
limited to, those filed on a consolidated, combined or unitary basis) required
to have been filed by Uniroyal prior to the date hereof, (ii) all of the
foregoing returns and reports are true and correct in all material respects, and
Uniroyal has paid or, prior to the Effective Time, will pay all taxes required
to be paid in respect of the periods covered by such returns or reports to any
federal, state, foreign, local or other taxing authority, (iii) Uniroyal has
paid or made adequate provision (in accordance with generally accepted
accounting principles) in the financial statements of Uniroyal included in the
Uniroyal SEC Documents for all taxes payable in respect of all periods ending on
or prior to December 31, 1995, (iv) neither Uniroyal nor any of its subsidiaries
will have any material liability for any taxes in excess of the amounts so paid
or reserves so established and neither Uniroyal nor any of its subsidiaries is
delinquent in the payment of any material tax, assessment or governmental charge
and none of them has requested any extension of time within which to file any
returns in respect of any fiscal year which have not since been filed, (v) no
deficiencies for any tax, assessment or governmental charge have been proposed
in writing, asserted or assessed (tentatively or definitely), in each case, by
any taxing authority, against Uniroyal or any of its subsidiaries for which
there are not adequate reserves (in accordance with generally accepted
accounting principles), (vi) as of the date of this Agreement, there are no
pending requests for waivers of the time to assess any such tax, other than
those made in the ordinary course and for which payment has been made or there
are adequate reserves (in accordance with generally accepted accounting
principles), (vii) the federal income tax returns of Uniroyal and its
subsidiaries have been audited by the Internal Revenue Service through the
fiscal year ending October 1, 1989, and (viii) Uniroyal has not filed an
election under Section 341(f) of the Code to be treated as a consenting
corporation.
4.9 Compliance with Law. Each of Uniroyal and its subsidiaries is in
compliance with, and at all times since December 31, 1992 has been in compliance
with, all Applicable Laws relating to it or its business or properties, except
for any such failures to be in compliance therewith which, individually or in
the aggregate, would not have a material adverse effect on Uniroyal.
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4.10 Registration Statement. None of the information provided by Uniroyal or
any of its subsidiaries for inclusion in the Registration Statement at the time
it becomes effective or, in the case of the Joint Proxy Statement, at the date
of mailing, will contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Registration Statement and Joint Proxy Statement,
except for such portions thereof that relate only to Crompton and its
subsidiaries, will each comply as to form in all material respects with the
provisions of the Securities Act and the Exchange Act.
4.11 Litigation. Except as set forth in Section 4.11 to the Uniroyal
Disclosure Schedule or in the Uniroyal SEC Documents, there is no Action pending
or, to the knowledge of Uniroyal, threatened against Uniroyal or any of its
subsidiaries which, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on Uniroyal or a material adverse
effect on the ability of Uniroyal to consummate the transactions contemplated
hereby. Neither Uniroyal nor any of its subsidiaries is subject to any
outstanding order, writ, injunction or decree which, individually or in the
aggregate, insofar as can be reasonably foreseen, could have a material adverse
effect on Uniroyal or a material adverse effect on the ability of Uniroyal to
consummate the transactions contemplated hereby.
4.12 Brokerage and Finder's Fees; Expenses. Except for Uniroyal's obligation
to Morgan Stanley & Co. Incorporated ("Morgan") (a copy of the written agreement
relating to such obligation having previously been provided to Crompton),
Uniroyal has not incurred and will not incur, directly or indirectly, any
brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement. Other than the foregoing obligation to Morgan,
Uniroyal is not aware of any claim for payment of any finder's fees, brokerage
or agent's commissions or other like payments in connection with the negotiation
of this Agreement or in connection with the transactions contemplated hereby. A
bona fide written estimate of the aggregate amount of all fees and expenses
expected to be paid by Uniroyal to all attorneys, accountants and investment
bankers in connection with the Merger has been provided to Crompton on the date
hereof.
4.13 Opinion of Financial Advisor. Uniroyal has received the opinion of
Morgan to the effect that, as of the date hereof, the consideration to be
received by the Uniroyal Stockholders is fair to the Uniroyal Stockholders from
a financial point of view.
4.14 Accounting Matters. To the best knowledge of Uniroyal, neither Uniroyal
nor any of its affiliates has taken or agreed to take any action that (without
giving effect to any actions taken or agreed to be taken by Crompton or any of
its affiliates) would prevent Crompton from accounting for the business
combination to be effected by the Merger as a pooling-of-interests for financial
reporting purposes in accordance with Accounting Principles Board Opinion No.
16, the interpretative releases issued pursuant thereto, and the pronouncements
of the Commission thereon.
4.15 Employee Benefit Plans.
(a) For purposes of this Section 4.15, the following terms have the
definitions given below:
"Controlled Group Liability" means any and all liabilities under (i)
Title IV of ERISA, (ii) section 302 of ERISA, (iii) sections 412 and 4971
of the Code, (iv) the continuation coverage requirements of section 601
et seq. of ERISA and section 4980B of the Code, and (v) corresponding or
similar provisions of foreign laws or regulations, in each case other
than pursuant to the Uniroyal Plans.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"ERISA Affiliate" means, with respect to any entity, trade or
business, any other entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section
4001(b)(1) of ERISA that includes the first entity, trade or business, or
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that is a member of the same "controlled group" as the first entity,
trade or business pursuant to Section 4001(a)(14) of ERISA.
"Uniroyal Plans" means all employee benefit plans, programs,
policies, practices, and other arrangements providing benefits to any
employee or former employee or beneficiary or dependent thereof, whether
or not written, and whether covering one person or more than one person,
sponsored or maintained by Uniroyal or any of its subsidiaries or to
which Uniroyal or any of its subsidiaries contributes or is obligated to
contribute. Without limiting the generality of the foregoing, the term
"Uniroyal Plans" includes all employee welfare benefit plans within the
meaning of Section 3(1) of ERISA and all employee pension benefit plans
within the meaning of Section 3(2) of ERISA.
(b) All material Uniroyal Plans for the benefit of the executive
officers of Uniroyal have been disclosed in the Uniroyal SEC Documents. With
respect to each Uniroyal Plan, Uniroyal has made available to Crompton a
true, correct and complete copy of: (i) each writing constituting a part of
such Uniroyal Plan, including without limitation all plan documents, benefit
schedules, trust agreements, and insurance contracts and other funding
vehicles; (ii) the most recent Annual Report (Form 5500 Series) and
accompanying schedule, if any; (iii) the current summary plan description,
if any; (iv) the most recent annual financial report, if any; and (v) the
most recent determination letter from the IRS, if any.
(c) The Internal Revenue Service has issued a favorable determination
letter with respect to each Uniroyal Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code (a
"Qualified Uniroyal Plan") and there are no existing circumstances nor any
events that have occurred that could adversely affect the qualified status
of any Qualified Uniroyal Plan or the related trust, except as set forth in
Section 4.15(c) to the Uniroyal Disclosure Schedule.
(d) All contributions required to be made to any Uniroyal Plan by
Applicable Laws or by any plan document or other contractual undertaking,
and all premiums due or payable with respect to insurance policies funding
any Uniroyal Plan, for any period through the date hereof have been timely
made or paid in full and through the Closing Date will be timely made or
paid in full or, to the extent not required to be made or paid on or before
the date hereof or the Closing Date, as applicable, have been or will be
fully reflected in Uniroyal's financial statements contained in the Uniroyal
SEC Documents.
(e) Except as set forth in Section 4.15(c) to the Uniroyal Disclosure
Schedule, Uniroyal and its subsidiaries have complied, and are now in
compliance, in all material respects, with all provisions of ERISA, the Code
and all laws and regulations applicable to the Uniroyal Plans. There is not
now, and there are no existing, circumstances that standing alone could give
rise to, any requirement for the posting of security with respect to a
Uniroyal Plan or the imposition of any lien on the assets of Uniroyal or any
of its subsidiaries under ERISA or the Code.
(f) Except as set forth in Section 4.15(f) to the Uniroyal Disclosure
Schedule, no Uniroyal Plan is subject to Title IV or Section 302 of ERISA or
Section 412 or 4971 of the Code. No Uniroyal Plan is a Multiemployer Plan
(as defined in Section 3.9) or a Multiple Employer Plan (as defined in
Section 3.9), nor has Uniroyal or any of its subsidiaries or any of their
respective ERISA Affiliates, at any time within five years before the date
hereof, contributed to or been obligated to contribute to any Multiemployer
Plan or Multiple Employer Plan.
(g) There does not now exist, and there are no existing, circumstances
that could result in, any Controlled Group Liability that would be a
liability of Uniroyal or any of its subsidiaries following the Closing,
other than normal funding responsibilities. Without limiting the generality
of the foregoing, neither Uniroyal nor any of its subsidiaries nor any of
their respective ERISA Affiliates has engaged in any transaction described
in Section 4069 or Section 4204 of ERISA.
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(h) Except as disclosed in the Uniroyal SEC Documents filed with the
Commission as of the date hereof or as disclosed to Crompton on the date
hereof and except for health continuation coverage as required by Section
4980B of the Code or Part 6 of Title I of ERISA, neither Uniroyal nor any of
its subsidiaries has any liability for life, health, medical or other
welfare benefits to former employees or beneficiaries or dependents thereof.
(i) A statement by Uniroyal, to the best of Uniroyal's knowledge, as to
the "excess parachute payments" within the meaning of Section 280G of the
Code which may become payable by Uniroyal or any of its subsidiaries in
connection with the transactions contemplated hereby either solely as a
result thereof or as a result of such transactions in conjunction with any
other events has been provided to Crompton by Uniroyal on the date hereof.
(j) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted against the Uniroyal Plans, any fiduciaries thereof
with respect to their duties to the Uniroyal Plans or the assets of any of
the trusts under any of the Uniroyal Plans which could reasonably be
expected to result in any material liability of Uniroyal or any of its
subsidiaries to the Pension Benefit Guaranty Corporation, the Department of
Treasury, the Department of Labor or any Multiemployer Plan.
