SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the quarterly period
ended June 26, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period
from to
Commission File No. 1-4663
Crompton & Knowles Corporation
(exact name of registrant as specified in its charter)
Massachusetts 04-1218720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Station Place, Metro Center
Stamford, Connecticut 06902
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)353-5400
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at July 14, 1999
Common Stock, $.10 par value 65,465,975 shares
CROMPTON & KNOWLES CORPORATION
FORM 10-Q
FOR QUARTER ENDED JUNE 26, 1999
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements and
Accompanying Notes
. Consolidated Statements of Earnings
(unaudited) - Second quarter and six
months ended 1999 and 1998
. Consolidated Balance Sheets - June 26, 1999
(unaudited) and December 26, 1998
. Consolidated Statements of Cash Flows
(unaudited) - Six Months ended 1999 and 1998
. Notes to Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
*Exhibit 10.1 Amended and Restated Employment Agreement
*Exhibit 10.2 Amended Crompton & Knowles Corporation 1998
Long Term Incentive Plan
*Exhibit 27 Financial Data Schedules
* A copy of this Exhibit is annexed to this report on Form 10-Q
provided to the Securities and Exchange Commission.
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Second quarter and six months ended 1999 and 1998
(In thousands, except per share data)
Second quarter ended Six months ended
1999 1998 1999 1998
Net sales $ 409,174 $ 474,337 $ 805,466 $ 951,556
Cost of products sold 248,582 292,091 495,877 594,556
Selling, general
and administrative 60,066 66,074 120,656 133,347
Depreciation and amortization 18,666 20,394 37,503 40,487
Research and development 11,278 13,200 22,586 26,363
Equity income (2,379) - (9,434) -
Operating profit 72,961 82,578 138,278 156,803
Interest expense 12,953 20,505 26,107 44,118
Other (income) expense 451 (1,258) (40,255) (1,547)
Earnings before income
taxes and extraordinary loss 59,557 63,331 152,426 114,232
Provision for income taxes 21,588 23,536 55,254 42,494
Earnings before
extraordinary loss 37,969 39,795 97,172 71,738
Extraordinary loss on early
extinguishment of debt (1,085) (13,843) (1,085) (15,794)
Net earnings $ 36,884 $ 25,952 $ 96,087 $ 55,944
Basic Earnings per common share:
Earnings before
extraordinary loss $ .58 $ .53 $ 1.46 $ .96
Extraordinary loss (.02) (.18) (.02) (.21)
Net earnings $ .56 $ .35 $ 1.44 $ .75
Diluted Earnings per common share:
Earnings before
extraordinary loss $ .57 $ .52 $ 1.43 $ .94
Extraordinary loss (.02) (.18) (.02) (.21)
Net earnings $ .55 $ .34 $ 1.41 $ .73
Dividends per common share $ .05 $ .05 $ .05 $ .05
See accompanying notes to consolidated financial statements.
- 2 -
June 26, 1999 UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 26, 1999 and December 26, 1998
(In thousands of dollars)
June 26, December 26,
1999 1998
ASSETS
CURRENT ASSETS
Cash $ 14,243 $ 12,104
Accounts receivable 199,368 173,668
Inventories 318,711 334,562
Other current assets 82,788 77,422
Total current assets 615,110 597,756
NON-CURRENT ASSETS
Property, plant and equipment 449,804 473,403
Cost in excess of acquired net assets 145,563 166,184
Other assets 170,715 171,550
$ 1,381,192 $ 1,408,893
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 15,327 $ 17,305
Accounts payable 106,396 117,338
Accrued expenses 133,451 139,401
Income taxes payable 79,657 103,179
Other current liabilities 14,711 17,149
Total current liabilities 349,542 394,372
NON-CURRENT LIABILITIES
Long-term debt 668,975 646,857
Postretirement health care liability 142,995 142,727
Other liabilities 142,686 158,234
STOCKHOLDERS' EQUITY
Common stock 7,733 7,733
Additional paid-in capital 240,884 238,615
Retained earnings (deficit) 76,830 (15,985)
Accumulated other comprehensive income (49,737) (37,571)
Treasury stock at cost (197,944) (125,246)
Deferred compensation (772) (843)
Total stockholders' equity 76,994 66,703
$ 1,381,192 $ 1,408,893
See accompanying notes to consolidated financial statements.