4.16 Contracts. None of Uniroyal, any of its subsidiaries, or, to the
knowledge of Uniroyal, any other party thereto is in violation of or in default
in respect of, nor has there occurred an event or condition which with the
passage of time or giving of notice (or both) would constitute a default by
Uniroyal under, any Contract to which it is a party, except such violations or
defaults under such Contracts which, individually or in the aggregate, would not
have a material adverse effect on Uniroyal.
4.17 Labor Relations. There is no unfair labor practice complaint against
Uniroyal or any of its subsidiaries pending before the NLRB and there is no
labor strike, dispute, slowdown or stoppage, or any union organizing campaign,
actually pending or, to the knowledge of Uniroyal, threatened against or
involving Uniroyal or any of its subsidiaries, except for any such proceedings
which would not have a material adverse effect on Uniroyal. Except as disclosed
in the Uniroyal SEC Documents, neither Uniroyal nor any of its subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. To the
knowledge of Uniroyal, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or threatened
involving employees of Uniroyal or any of its subsidiaries.
4.18 Undisclosed Liabilities. Except (i) as and to the extent disclosed or
reserved against on the balance sheet of Uniroyal as of December 31, 1995 or the
notes thereto included in the Uniroyal SEC Documents or otherwise disclosed in
the Uniroyal SEC Documents filed with the Commission as of the date hereof, or
(ii) as incurred after the date thereof in the ordinary course of business
consistent with prior practice and not prohibited by this Agreement, neither
Uniroyal nor any of its subsidiaries have any liabilities or obligations of any
nature, whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due, that, individually or in the aggregate, have or
would reasonably be expected to have a material adverse effect on Uniroyal.
4.19 Operation of Uniroyal's Business. (a) Since October 1, 1995 through the
date of this Agreement, none of Uniroyal or any of its subsidiaries has engaged
in any transaction which, if done after execution of this Agreement, would
violate Section 5.3(c) hereof except as described or reflected in the Uniroyal
SEC Documents or as set forth in Section 4.19 to the Uniroyal Disclosure
Schedule.
4.20 Permits; Compliance. Each of Uniroyal and its subsidiaries is in
possession of all Permits necessary to own, lease and operate its properties and
to carry on its business as it is now being conducted, except for any such
Permits the failure of which to possess, individually or in the aggregate, would
not reasonably be expected to have a material adverse effect on Uniroyal.
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4.21 Environmental Matters.
(a) Except as set forth in Section 4.21 to the Uniroyal Disclosure
Schedule or set forth in the Uniroyal SEC Documents filed with the
Commission as of the date hereof or in a report previously provided by
Uniroyal to Crompton, there are, with respect to Uniroyal, its subsidiaries
or any predecessor of the foregoing, no past or present violations of
Environmental Laws, releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or
any liability under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 or similar federal, state, local or foreign laws,
other than those which, individually or in the aggregate, would not
reasonably be expected to have a material adverse effect on Uniroyal, and
none of Uniroyal and its subsidiaries has received any notice with respect
to any of the foregoing, nor is any Action pending or threatened in
connection with any of the foregoing.
(b) Except as set forth in Section 4.21 to the Uniroyal Disclosure
Schedule or set forth in the Uniroyal SEC Documents filed with the
Commission as of the date hereof or in a report previously provided by
Uniroyal to Crompton, no Hazardous Materials are contained on or about any
real property currently owned, leased or used by Uniroyal or any of its
subsidiaries and no Hazardous Materials were released on or about any real
property previously owned, leased or used by Uniroyal or any of its
subsidiaries during the period the property was so owned, leased or used,
except in the normal course of Uniroyal's business.
4.22 Crompton Stock Ownership. Neither Uniroyal nor any of its subsidiaries
owns any shares of Crompton Common Stock or other securities convertible into
Crompton Common Stock.
4.23 Board Meeting. The Board of Directors of Uniroyal, at a meeting duly
called and held, has by the required vote of the directors then in office
determined that this Agreement and the transactions contemplated hereby,
including the Merger, taken together, are fair to and in the best interests of
Uniroyal and the stockholders of Uniroyal.
4.24 DGCL Section 203 and State Takeover Laws. Prior to the date hereof, the
Board of Directors of Uniroyal has taken all action necessary to exempt under or
make not subject to (x) Section 203 of the DGCL and (y) any other state takeover
law or state law that purports to limit or restrict business combinations or the
ability to acquire or vote shares: (i) the execution of this Agreement, (ii) the
Merger and (iii) the transactions contemplated hereby.
4.25 Uniroyal Rights Agreement. Uniroyal has taken or will take all action
necessary, if any, in respect of the Rights Agreement dated as of April 29,
1993, between Uniroyal and Chemical Bank, as amended (the "Uniroyal Rights
Agreement"), so as to provide that none of Crompton and its affiliates will
become an "Acquiring Person" and that no "Stock Acquisition Date," "Distribution
Date" or "Triggering Event" (as such terms are defined in the Uniroyal Rights
Agreement) will occur as a result of the execution of this Agreement or the
consummation of the Merger pursuant to this Agreement or the acquisition or
transfer of shares of Uniroyal Common Stock by Crompton.
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ARTICLE V
COVENANTS OF THE PARTIES
The parties hereto agree as follows with respect to the period from and
after the execution of this Agreement.
5.1 Mutual Covenants.
(a) General. Each of the parties shall use its reasonable efforts to
take all action and to do all things necessary, proper or advisable to
consummate the Merger and the transactions contemplated by this Agreement
(including, without limitation, using its reasonable efforts to cause the
conditions set forth in Article VI for which they are responsible to be
satisfied as soon as reasonably practicable and to prepare, execute and
deliver such further instruments and take or cause to be taken such other
and further action as any other party hereto shall reasonably request).
(b) HSR Act. As soon as practicable, and in any event no later than ten
(10) business days after the date hereof, each of the parties hereto will
file any Notification and Report Forms and related material required to be
filed by it with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the HSR Act with respect to
the Merger, will use its reasonable efforts to obtain an early termination
of the applicable waiting period, and shall promptly make any further
filings pursuant thereto that may be necessary, proper or advisable;
provided, however, that neither Crompton nor any of its subsidiaries shall
be required hereunder to divest or hold separate any portion of their
business or assets.
(c) Other Governmental Matters. Each of the parties shall use its
reasonable efforts to take any additional action that may be necessary,
proper or advisable in connection with any other notices to, filings with,
and authorizations, consents and approvals of any Governmental Authority
that it may be required to give, make or obtain.
(d) Pooling-of-Interests. Each of the parties shall use its best efforts
to cause the Merger to qualify for pooling-of-interests accounting treatment
for financial reporting purposes.
(e) Tax-Free Treatment. Each of the parties shall use its best efforts
to cause the Merger to constitute a tax-free "reorganization" under Section
368(a) of the Code and to permit Wachtell, Lipton, Rosen & Katz and Skadden,
Arps, Slate, Meagher & Flom to issue their respective opinions provided for
in Section 6.1(g).
(f) Public Announcements. Unless otherwise required by Applicable Laws
or requirements of the National Association of Securities Dealers or the
NYSE (and in that event only if time does not permit), at all times prior to
the earlier of the Effective Time or termination of this Agreement pursuant
to Section 7.1, Crompton and Uniroyal shall consult with each other before
issuing any press release with respect to the Merger and shall not issue any
such press release prior to such consultation.
(g) Access. From and after the date of this Agreement until the
Effective Time (or the termination of this Agreement), Crompton and Uniroyal
shall permit representatives of the other to have appropriate access at all
reasonable times to the other's premises, properties, books, records,
contracts, tax records, documents, customers and suppliers. Information
obtained by Crompton and Uniroyal pursuant to this Section 5.1(g) shall be
subject to the provisions of the confidentiality agreement between them
dated March 18, 1996 (the "Confidentiality Agreement"), which agreement
remains in full force and effect.
5.2 Covenants of Crompton.
(a) Crompton Stockholders Meeting. Crompton shall take all action in
accordance with Applicable Laws and the Crompton Articles and By-Laws
necessary to convene a meeting of Crompton Stockholders as promptly as
practicable to consider and vote upon the approval of the Merger, this
Agreement and the transactions contemplated hereby.
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(b) Preparation of Joint Proxy Statement. Crompton shall cooperate with
Uniroyal to, and shall, as soon as is reasonably practicable, prepare and
file the Joint Proxy Statement with the Commission on a confidential basis.
Crompton shall cooperate with Uniroyal to, and shall, prepare and file the
Registration Statement with the Commission as soon as is reasonably
practicable following clearance of the Joint Proxy Statement by the
Commission and shall cooperate with Uniroyal to, and shall, use all
reasonable efforts to have the Registration Statement declared effective by
the Commission as promptly as practicable and to maintain the effectiveness
of the Registration Statement through the Effective Time. Crompton shall use
all reasonable efforts to mail at the earliest practicable date to Crompton
Stockholders the Joint Proxy Statement, which shall include all information
required under Applicable Laws to be furnished to Crompton Stockholders in
connection with the Merger and the transactions contemplated thereby.
Crompton shall advise Uniroyal promptly after it receives notice of (i) the
Registration Statement being declared effective or any supplement or
amendment thereto being filed with the Commission, (ii) the issuance of any
stop order in respect of the Registration Statement, and (iii) the receipt
of any correspondence, comments or requests from the Commission in respect
of the Registration Statement. Crompton also shall cooperate with Uniroyal
to, and shall, take such other reasonable actions (other than qualifying to
do business in any jurisdiction in which it is not so qualified) required to
be taken under any applicable state securities laws in connection with the
issuance of shares of Crompton Common Stock in the Merger.
(c) Conduct of Crompton's Operations. During the period from the date of
this Agreement to the Effective Time, and except as set forth in Section
5.2(c) to the Crompton Disclosure Schedule, Crompton shall conduct its
operations in the ordinary course except as expressly contemplated by this
Agreement and the transactions contemplated hereby and shall use its
reasonable efforts to maintain and preserve its business organization and
its material rights and franchises and to retain the services of its
officers and key employees and maintain relationships with customers,
suppliers and other third parties to the end that their goodwill and ongoing
business shall not be impaired in any material respect.
(d) Indemnification. From and after the Effective Time, Crompton shall
cause the Surviving Corporation to indemnify and hold harmless to the
fullest extent permitted under Applicable Law each person who is now, or has
been at any time prior to the date hereof, an officer, director, employee,
trustee or agent of Uniroyal (or any subsidiary or division thereof),
including, without limitation, each person controlling any of the foregoing
persons (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), against all losses, claims, damages, liabilities,
costs or expenses (including attorneys' fees), judgments, fines, penalties
and amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to acts or
omissions, or alleged acts or omissions, by them in their capacities as
such, whether commenced, asserted or claimed before or after the Effective
Time and including, without limitation, liabilities arising under the
Securities Act, the Exchange Act and state corporation laws in connection
with the Merger. Crompton shall cause the Surviving Corporation to keep in
effect Uniroyal's current provisions in its Certificate of Incorporation and
Bylaws providing for exculpation of director and officer liability and
indemnification of the Indemnified Parties to the fullest extent permitted
under the DGCL, which provisions shall not be amended except as required by
Applicable Law or except to make changes permitted by law that would enlarge
the Indemnified Parties' right of indemnification. In the event of any
actual or threatened claim, action, suit, proceeding or investigation in
respect of such acts or omissions, (i) Crompton shall cause the Surviving
Corporation to pay the reasonable fees and expenses of counsel selected by
the indemnified party, which counsel shall be reasonably acceptable to
Crompton, in advance of the final disposition of any such action to the full
extent permitted by Applicable Law, upon receipt of any undertaking required
by Applicable Law, and (ii) Crompton shall cause the Surviving Corporation
to cooperate in the defense of any such matter; provided, however, that the
Surviving Corporation
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shall not be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld).
(e) Directors' and Officers' Insurance. Crompton agrees to use its
reasonable best efforts to cause the Surviving Corporation to maintain in
effect for not less than six years after the Effective Time the current
policies of directors' and officers' liability insurance maintained by
Uniroyal with respect to matters occurring prior to the Effective Time;
provided, however, that (i) the Surviving Corporation may substitute
therefor policies of at least the same coverage containing terms and
conditions which are no less advantageous to the covered officers and
directors and (ii) the Surviving Corporation shall not be required to pay an
annual premium for such insurance coverage in excess of four times the
current annual premium paid by Uniroyal for its existing coverage, but in
such case shall purchase as much coverage as possible for such amount.
(f) Employee Benefits. Crompton covenants and agrees that, for a period
of two years from and after the Effective Time, it will cause the Surviving
Corporation or its subsidiaries to provide for the benefit of employees of
the Surviving Corporation or its subsidiaries benefits that are no less
favorable, in the aggregate, as those provided to employees of Uniroyal or
its subsidiaries immediately prior to the date of this Agreement. If any
Employee (as defined below) becomes a participant in any employee benefit or
compensation plan of Crompton, a Crompton subsidiary (other than the
Surviving Corporation) or a Crompton affiliate, such Employee shall be given
credit under such plan for all service with Uniroyal and its subsidiaries,
affiliates and predecessors which is recognized by Uniroyal and is rendered
prior to the time the Employee becomes such a participant, solely for
purposes of determining eligibility and vesting (but not for benefit accrual
or any other purposes); provided, however, such service need not be credited
to the extent it would result in a duplication of benefits, including,
without limitation, benefit accrual service under defined benefit plans. To
the extent employee benefit plans of Crompton or its subsidiaries or
affiliates provide medical or dental welfare benefits to Employees or Former
Employees (as defined below) after the Effective Time, such plans shall
waive any preexisting conditions and actively-at-work exclusions and shall
provide that any expenses incurred on or before the Effective Time shall be
taken into account under such plans for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions. For purposes
of the foregoing, (i) "Employees" shall mean the employees of Uniroyal or a
Uniroyal subsidiary whose terms of employment are not subject to a
collective bargaining agreement immediately prior to the Effective Time,
including, without limitation, any employee who is absent at the Effective
Time on short-term disability, long-term disability, Workers' Compensation
or an authorized leave (such as maternity, military, family and medical
leaves or other leaves where return to work is subject to statutory
requirements), and (ii) "Former Employees" shall mean any former employees
of Uniroyal or a Uniroyal subsidiary whose employment terminated prior to
the Effective Time (whether by retirement or otherwise).
Crompton shall cause the Surviving Corporation and its subsidiaries to honor
all Uniroyal's existing agreements with any Employee or Former Employee and
shall pay by wire transfer at the Closing the amounts referred to in that
certain letter agreement dated the date hereof between Crompton and Uniroyal.
The parties hereto agree that, prior to the Closing, Uniroyal will, with the
participation of Crompton, use its best efforts to enter into amendments
(reasonably satisfactory to Crompton) to the existing employment agreements with
all individuals listed in Section 5.2(f) to the Crompton Disclosure Schedule to
reflect the amendments described on the term sheets dated April 30, 1996, signed
by such individuals.
A description of the amounts to be paid at Closing to various individuals
who have existing employment agreements with Uniroyal, if any such individual
notifies Crompton in writing prior to the Closing that he will terminate his
employment with Uniroyal as of the Closing, has been agreed upon by Crompton and
Uniroyal and provided to Crompton by Uniroyal on the date hereof.
(g) Notification of Certain Matters. Crompton shall give prompt notice
to Uniroyal of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause
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any Crompton or Subcorp representation or warranty contained in this
Agreement to be untrue or inaccurate at or prior to the Effective Time and
(ii) any material failure of Crompton to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.2(g) shall not limit or otherwise affect the remedies
available hereunder to Uniroyal.
(h) No Solicitation. Crompton agrees that, during the term of this
Agreement, it shall not, and shall not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers,
employees, agents or representatives, directly or indirectly, to (i)
solicit, initiate, encourage or facilitate, or furnish or disclose
non-public information in furtherance of, any inquiries or the making of any
proposal with respect to any recapitalization, merger, consolidation or
other business combination involving Crompton, or acquisition of any capital
stock or any material portion of the assets (except as set forth in Section
5.2(h) to the Crompton Disclosure Schedule and except for acquisition of
assets in the ordinary course of business consistent with past practice) of
Crompton, or any combination of the foregoing (a "Crompton Competing
Transaction"), (ii) negotiate, explore or otherwise engage in discussions
with any person (other than Uniroyal or its directors, officers, employees,
agents and representatives) with respect to any Crompton Competing
Transaction or (iii) enter into any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to consummate the Merger or any
other transactions contemplated by this Agreement; provided that Crompton
may (i) furnish information to, and negotiate or otherwise engage in
discussions with, any party who delivers a written proposal for a Crompton
Competing Transaction if and so long as the Board of Directors of Crompton
determines in good faith by a majority vote, based upon advice of its
outside legal counsel, that failing to take such action would reasonably be
expected to constitute a breach of the fiduciary duties of the Board and
determines in good faith by a majority vote that such a proposal is more
favorable to Crompton Stockholders in the aggregate and from a financial
point of view than the transactions contemplated by this Agreement
(including any adjustment to the terms and conditions of such transactions
proposed by Uniroyal in response to such Crompton Competing Transaction) and
(ii) take a position with respect to the Merger or a Crompton Competing
Transaction, or amend or withdraw such position, in compliance with Rule
14d-9 or Rule 14e-2 promulgated under the Exchange Act with regard to a
Crompton Competing Transaction. Crompton will immediately cease all existing
activities, discussions and negotiations with any parties conducted
heretofore with respect to any of the foregoing. From and after the
execution of this Agreement, Crompton shall immediately advise Uniroyal in
writing of the receipt, directly or indirectly, of any inquiries,
discussions, negotiations, or proposals relating to a Crompton Competing
Transaction (including the specific terms thereof) and promptly furnish to
Uniroyal a copy of any such proposal or inquiry in addition to any
information provided to or by any third party relating thereto.
(i) [Intentionally Omitted]
(j) Listing Application. Crompton shall, as soon as practicable
following the date hereof, prepare and submit to the NYSE a listing
application covering the shares of Crompton Common Stock (and associated
rights) issuable in the Merger, and shall use its reasonable best efforts to
obtain, prior to the Effective Time, approval for the listing of such shares
of Crompton Common Stock (and associated rights), subject to official notice
of issuance.
(k) Directors of Crompton. Immediately after the Effective Time,
Crompton will take such action as may be necessary to cause (x) Robert J.
Mazaika, Uniroyal's Chairman, President and Chief Executive Officer, to be
elected to the Board of Directors of Crompton as Crompton's "Vice Chairman,"
(y) Thomas M. Begel, a director of Uniroyal, to be elected to the Board of
Directors of Crompton and (z) Harry Corless, a director of Uniroyal, to be
elected to the Board of Directors of Crompton, each of the foregoing to be
elected to a different class of the Crompton Board.
(l) Affiliates of Crompton. Crompton shall use its reasonable best
efforts to cause each such person who may be at the Effective Time or was on
the date hereof an "affiliate" of Crompton
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within the meaning of Rule 145 under the Securities Act, to execute and
deliver to Uniroyal no less than 35 days prior to the date of the meeting of
Crompton Stockholders to approve the Merger written undertakings in the form
reasonably acceptable to Uniroyal.