- 3 -
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months ended 1999 and 1998
(In thousands of dollars)
Increase (decrease) to cash 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 96,087 $ 55,944
Adjustments to reconcile net earnings
to net cash provided by operations:
Gain on sale of specialty ingredients (42,060) -
Extraordinary loss on early debt extinguishment 1,085 15,794
Depreciation and amortization 37,503 40,487
Equity income (9,434) -
Changes in assets and liabilities, net (a) (85,078) 2,177
Net cash provided (used) by operations (a) (1,897) 114,402
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of specialty ingredients 103,000 -
Capital expenditures (34,078) (21,341)
Acquisitions - (5,927)
Other investing activities (3,100) 235
Net cash provided (used) by investing activities 65,822 (27,033)
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of 11% and 12% notes - (352,802)
Proceeds on long-term borrowings 22,118 279,313
Proceeds (payments) on short-term borrowings (1,978) 1,174
Premium paid on early extinguishment of debt (1,437) (15,289)
Treasury stock acquired (74,596) -
Dividends paid (3,272) (3,721)
Other financing activities (3,121) 9,343
Net cash used by financing activities (62,286) (81,982)
CASH
Effect of exchange rates on cash 500 (1,163)
Change in cash 2,139 4,224
Cash at beginning of period 12,104 10,607
Cash at end of period $ 14,243 $ 14,831
(a) 1999 includes tax payment of $48 million relating to fourth quarter
1998 Gustafson gain and 1998 includes Gustafson cash flow of
$14 million and accounts receivable discounting of $20 million.
See accompanying notes to consolidated financial statements.
-4-
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The information included in the foregoing consolidated financial
statements is unaudited but reflects all adjustments which, in the
opinion of management, are necessary for a fair statement of the
results for the interim periods presented.
Included in accounts receivable are allowances for doubtful
accounts of $10.8 million in 1999 and $9.8 million at December 26,
1998.
Accumulated depreciation amounted to $433.3 million in 1999 and
$434.7 million at December 26, 1998.
Accumulated amortization of cost in excess of acquired net assets
amounted to $41.1 million in 1999 and $44.6 million at December 26,
1998.
Accumulated amortization of patents, unpatented technology,
trademarks and other intangibles included in other assets amounted
to $126.9 million in 1999 and $120.9 million at December 26, 1998.
Cash payments during the quarters ended June 26, 1999 and June 27,
1998 included interest of $26.5 million and $40.7 million,
respectively, and income taxes of $76.8 million and $9.6 million,
respectively.
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 1998 Annual Report on Form 10-
K.
CAPITAL STOCK
As of June 26, 1999, there were 77,332,751 common shares issued at
$.10 par value, of which 11,876,760 shares were held in the
treasury.
INVENTORIES
Components of inventories are as follows:
June 26, Dec. 26,
(In thousands) 1999 1998
Finished goods $226,735 $226,663
Work in process 40,501 45,237
Raw materials and supplies 51,475 62,662
$318,711 $334,562
EARNINGS PER COMMON SHARE
The computation of basic earnings per common share is based on the
weighted average number of common shares outstanding. The
computation of diluted earnings per common share is based on the
weighted average number of common and common equivalent shares
outstanding. The following is a reconciliation of the shares used
in the computations:
(In thousands) Second Quarter Six Months
1999 1998 1999 1998
Weighted average common
shares outstanding 65,488 74,430 66,603 74,267
Stock options and
other equivalents 1,147 2,383 1,322 2,346
Weighted average common
and common equivalent
shares outstanding 66,635 76,813 67,925 76,613
BUSINESS SEGMENT DATA
The Company evaluates a segment's performance based on several
factors, of which a primary financial measure is operating profit.
In computing operating profit, the following items have not been
deducted: interest expense, other (income) expense and income
taxes. Intersegment sales are not significant.