(m) Change in Control. Crompton agrees that the consummation of the
Merger shall constitute a "Change in Control" of Uniroyal for all purposes
within the meaning of all compensation or benefit plans or agreements of
Uniroyal and its subsidiaries, including without limitation, the Uniroyal
1993 Stock Option Plan, the supplemental executive retirement agreements,
the share purchase agreements, the Management Subscription Agreement and the
employment agreements. In amplification of the foregoing, Crompton
specifically agrees that, if the holder of a Uniroyal employment agreement
shall terminate his employment within one year after the consummation of the
Merger, such termination shall be deemed to be upon a termination of
employment described in clause (C) of the first sentence of Section 7(d) of
Uniroyal's employment agreements with Messrs. Mazaika, Johnson, Ingulli,
Krakower, Melore, Eisenberg, Stephenson and Hagen or clause (B) of the first
sentence of Section 3(d) of Uniroyal's employment agreement with Mr.
Castaldi, except as otherwise agreed to by such individual after the date
hereof.
5.3 Covenants of Uniroyal.
(a) Uniroyal Stockholders Meeting. Uniroyal shall take all action in
accordance with Applicable Laws and its Certificate of Incorporation, as
amended, and Bylaws, as amended and restated, necessary to convene a meeting
of Uniroyal Stockholders as promptly as practicable to consider and vote
upon the approval of the Merger, this Agreement and the transactions
contemplated hereby.
(b) Information for the Registration Statement and Preparation of Joint
Proxy Statement. Uniroyal shall promptly furnish Crompton with all
information concerning it as may be required for inclusion in the
Registration Statement. Uniroyal shall cooperate with Crompton in the
preparation of the Registration Statement in a timely fashion and shall use
all reasonable efforts to have the Registration Statement declared effective
by the Commission as promptly as practicable. If at any time prior to the
Effective Time, any information pertaining to Uniroyal contained in or
omitted from the Registration Statement makes such statements contained in
the Registration Statement false or misleading, Uniroyal shall promptly so
inform Crompton and provide Crompton with the information necessary to make
statements contained therein not false and misleading. Uniroyal shall use
all reasonable efforts to cooperate with Crompton in the preparation and
filing of the Joint Proxy Statement with the Commission on a confidential
basis. Uniroyal shall use all reasonable efforts to mail at the earliest
practicable date to Uniroyal Stockholders the Joint Proxy Statement, which
shall include all information required under Applicable Laws to be furnished
to Uniroyal Stockholders in connection with the Merger and the transactions
contemplated thereby.
(c) Conduct of Uniroyal's Operations. During the period from the date of
this Agreement to the Effective Time, Uniroyal shall conduct its operations
in the ordinary course except as expressly contemplated by this Agreement
and the transactions contemplated hereby and shall use its reasonable
efforts to maintain and preserve its business organization and its material
rights and franchises and to retain the services of its officers and key
employees and maintain relationships with customers, suppliers and other
third parties to the end that their goodwill and ongoing business shall not
be impaired in any material respect. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the
Effective Time or the earlier termination of this Agreement pursuant to
Section 7.1, Uniroyal shall not, except as otherwise expressly contemplated
by this Agreement and the transactions contemplated hereby or as set forth
in Section 5.3(c) to the Uniroyal Disclosure Schedule, without the prior
written consent of Crompton:
(i) do or effect any of the following actions with respect to its
securities: (A) adjust, split, combine or reclassify its capital stock,
(B) make, declare or pay any dividend or distribution
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on, or directly or indirectly redeem, purchase or otherwise acquire, any
shares of its capital stock or any securities or obligations convertible
into or exchangeable for any shares of its capital stock (except in
connection with the use of shares of capital stock of Uniroyal to pay the
exercise price or tax withholding in connection with stock-based employee
benefit plans of Uniroyal or any of its subsidiaries), (C) grant any
person any right or option to acquire any shares of its capital stock,
(D) issue, deliver or sell or agree to issue, deliver or sell any
additional shares of its capital stock or any securities or obligations
convertible into or exchangeable or exercisable for any shares of its
capital stock or such securities (except pursuant to the exercise of
outstanding warrants, options or rights to purchase Uniroyal Common
Stock), or (E) enter into any agreement, understanding or arrangement
with respect to the sale or voting of its capital stock;
(ii) sell, transfer, lease, pledge, mortgage, encumber or otherwise
dispose of any of its property or assets which are material, individually
or in the aggregate, other than in the ordinary course of business
consistent with past practice;
(iii) make or propose any changes in its Certificate of
Incorporation, as amended, or Bylaws, as amended and restated or other
organizational documents;
(iv) merge or consolidate with any other person or acquire a material
amount of assets or capital stock of any other person or enter into any
confidentiality agreement with any person, other than in connection with
this Agreement and the transactions contemplated hereby;
(v) incur, create, assume or otherwise become liable for indebtedness
for borrowed money, other than in the ordinary course of business
consistent with past practice, or assume, guarantee, endorse or otherwise
as an accommodation become responsible or liable for obligations of any
other individual, corporation or other entity, other than in the ordinary
course of business consistent with past practice;
(vi) enter into or modify any employment, severance, termination or
similar agreements or arrangements with, or grant any bonuses, salary
increases, severance or termination pay to, any officer, director,
consultant or employee other than salary increases and bonuses granted in
the ordinary course of business consistent with past practice, or
otherwise increase the compensation or benefits provided to any officer,
director, consultant or employee except as may be required by Applicable
Law, this Agreement, any applicable collective bargaining agreement or a
binding written contract in effect on the date of this Agreement;
(vii) change its method of doing business or change any method or
principle of accounting in a manner that is inconsistent with past
practice;
(viii) settle any Actions, whether now pending or hereafter made or
brought involving an amount in excess of $250,000;
(ix) modify, amend or terminate, or waive, release or assign any
material rights or claims with respect to, any material Contract to which
Uniroyal is a party or any confidentiality agreement to which Uniroyal is
a party;
(x) incur or commit to any capital expenditures, obligations or
liabilities in respect thereof, other than in the ordinary course of
business consistent with past practice;
(xi) take any action to exempt under or make not subject to (x)
Section 203 of the DGCL or (y) any other state takeover law or state law
that purports to limit or restrict business combinations or the ability
to acquire or vote shares, any person or entity (other than Crompton or
its subsidiaries) or any action taken thereby, which person, entity or
action would have otherwise been subject to the restrictive provisions
thereof and not exempt therefrom;
(xii) take any action that would reasonably be expected to result in
the representations and warranties set forth in Section 4.25 becoming
false or inaccurate, or to otherwise
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terminate, amend, modify or make inapplicable as to any person or entity,
the Uniroyal Rights Agreement or redeem the rights issued thereunder;
(xiii) permit or cause any subsidiary to do any of the foregoing or
agree or commit to do any of the foregoing; or
(xiv) agree in writing or otherwise to take any of the foregoing
actions.
(d) No Solicitation. Uniroyal agrees that, during the term of this
Agreement, it shall not, and shall not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers,
employees, agents or representatives, directly or indirectly, to (i)
solicit, initiate, encourage or facilitate, or furnish or disclose
non-public information in furtherance of, any inquiries or the making of any
proposal with respect to any recapitalization, merger, consolidation or
other business combination involving Uniroyal, or acquisition of any capital
stock or any material portion of the assets (except as set forth in Section
5.3(d) to the Uniroyal Disclosure Schedule and except for acquisition of
assets in the ordinary course of business consistent with past practice) of
Uniroyal, or any combination of the foregoing (a "Uniroyal Competing
Transaction"), (ii) negotiate, explore or otherwise engage in discussions
with any person (other than Crompton, Subcorp or their respective directors,
officers, employees, agents and representatives) with respect to any
Uniroyal Competing Transaction or (iii) enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transactions contemplated by this
Agreement; provided that Uniroyal may (i) furnish information to, and
--------
negotiate or otherwise engage in discussions with, any party who delivers a
written proposal for a Uniroyal Competing Transaction if and so long as the
Board of Directors of Uniroyal determines in good faith by a majority vote,
based upon advice of its outside legal counsel, that failing to take such
action would reasonably be expected to constitute a breach of the fiduciary
duties of the Board and determines in good faith by a majority vote that
such a proposal is more favorable to Uniroyal Stockholders in the aggregate
and from a financial point of view than the transactions contemplated by
this Agreement (including any adjustment to the terms and conditions of such
transactions proposed by Crompton in response to such Uniroyal Competing
Transaction) and (ii) take a position with respect to the Merger or a
Uniroyal Competing Transaction, or amend or withdraw such position, in
compliance with Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act
with regard to a Uniroyal Competing Transaction. Uniroyal will immediately
cease all existing activities, discussions and negotiations with any parties
conducted heretofore with respect to any of the foregoing. From and after
the execution of this Agreement, Uniroyal shall immediately advise Crompton
in writing of the receipt, directly or indirectly, of any inquiries,
discussions, negotiations, or proposals relating to a Uniroyal Competing
Transaction (including the status, but not the specific terms thereof) and
promptly furnish to Crompton a copy of any such proposal or inquiry in
addition to any information provided to or by any third party relating
thereto.
(e) Affiliates of Uniroyal. Uniroyal shall use its reasonable best
efforts to cause each such person who may be at the Effective Time or was on
the date hereof an "affiliate" of Uniroyal within the meaning of Rule 145
under the Securities Act, to execute and deliver to Crompton no less than 35
days prior to the date of the meeting of Uniroyal Stockholders to approve
the Merger written undertakings in the form reasonably acceptable to
Crompton.
(f) Notification of Certain Matters. Uniroyal shall give prompt notice
to Crompton of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any Uniroyal
representation or warranty contained in this Agreement to be untrue or
inaccurate at or prior to the Effective Time and (ii) any material failure
of Uniroyal to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that
-----------------
the delivery of any notice pursuant to this Section 5.3(f) shall not limit
or otherwise affect the remedies available hereunder to Crompton.
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<PAGE>
ARTICLE VI
CONDITIONS
6.1 Mutual Conditions. The obligations of the parties hereto to consummate
the Merger shall be subject to fulfillment of the following conditions:
(a) No temporary restraining order, preliminary or permanent injunction
or other order or decree which prevents the consummation of the Merger shall
have been issued and remain in effect, and no statute, rule or regulation
shall have been enacted by any Governmental Authority which prevents the
consummation of the Merger.
(b) All waiting periods applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated and all other
material consents, approvals, permits or authorizations required to be
obtained prior to the Effective Time from any Governmental Authority in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been
obtained.
(c) The Merger and the transactions contemplated hereby shall have been
approved by the Uniroyal Stockholders in the manner required by any
Applicable Law.
(d) The Merger and the transactions contemplated hereby shall have been
approved by the Crompton Stockholders in the manner required by any
Applicable Law.
(e) The Commission shall have declared the Crompton Registration
Statement effective. On the Closing Date and at the Effective Time, no stop
order or similar restraining order shall have been threatened by the
Commission or entered by the Commission or any state securities
administrator prohibiting the Merger.
(f) No Action shall be instituted by any Governmental Authority which
seeks to prevent consummation of the Merger or which seeks material damages
in connection with the transactions contemplated hereby which continues to
be outstanding.
(g) Crompton shall have received an opinion of Wachtell, Lipton, Rosen &
Katz and Uniroyal shall have received an opinion of Skadden, Arps, Slate,
Meagher & Flom substantially to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion which are
consistent with the state of the facts then existing, under Applicable Law,
for Federal income tax purposes, the Merger will constitute a reorganization
under Section 368(a) of the Code. In rendering such opinions, Wachtell,
Lipton, Rosen & Katz and Skadden, Arps, Slate, Meagher & Flom may require
and rely on representations contained in certificates of Crompton, Uniroyal,
Subcorp and others, as they deem reasonably appropriate.
(h) Crompton shall have received a letter, in form and substance
reasonably satisfactory to Crompton, from KPMG Peat Marwick LLP, dated the
date of the Joint Proxy Statement and confirmed in writing at the Effective
Time, stating that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board.
(i) Uniroyal shall have received a letter, in form and substance
reasonably satisfactory to Uniroyal, from Deloitte & Touche LLP, dated the
date of the Joint Proxy Statement and confirmed in writing at the Effective
Time, stating that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board.
(j) The shares of Crompton Common Stock to be issued in the Merger shall
have been authorized for inclusion on the NYSE, subject to official notice
of issuance.
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<PAGE>
(k) Agreements with the officers of Uniroyal jointly identified by
Crompton and Uniroyal on the date hereof and set forth in Section 5.2(f) to
the Crompton Disclosure Schedule shall have been executed substantially on
the terms set forth in the term sheets dated April 30, 1996, signed by such
officers.
6.2 Conditions to Obligations of Uniroyal. The obligations of Uniroyal to
consummate the Merger and the transactions contemplated hereby shall be subject
to the fulfillment of the following conditions unless waived by Uniroyal:
(a) The representations and warranties of each of Crompton and Subcorp
set forth in Article III shall be true and correct on the date hereof and on
and as of the Closing Date as though made on and as of the Closing Date
(except for representations and warranties made as of a specified date,
which need be true and correct only as of the specified date), except for
such inaccuracies which have not had and would not reasonably be expected to
have in the reasonably foreseeable future a material adverse effect on
Crompton.
(b) Each of Crompton and Subcorp shall have performed in all material
respects each obligation and agreement and shall have complied in all
material respects with each covenant to be performed and complied with by it
hereunder at or prior to the Effective Time.
(c) Each of Crompton and Subcorp shall have furnished Uniroyal with a
certificate dated the Closing Date signed on behalf of it by the Chairman,
President or any Vice President to the effect that the conditions set forth
in Sections 6.2(a) and (b) have been satisfied.
(d) Each person who may be at the Effective Time or was on the date of
this Agreement an "affiliate" of Crompton within the meaning of Rule 145
under the Securities Act, shall have executed and delivered to Uniroyal at
least 35 days prior to the date of the meeting of Crompton Stockholders to
approve the Merger written undertakings in the form reasonably acceptable to
Uniroyal.
(e) Crompton shall have entered into satisfactory arrangements with
respect to the consolidated indebtedness of the combined company.
6.3 Conditions to Obligations of Crompton and Subcorp. The obligations of
Crompton to consummate the Merger and the other transactions contemplated hereby
shall be subject to the fulfillment of the following conditions unless waived by
each of Crompton and Subcorp:
(a) The representations and warranties of Uniroyal set forth in Article
IV shall be true and correct on the date hereof and on and as of the Closing
Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which need be
true and correct only as of the specified date), except for such
inaccuracies which have not had and would not reasonably be expected to have
in the reasonably foreseeable future a material adverse effect on Uniroyal.
(b) Uniroyal shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects
with each covenant to be performed and complied with by it hereunder at or
prior to the Effective Time.
(c) Uniroyal shall have furnished Crompton with a certificate dated the
Closing Date signed on its behalf by its Chairman, President or any Vice
President to the effect that the conditions set forth in Sections 6.3(a) and
(b) have been satisfied.
(d) Each person who may be at the Effective Time or was on the date of
this Agreement an "affiliate" of Uniroyal within the meaning of Rule 145
under the Securities Act, shall have executed and delivered to Crompton at
least 35 days prior to the date of the meeting of Uniroyal
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<PAGE>
Stockholders to approve the Merger written undertakings in the form
reasonably acceptable to Crompton.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval and adoption of this Agreement
by Uniroyal Stockholders and Crompton Stockholders:
(a) by mutual consent of Crompton and Uniroyal;
(b) by either Crompton or Uniroyal if any permanent injunction or other
order or decree of a court or other competent Governmental Authority
preventing the consummation of the Merger shall have become final and
nonappealable, provided that the party seeking to terminate this Agreement
under Section 7.1(b) shall have used its reasonable efforts to remove such
injunction, order or decree;
(c) by either Crompton or Uniroyal if the Merger shall not have been
consummated before December 31, 1996, unless extended by the Boards of
Directors of both Crompton and Uniroyal (provided that the right to
terminate this Agreement under this Section 7.1(c) shall not be available to
any party whose failure or whose affiliate's failure to perform any material
covenant or obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date);
(d) by Crompton or Uniroyal if at the meeting of Uniroyal Stockholders
held for such purpose (including any adjournment or postponement thereof)
the requisite vote of the Uniroyal Stockholders to approve the Merger and
the transactions contemplated hereby shall not have been obtained;
(e) by Crompton or Uniroyal if the meeting of Crompton Stockholders held
for such purpose (including any adjournment or postponement thereof) the
requisite vote of the Crompton Stockholders to approve the Merger and the
transactions contemplated hereby shall not have been obtained;
(f) by Crompton or Uniroyal (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of
any of the covenants or agreements or any of the representations or
warranties set forth in this Agreement on the part of the other party, which
breach is not cured within thirty (30) days following written notice given
by the terminating party to the party committing such breach, or which
breach, by its nature, cannot be cured prior to the Closing; or
(g) by either Crompton or Uniroyal if the Board of Directors of Uniroyal
shall reasonably determine that a Uniroyal Competing Transaction is more
favorable to Uniroyal Stockholders in the aggregate and from a financial
point of view than the transactions contemplated by this Agreement and
Uniroyal shall have delivered to Crompton a written notice of the
determination by the Uniroyal Board of Directors to terminate this Agreement
pursuant to this Section 7.1(g); provided, however, that Uniroyal may not
terminate this Agreement pursuant to this clause (g) unless (i) five
business days shall have elapsed after delivery to Crompton of the notice
referred to above, (ii) at the end of such five business-day period the
Uniroyal Board of Directors shall continue to believe that such Uniroyal
Competing Transaction is more favorable to Uniroyal Stockholders in the
aggregate and from a financial point of view than the transactions
contemplated by this Agreement, (iii) at the time of such termination,
Uniroyal shall have paid to
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<PAGE>
Crompton the Termination Fee and (iv) promptly thereafter Uniroyal shall
enter into a definitive acquisition, merger or similar agreement to effect
such Uniroyal Competing Transaction.
7.2 Effect of Termination.
(a) In the event of the termination of this Agreement pursuant to
Section 7.1, this Agreement, except for the provisions of the last sentence
of Section 5.1(g) and the provisions of Sections 7.2 and 8.10, shall become
void and have no effect, without any liability on the part of any party or
its directors, officers or stockholders. Notwithstanding the foregoing,
nothing in this Section 7.2 shall relieve any party to this Agreement of
liability for a material breach of any provision of this Agreement. If this
Agreement is terminated (i) by Crompton or Uniroyal pursuant to Section
7.1(g), (ii) by Crompton pursuant to Section 7.1(c) if (A) Uniroyal's or
Uniroyal's affiliate's failure to perform any material covenant or
obligation under this Agreement has been the cause of or resulted in the
failure of the Merger to have occurred on or before December 31, 1996 and
(B) a Prior Event (as defined below) shall have occurred prior to such
termination and (C) a Uniroyal Competing Transaction is consummated within
one year following such termination, (iii) by Crompton pursuant to Section
7.1(f) if (A) Uniroyal's or Uniroyal's affiliate's failure to perform any
material covenant or obligation under this Agreement is the basis for such
termination and (B) a Prior Event shall have occurred prior to such
termination and (C) a Uniroyal Competing Transaction is consummated within
one year following such termination or (iv) by Crompton or Uniroyal pursuant
to Section 7.1(d) if (A) a Prior Event shall have occurred prior to such
termination and (B) a Uniroyal Competing Transaction is consummated within
one year following such termination; then in any such case Uniroyal will, in
the case of a termination by Crompton, within three business days following,
in the case of clause (i) of this paragraph, any such termination or, in the
case of clauses (ii), (iii) or (iv) of this paragraph, the consummation of
the Uniroyal Competing Transaction, or, in the case of a termination by
Uniroyal, prior to, in the case of clause (i) of this paragraph, such
termination or, in the case of clause (iv) of this paragraph, the
consummation of the Uniroyal Competing Transaction, pay to Crompton in cash
by wire transfer in immediately available funds to an account designated by
Crompton a termination fee in an amount equal to $50 million (the
"Termination Fee").
(b) As used herein, a "Prior Event" shall mean any of the following
events:
(i) any person (other than Crompton or any of its subsidiaries) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act), or shall have filed a registration statement under the Securities
Act, with respect to, a tender offer or exchange offer to purchase any
shares of Uniroyal Common Stock such that, upon consummation of such
offer, such person would Beneficially Own (as defined below) or control
10% or more of the then outstanding Uniroyal Common Stock;
(ii) Uniroyal or any of its subsidiaries shall have entered into,
authorized, recommended, proposed or publicly announced an intention to
enter into, authorize, recommend, or propose, an agreement, arrangement
or understanding with any person (other than Crompton or any of its
subsidiaries) to, or any person (other than Crompton or any of its
subsidiaries) shall have publicly announced a bona fide intention to, (A)
effect any Competing Transaction, (B) purchase, lease or otherwise
acquire 10% or more of the assets of Uniroyal or any of its subsidiaries
or (C) purchase or otherwise acquire (including by way of merger,
consolidation, tender or exchange offer or similar transaction)
Beneficial Ownership of securities representing 10% or more of the voting
power of Uniroyal or any of its subsidiaries; or
(iii) any person (other than Crompton or any subsidiary of Crompton)
shall have acquired Beneficial Ownership or the right to acquire
Beneficial Ownership of a number of shares of Uniroyal Common Stock in
addition to the number of shares of Uniroyal Common
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<PAGE>
Stock Beneficially Owned by such person on the date hereof equal to 10%
or more of the voting power of Uniroyal.
(c) As used herein, the terms "Beneficial Ownership" and "Beneficially
Own" shall have the meanings ascribed to them in Rule 13d-3 under the
Exchange Act. As used herein, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after adoption of this Agreement by Uniroyal Stockholders or
authorization of issuance of shares of Crompton Common Stock in the Merger by
Crompton Stockholders, but after each such approval or authorization, no
amendment shall be made which by law requires further approval or authorization
by the Uniroyal Stockholders or Crompton Stockholders, as the case may be,
without such further approval or authorization. Notwithstanding the foregoing,
this Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, Crompton
(with respect to Uniroyal) and Uniroyal (with respect to Crompton and Subcorp)
by action taken or authorized by their respective Boards of Directors, may, to
the extent legally allowed, (a) extend the time for the performance of any of
the obligations or other acts of such party, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties. The representations and
warranties made herein by the parties hereto shall not survive the Effective
Time. This Section 8.1 shall not limit any covenant or agreement of the parties
hereto, which by its terms contemplates performance after the Effective Time or
the termination of this Agreement.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or dispatched by a nationally recognized overnight courier service to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Crompton or Subcorp:
Crompton & Knowles Corporation
One Station Place, Metro Center
Stamford, CT 06902
Attention: John T. Ferguson, II
Telecopy No.: (203) 353-5470
with a copy to
Edward D. Herlihy
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy No.: (212) 403-2000
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<PAGE>
(b) if to Uniroyal:
Uniroyal Chemical Corporation
Benson Road
Middlebury, CT 06749
Attention: Ira J. Krakower
Telecopy No.: (203) 573-4301
with a copy to
Joseph A. Coco
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telecopy No.: (212) 735-2000
8.3 Interpretation. When a reference is made in this Agreement to an Article
or Section, such reference shall be to an Article or Section of this Agreement
unless otherwise indicated. The headings and the table of contents contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. When a reference is made in
this Agreement to common stock of Uniroyal or Crompton, as the case may be, or
shares thereof, such reference shall be deemed to include the preferred share
purchase rights issued pursuant to the Uniroyal Rights Agreement or Crompton
Rights Agreement, as the case may be that trade together with such common stock.
For the purposes of any provision of this Agreement, a "material adverse effect"
with respect to any party shall be deemed to occur if the aggregate consequences
of all breaches and inaccuracies of covenants and representations of such party
and its subsidiaries, taken as a whole, under this Agreement, when read without
any exception or qualification for a material adverse effect, are reasonably
likely to have a material adverse effect on the assets, liabilities, results of
operations, business or financial condition of such party and its subsidiaries,
taken as a whole.
8.4 Counterparts. This Agreement may be executed in counterparts, which
together shall constitute one and the same Agreement. The parties may execute
more than one copy of the Agreement, each of which shall constitute an original.
8.5 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) and the Confidentiality Agreement constitute the
entire agreement among the parties and supersede all prior agreements and
understandings, agreements or representations by or among the parties, written
and oral, with respect to the subject matter hereof and thereof.
8.6 Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended or shall be construed to create any third party
beneficiaries, except for the provisions of Sections 5.2(d), 5.2(e), 5.2(k) and
5.2(m) which may be enforced by the beneficiaries thereof (the expenses,
including reasonable attorneys' fees, that may be incurred thereby in enforcing
such provisions to be paid by Crompton).
8.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of law.
8.8 Specific Performance. The transactions contemplated by this Agreement
are unique. Accordingly, each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be entitled, each of the parties
hereto is entitled to a decree of specific performance, provided that such party
is not in material default hereunder.
8.9 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the
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<PAGE>
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
8.10 Expenses. Subject to the provisions of Section 7.2, Crompton and
Uniroyal shall pay their own costs and expenses associated with the transactions
contemplated by this Agreement, except that Uniroyal and Crompton shall share
equally (i) the filing fees in connection with the filing of the Joint Proxy
Statement and Registration Statement with the Commission and (ii) the expenses
incurred in connection with printing and mailing the Joint Proxy Statement to
the Crompton Stockholders and Uniroyal Stockholders.
8.11 Incorporation of Disclosure Schedules. The Uniroyal Disclosure Schedule
and the Crompton Disclosure Schedule are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
8.12 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
8.13 Subsidiaries. As used in this Agreement, the word "subsidiary" when
used with respect to any party means any corporation or other organization,
whether incorporated or unincorporated, (i) of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which such party is a
general partner and (ii) for purposes of Articles III and IV hereof, that would
constitute a "significant subsidiary" of such party within the meaning of Rule
1-02 of Regulation S-X promulgated by the Commission.
IN WITNESS WHEREOF, Crompton, Subcorp and Uniroyal have signed this
Agreement as of the date first written above.
CROMPTON & KNOWLES CORPORATION
By: /s/ VINCENT A. CALARCO
-----------------------
TIGER MERGER CORP.
By: /s/ VINCENT A. CALARCO
-----------------------
UNIROYAL CHEMICAL CORPORATION
By: /s/ ROBERT J. MAZAIKA
-----------------------
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<PAGE>
ANNEX B
MORGAN STANLEY
[Letterhead of Morgan Stanley & Co. Incorporated]
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 761-4000
April 30, 1996
Board of Directors
Uniroyal Chemical Corporation
Middlebury, CT 06749
Gentlemen:
We understand that Uniroyal Chemical Corporation ("Uniroyal" or the "Company"),
Crompton & Knowles Corporation ("Crompton") and Crompton Merger Corp., a wholly
owned subsidiary of Crompton ("Merger Sub") propose to enter into an Agreement
and Plan of Merger, substantially in the form of the draft dated April 30, 1996
(the "Merger Agreement"), which provides, among other things, for the merger
(the "Merger") of Merger Sub with and into Uniroyal. Pursuant to the Merger, the
Company will be a wholly owned subsidiary of Crompton and each outstanding share
of common stock, par value $0.01 per share (the "Company Common Stock"), of
Uniroyal, other than shares held in the treasury of Uniroyal or by Crompton or
any wholly owned subsidiary of Crompton or as to which dissenters' rights have
been perfected, will be converted into a certain number of shares of common
stock, par value $0.10 per share ("Crompton Common Stock"), of Crompton
determined pursuant to a certain formula set forth in the Merger Agreement. The
terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the consideration to be received by
the holders of shares of Company Common Stock pursuant to the Merger Agreement
is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
<TABLE>
<S> <C>
(i) analyzed certain publicly available financial statements and other information of
the Company and Crompton, respectively;
(ii) reviewed certain internal business, operating and financial information, including
financial projections, relating to the Company and Crompton, furnished to us by
the Company and Crompton, respectively;
(iii) discussed the past and current operations and financial condition and the
prospects of the Company with senior executives of the Company;
(iv) discussed the past and current operations and financial condition and the
prospects of Crompton with senior executives of Crompton and analyzed the pro
forma impact of the Merger on Crompton's earnings per share, consolidated
capitalization and financial ratios;
(v) reviewed the reported prices and trading activity for the Company Common Stock and
the Crompton Common Stock;
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
(vi) compared the financial performance of the Company and the prices and trading
activity of the Company Common Stock with that of certain other comparable
publicly traded companies and their securities;
(vii) compared the financial performance of Crompton and the prices and trading activity
of the Crompton Common Stock with that of certain other comparable publicly traded
companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
(ix) participated in discussions and negotiations among representatives of the Company
and Crompton and their financial and legal advisors and reviewed the Merger
Agreement; and
(x) performed such other analyses as we have deemed appropriate.
</TABLE>
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company and
Crompton. We have not made any independent valuation or appraisal of the assets
or liabilities of the Company or Crompton, nor have we been furnished with any
such appraisals. We have assumed that the Merger will be accounted for as a
"pooling-of-interests" business combination in accordance with U.S. Generally
Accepted Accounting Principles and will qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986. We have also
assumed that the Merger will be consummated in accordance with the terms set
forth in the Merger Agreement. Our opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets, nor did we negotiate with any of the parties, other than
Crompton, which expressed interest to us in the possible acquisition of the
Company.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates ("Morgan Stanley")
have provided financial advisory and financing services for the Company and
Crompton and have received fees for the rendering of these services. In
addition, Morgan Stanley currently owns approximately 6% of the outstanding
shares of Company Common Stock.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company or Crompton with the Securities and Exchange
Commission with respect to the Merger and the transactions related thereto. In
addition, we express no opinion or recommendation as to how the holders of
Company Common Stock should vote at the shareholders' meeting held in connection
with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of Company
Common Stock pursuant to the Merger Agreement is fair from a financial point of
view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ STEPHEN R. MUNGER
----------------------
Stephen R. Munger
Managing Director
B-2
<PAGE>
ANNEX C
[Letterhead of Salomon Brothers Inc]
Confidential
April 30, 1996
Board of Directors
Crompton & Knowles Corporation
One Station Place
Metro Center
Stamford, CT 06902
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to Crompton & Knowles Corporation, a
Massachusetts corporation (the "Company" or "Crompton"), of the consideration to
be paid to the stockholders of Uniroyal Chemical Corporation ("Uniroyal"), a
Delaware corporation, in connection with the proposed merger (the "Merger") of
Tiger Merger Corp., a Delaware corporation and a wholly owned subsidiary of the
Company, into Uniroyal, as contemplated by the Agreement and Plan of Merger,
dated as of April 30, 1996 (the "Merger Agreement"). Pursuant to the Merger
Agreement, each share of Uniroyal common stock, $0.01 par value ("Uniroyal
Common Stock"), issued and outstanding will be converted into and represent a
number of shares of Crompton common stock, $0.10 par value ("Crompton Common
Stock"), equal to $15.00 divided by the average closing price of Crompton Common
Stock (the "Exchange Ratio") for the 20 trading days ending with the third
trading day immediately preceding the date of mailing of the joint proxy
statement for the Merger, provided that the Exchange Ratio will not be less than
0.9091 nor more than 1.1111. We understand that the Merger is intended to
qualify as a tax-free reorganization for federal income tax purposes and to be
accounted for as a pooling of interests in accordance with generally accepted
accounting principles as described in Accounting Principles Board Opinion Number
16.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following: (i) the Merger Agreement, including the
exhibits and the disclosure schedules thereto and the documents referred to
therein; (ii) certain publicly available information concerning the Company and
Uniroyal, including the Annual Reports on Form 10-K of the Company for each of
the years in the five-year period ended December 30, 1995, the Annual Report on
Form 10-K of Uniroyal for the year ended October 1, 1995, and the Quarterly
Report on Form 10-Q of Uniroyal for the quarter ended December 31, 1995; (iii)
the Company's and Uniroyal's press releases announcing preliminary financial
information for the quarter ended March 30, 1996 and March 31, 1996,
respectively; (iv) certain financial forecasts concerning the businesses and
operations of the Company and Uniroyal that were prepared by the managements of
the Company and Uniroyal, respectively; and (v) certain publicly available
information with respect to certain other companies that we believe to be
comparable in certain respects to the Company and Uniroyal and the trading
markets for such other companies' securities. We have also met with certain
officers and employees of the Company and Uniroyal to discuss the foregoing,
including the past and current business operations, financial condition and
prospects of the Company and Uniroyal, respectively, as well as other matters we
believe relevant to our inquiry. We have also considered such other information,
financial studies, analyses, investigations and financial, economic and market
criteria which we deemed relevant.
C-1
<PAGE>
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided us or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of such
information. With respect to the financial projections of the Company and
Uniroyal, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of management as
to the future financial performance of the Company or Uniroyal, as the case may
be, and we express no opinion with respect to such projections or the
assumptions on which they are based. We have not made or obtained or assumed any
responsibility for making or obtaining any independent evaluations or appraisals
of any of the assets (including properties and facilities) or liabilities of the
Company or Uniroyal.
Our opinion necessarily is based upon conditions as they exist and can be
evaluated on the date hereof, and we assume no responsibility to update or
revise our opinion based upon circumstances or events occurring after the date
hereof. Our opinion does not address the Company's underlying business decision
to effect the Merger or constitute a recommendation to any holder of Crompton
Common Stock as to how such holder should vote with respect to the Merger. Our
opinion as expressed below does not imply any conclusion as to the likely
trading range for Crompton Common Stock following the consummation of the
Merger, which may vary depending upon, among other factors, changes in interest
rates, dividend rates, market conditions, general economic conditions and other
factors that generally influence the price of securities.
As you are aware, we have acted as the financial advisor to the Company in
connection with the Merger and will receive a fee from the Company for our
services, a substantial portion of which is contingent upon consummation of the
Merger. Additionally, we have previously rendered and are currently rendering
certain investment banking and financial advisory services to the Company, for
which we have received and will receive customary compensation. In addition, in
the ordinary course of our business, we may actively trade the securities of the
Company and Uniroyal for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This letter, and our opinion expressed herein, is not to be quoted,
summarized or referred to, in whole or in part, without our prior written
consent. Notwithstanding the foregoing, this opinion may be included or referred
to in any registration statement or proxy statement sent to the stockholders of
the Company and Uniroyal with respect to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid to the stockholders of Uniroyal in
connection with the Merger is fair to the Company from a financial point of
view.
Very truly yours,
SALOMON BROTHERS INC
C-2
<PAGE>
ANNEX D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Sec. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsections (f) or (g) of Sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sec.Sec.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
D-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Sec. 228 or
253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be
sent by certified or registered mail, return receipt requested, addressed to
the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of the notice, demand in writing from the
surviving or resulting corporation the appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after
D-2
<PAGE>
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger of
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonably attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
D-3
<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deem just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-4
<PAGE>
UNIROYAL CHEMICAL CORPORATION
THIS PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON , 1996
The undersigned hereby appoints Robert J. Mazaika and Ira J. Krakower, and each
of them with full power to act alone, the true and lawful attorneys in fact and
proxies of the undersigned to vote all shares of Common Stock of Uniroyal
Chemical Corporation, a Delaware corporation (the "Company"), held by the
undersigned, with full power of substitution, with the same force and effect as
the undersigned would be entitled to vote if personally present, at the Special
Meeting of Stockholders of the Company to be held at the offices of Uniroyal
Chemical Company, Inc. at Benson Road, Middlebury, Connecticut, on , 1996,
at a.m. (local time), and at any and all adjournments or postponements
thereof, as follows:
<TABLE>
<CAPTION>
X Please mark your votes as in this example
<S> <C> <C> <C>
1. Approval and adoption of the Agreement and Plan of Merger, dated as of FOR AGAINST ABSTAIN
April 30, 1996 (the "Merger Agreement"), by and among the Company, Crompton
& Knowles Corporation, a Massachusetts corporation ("Crompton"), and Tiger / / / / / /
Merger Corp., a Delaware corporation and a wholly owned subsidiary of
Crompton, and the transactions contemplated thereby, as fully described in
the Joint Proxy Statement/Prospectus relating thereto.
2. OTHER MATTERS: Discretionary authority is hereby granted to transact such
other business as may properly come before the meeting or any adjournment
or postponement thereof.
</TABLE>
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT.
- --------------------------------------------------------------------------------
(continued on reverse side)
Please mark, sign, date and return this proxy card promptly, using the enclosed
envelope.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF THIS PROXY IS SUBMITTED, BUT NO DIRECTIONS ARE MADE, THIS PROXY WILL
BE VOTED "FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Stockholders and the related Joint Proxy Statement/Prospectus furnished
herewith.
Dated:_____________________________,
1996
_______________________________________
Signature
_______________________________________
Signature(s) (if held
jointly)
_______________________________________
Title or Authority
_______________________________________
IMPORTANT: PLEASE SIGN YOUR
NAME EXACTLY AS IT APPEARS
HEREON. WHEN SIGNING AS
ATTORNEY, AGENT, EXECUTOR,
ADMINISTRATOR, TRUSTEE,
GUARDIAN OR CORPORATE
OFFICER, PLEASE GIVE YOUR
FULL TITLE AS SUCH. EACH
JOINT OWNER SHOULD SIGN THE
PROXY. IF EXECUTED BY A
PARTNERSHIP, THIS PROXY
SHOULD BE SIGNED BY AN
AUTHORIZED PARTNER.
<PAGE>
CROMPTON & KNOWLES CORPORATION
THIS PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON , 1996
The undersigned hereby appoints and , and each of them
with full power to act alone, the true and lawful attorneys in fact and proxies
of the undersigned to vote all shares of Common Stock of Crompton & Knowles
Corporation, a Massachusetts corporation (the "Company"), held by the
undersigned, with full power of substitution, with the same force and effect as
the undersigned would be entitled to vote if personally present, at the Special
Meeting of Stockholders of the Company to be held at the Company's corporate
offices at One Station Place, Metro Center, Stamford, Connecticut, on ,
1996, at 10:00 a.m. (local time), and at any and all adjournments or
postponements thereof, as follows:
<TABLE>
<CAPTION>
X Please mark your votes as in this example
<S> <C> <C> <C>
1. Approval and adoption of the Agreement and Plan of Merger, dated as of FOR AGAINST ABSTAIN
April 30, 1996 (the "Merger Agreement"), by and among the Company, Uniroyal
Chemical Corporation, a Delaware corporation ("Uniroyal"), and Tiger Merger / / / / / /
Corp., a Delaware corporation and a wholly owned subsidiary of the Company,
and the transactions contemplated thereby, which will also constitute
approval of an amendment to Crompton's 1988 Long Term Incentive Plan to
increase the number of shares of Crompton common stock, par value $0.10 per
share, reserved for issuance thereunder by 6,000,000 shares, as fully
described in the Joint Proxy Statement/Prospectus relating thereto.
2. OTHER MATTERS: Discretionary authority is hereby granted to transact such
other business as may properly come before the meeting or any adjournment
or postponement thereof.
</TABLE>
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
- --------------------------------------------------------------------------------
(continued on reverse side)
Please mark, sign, date and return this proxy card promptly, using the enclosed
envelope.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF THIS PROXY IS SUBMITTED, BUT NO DIRECTIONS ARE MADE, THIS PROXY WILL
BE VOTED "FOR" PROPOSAL 1.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Stockholders and the related Joint Proxy Statement/Prospectus furnished
herewith.
Dated:_____________________________,
1996
_______________________________________
Signature
_______________________________________
Signature(s) (if held
jointly)
_______________________________________
Title or Authority
_______________________________________
IMPORTANT: PLEASE SIGN YOUR
NAME EXACTLY AS IT APPEARS
HEREON. WHEN SIGNING AS
ATTORNEY, AGENT, EXECUTOR,
ADMINISTRATOR, TRUSTEE,
GUARDIAN OR CORPORATE
OFFICER, PLEASE GIVE YOUR
FULL TITLE AS SUCH. EACH
JOINT OWNER SHOULD SIGN THE
PROXY. IF EXECUTED BY A
PARTNERSHIP, THIS PROXY
SHOULD BE SIGNED BY AN
AUTHORIZED PARTNER.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. 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 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.
II-1
<PAGE>
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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<C> <S>
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 this Registration Statement. 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.
8.01 Opinion of Wachtell, Lipton, Rosen & Katz as to certain tax matters.
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>
II-2
<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>
II-3
<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 Deloitte & Touche LLP.
23.03 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5.01).
23.04 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 8.01).
23.05 Consent of Morgan Stanley & Co. Incorporated.
23.06 Consent of Salomon Brothers Inc (included in the opinion of Salomon Brothers Inc
included as Annex C in the Joint Proxy Statement/Prospectus included as part of this
Registraton Statement).
24.01 Power of Attorney.
</TABLE>
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts (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).
(c) Report, Opinion or Appraisal. Not Applicable.
ITEM 22. 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.
II-4
<PAGE>
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(g) The undersigned Registrant hereby undertakes:
1. To file during any period in which offers and sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
2. That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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 July 19, 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 July 19, 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>
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 this Registration Statement. 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.
8.01 Opinion of Wachtell, Lipton, Rosen & Katz as to certain tax matters.
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 Deloitte & Touche LLP.
23.03 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5.01).
23.04 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 8.01).
23.05 Consent of Morgan Stanley & Co. Incorporated.
23.06 Consent of Salomon Brothers Inc (included in the opinion of Salomon Brothers Inc
included as Annex C in the Joint Proxy Statement/Prospectus included as part of this
Registration Statement).
24.01 Power of Attorney.
</TABLE>
Exhibit 5.01
[Letterhead of Wachtell, Lipton, Rosen & Katz]
July 19, 1996
Crompton & Knowles Corporation
One Station Place, Metro Center
Stamford, Connecticut 06902
Re: Registration Statement on Form S-4
of Crompton & Knowles Corporation
----------------------------------
Ladies and Gentlemen:
We are acting as special counsel to Crompton & Knowles Corporation,
a Massachusetts corporation ("Crompton"), in connection with the above-
captioned Registration Statement filed by Crompton with the Securities and
Exchange Commission (the "Registration Statement") with respect to up to
30,268,054 shares of common stock, $0.10 par value ("Crompton Common Stock"),
of Crompton proposed to be issued in connection with 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"), as described in the Joint Proxy
Statement/Prospectus that is a part of the Registration Statement (the "Joint
Proxy Statement/Prospectus").
In connection with this opinion, we have reviewed the Registration
Statement and the exhibits thereto, and we have examined originals or copies,
certified or otherwise identified to our satisfaction, of such corporate
records, agreements, certificates of public officials and of officers of
Crompton and Subcorp, and other instruments, including an opinion of
Massachusetts counsel, and such matters of law and fact as we have deemed
necessary to render the opinion contained herein.
Based upon and subject to the foregoing, we are of the opinion that
the shares of Crompton Common Stock being registered under the Registration
Statement, when issued pursuant to the Merger following approval of the
Agreement and
<PAGE>
Crompton & Knowles Corporation
July 19, 1996
Page 2
Plan of Merger, dated as of April 30, 1996, by and among Crompton, Subcorp
and Uniroyal, by the requisite votes of the stockholders of Crompton and
Uniroyal, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement and to
the reference to our firm under the caption "LEGAL MATTERS" in the Joint
Proxy Statement/Prospectus contained therein. In giving such consent, we do
not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
Exhibit 8.01
[Letterhead of Wachtell, Lipton, Rosen & Katz]
July 19, 1996
Crompton & Knowles Corporation
One Station Place, Metro Center
Stamford, Connecticut 06902
Ladies/Gentlemen:
We have acted as special counsel to Crompton & Knowles Corporation, a
Delaware corporation ("CKC"), in connection with the proposed merger (the
"Merger") of Tiger Merger Corp., a Delaware corporation ("Merger Corporation"),
and a wholly owned subsidiary of CKC, with and into Uniroyal Chemical
Corporation, a Delaware corporation ("UCC"), upon the terms and conditions set
forth in the Agreement and Plan of Merger (the "Agreement") dated as of April
30, 1996 by and among CKC, Merger Corporation and UCC. Pursuant to Section 6.1
(g) of the Agreement, we are rendering our opinion concerning certain federal
income tax consequences of the Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of CKC and the consent of UCC, upon the accuracy and completeness of the
statements and representations contained, respectively, in the certificates of
the officers of CKC and Merger Corporation and of UCC, as if such certificates
had been executed by the appropriate officers of CKC, Merger Corporation and
UCC, which statements and representations we have neither investigated nor
verified
<PAGE>
(copies of which are attached hereto and which are incorporated herein by
reference), and have assumed that such certificates will be complete and ac-
curate as of the Effective Time and will have been executed as of such time. We
have also relied on the accuracy and completeness of the Registration Statement
of CKC filed on Form S-4 with the Securities and Exchange Commission, as amended
through the date hereof (the "Registration Statement"). Any capitalized term
used and not defined herein has the meaning given to it in the Registration
Statement or the appendices thereto (including the Agreement).
We have also assumed that the transactions contemplated by the
Agreement will be consummated in accordance therewith and as described in the
Registration Statement and that the Merger will qualify as a statutory merger
under the applicable laws of the State of Delaware.
Based upon and subject to the foregoing, it is our opinion that, under
currently applicable law, the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), that CKC, Merger Corporation and UCC will each be a party to the
reorganization within the meaning of Section 368(b) of the Code and that,
accordingly, the following will be certain material federal income tax
consequences of the Merger:
(i) No gain or loss will be recognized by the shareholders of UCC upon
the conversion of their shares of Uniroyal Common Stock or Uniroyal
Preferred Stock (together, "Capital Stock") solely into shares of
Crompton Common Stock pursuant to the terms of the Merger to the
extent of such conversion.
(ii) The tax basis of the shares of Crompton Common Stock into which
shares of UCC Capital Stock are converted pursuant to the
Merger will be the same as the basis of such shares of UCC Capital
Stock exchanged therefor.
(iii) The holding period for shares of Crompton Common Stock into which
shares of UCC Capital Stock are converted will include the period
that such shares of UCC Capital Stock were held by the holder,
provided such shares were a capital asset of the holder.
(iv) The receipt of cash in lieu of fractional shares of Crompton Common
Stock by a UCC shareholder will
- 2 -
<PAGE>
be treated as if the fractional shares were distributed as part of
the exchange and then were redeemed by CKC.
This opinion may not be applicable to UCC shareholders who received
their Uniroyal Common Stock pursuant to the exercise of employee stock options
or otherwise as compensation or who are not citizens or residents of the United
States.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an Exhibit to the Registration Statement on Form S-4
in respect of the shares of Crompton Common Stock to be issued in connection
with the Merger, and to the reference to this opinion under the caption "Certain
Federal Income Tax Consequences" and elsewhere in the Registration Statement.
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
- 3 -
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 Joint Proxy Statement/Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Stamford, Connecticut
July 19, 1996
Exhibit 23.02
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus and Registration Statement of Crompton &
Knowles Corporation/Uniroyal Chemical Corporation of our report
dated November 17, 1995, included in the Annual Report on Form
10-K of Uniroyal Chemical Corporation and Uniroyal Chemical Company,
Inc. for the year ended October 1, 1995. We also consent to the
reference to us under the heading "Experts" in such prospectus.
/s/ Deloitte & Touche L.L.P.
Stamford, Connecticut
July 19, 1996
Exhibit 23.05
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
July 19, 1996
Uniroyal Chemical Corporation
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement
of Crompton & Knowles Corporation ("Crompton"), relating to the
proposed merger of Uniroyal Chemical Corporation with Crompton, of
our opinion letter in the Joint Proxy Statement/Prospectus which is
a part of the Registration Statement, and to the references of our
firm name therein. In giving such consent, we do not thereby admit
that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations adopted by the Securities and Exchange Commission
thereunder nor do we admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Alan Jones
---------------------------------------
Alan Jones
Managing Director
Exhibit 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Vincent A. Calarco, Charles J. Marsden and John
T. Ferguson, II, and each of them, his or her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission any other
regulatory authority, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as they might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons of the
Registrant in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Vincent A. Calarco Chairman of the Board, July 15, 1996
- -------------------------
Vincent A. Calarco President, and Director
(Principal Executive Officer)
/s/ Charles J. Marsden Vice President - Finance July 10, 1996
- -------------------------
Charles J. Marsden and Director (Principal
Financial Officer)
/s/ Peter Barna Treasurer (Principal July 10, 1996
- -------------------------
Peter Barna Accounting Officer)
/s/ James A. Bitonti Director July 15, 1996
- -------------------------
James A. Bitonti
/s/ Robert A. Fox Director July 15, 1996
- -------------------------
Robert A. Fox
/s/ Roger L. Headrick Director July 15, 1996
- -------------------------
Roger L. Headrick
/s/ Leo I. Higdon, Jr. Director July 15, 1996
- -------------------------
Leo I. Higdon, Jr.
/s/ Michael W. Huber Director July 15, 1996
- -------------------------
Michael W. Huber
/s/ C.A. Piccolo Director July 15, 1996
- -------------------------
C.A. Piccolo
/s/ Patricia K. Woolf, Ph.D Director July 13, 1996
- ----------------------------
Patricia K. Woolf, Ph.D