Second Quarter Ended
June 26, June 27,
(In thousands) 1999 1998
SALES
Specialty Chemicals
Performance Chemicals $ 112,567 $ 116,228
Crop Protection 81,340 100,545
Colors 53,765 64,610
Other - 23,346
247,672 304,729
Polymers & Polymer Processing
Equipment
Polymers 79,410 88,456
Polymer Processing Equipment 82,092 81,152
161,502 169,608
Total net sales $ 409,174 $ 474,337
OPERATING PROFIT
Specialty Chemicals
Performance Chemicals $ 13,847 $ 16,121
Crop Protection 30,131 30,079
Colors 5,860 8,063
Other - 2,510
49,838 56,773
Polymers & Polymer Processing
Equipment
Polymers 22,686 21,126
Polymer Processing Equipment 5,511 9,832
28,197 30,958
General corporate expense ( 5,074) ( 5,153)
Total operating profit $ 72,961 $ 82,578
Six Months Ended
June 26, June 27,
(In thousands) 1999 1998
SALES
Specialty Chemicals
Performance Chemicals $ 226,081 $ 229,500
Crop Protection 147,058 208,388
Colors 103,943 125,710
Other - 48,151
477,082 611,749
Polymers & Polymer Processing
Equipment
Polymers 158,145 175,046
Polymer Processing Equipment 170,239 164,761
328,384 339,807
Total net sales $ 805,466 $ 951,556
OPERATING PROFIT
Specialty Chemicals
Performance Chemicals $ 26,849 $ 30,348
Crop Protection 52,245 58,358
Colors 10,562 14,937
Other - 4,998
89,656 108,641
Polymers & Polymer Processing
Equipment
Polymers 44,093 39,476
Polymer Processing Equipment 16,323 20,198
60,416 59,674
General corporate expense ( 11,794) ( 11,512)
Total operating profit $ 138,278 $ 156,803
Segment assets in the Other category of Specialty Chemicals
declined $65.0 million due to the disposition of the specialty
ingredients business. There are no other material changes in total
assets for any other segments from the amounts disclosed as of
year-end 1998.
COMPREHENSIVE INCOME
An analysis of the Company's comprehensive income follows:
Second Quarter Ended
June 26, June 27,
(In thousands) 1999 1998
Net earnings $ 36,884 $ 25,952
Other comprehensive expense:
Foreign currency translation
adjustments ( 262) ( 1,343)
Comprehensive income $ 36,622 $ 24,609
Six Months Ended
June 26, June 27,
(In thousands) 1999 1998
Net earnings $ 96,087 $ 55,944
Other comprehensive expense:
Foreign currency translation
adjustments ( 12,166) ( 4,539)
Comprehensive income $ 83,921 $ 51,405
The balance of accumulated other comprehensive income includes
accumulated translation adjustments and minimum pension liability
in the amounts of $48.7 million and $1.0 million at June 26, 1999,
and $36.6 million and $1.0 million at December 26, 1998.
MERGER AGREEMENT
On May 31, 1999, the Company's board of directors approved a
definitive agreement (the "Merger Agreement") for a tax-free,
stock-for-stock merger of equals with Witco Corporation ("Witco").
The Merger Agreement provides, among other things, subject to the
terms and conditions set forth therein, that (a) the Company will
merge with and into CK Witco Corporation ("CK Witco"), a wholly-
owned subsidiary of the Company (the "First Step Merger") and (b)
immediately thereafter, Witco will merge with and into CK Witco
Corporation (the "Second Step Merger"). The First Step Merger,
together with the Second Step Merger, will be known as the
"Merger", so that CK Witco is the surviving corporation. Under the
terms of the Merger, each share of the Company's common stock will
be automatically converted into one share of CK Witco common stock,
and each share of Witco common stock will be exchanged for .9242
shares of CK Witco common stock.
The Merger, which will be accounted for as a purchase, is subject
to approval by the shareholders of both companies at special
meetings of stockholders to be held on September 1, 1999. Common
stockholders of record on July 23, 1999 will be eligible to vote at
the special meeting.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER RESULTS
Overview
Consolidated net sales of $409.2 million for the second quarter
of 1999 decreased 14% from the comparable period in 1998. After
adjusting to exclude $57 million from deconsolidated joint
ventures and the sale of the specialty ingredients business, net
sales decreased 2%, primarily as a result of lower Colors sales.
International sales, including U.S. exports, were 42% of total
sales, up from 40% in the second quarter of 1998.
Net earnings before extraordinary losses decreased 5% to $38.0
million, or $.58 per share basic and $.57 per share diluted,
compared to $39.8 million, or $.53 per share basic and $.52 per
share diluted, in the second quarter of 1998. Net earnings
increased 42% to $36.9 million, or $.56 per share basic and $.55
per share diluted, compared to $26.0 million, or $.35 per share
basic and $.34 per share diluted, in the second quarter of 1998.
Gross margin as a percentage of sales increased to 39.2% from
38.4% in the second quarter of 1998. The increase was
attributable primarily to improved product mix and lower raw
material and manufacturing costs partially offset by lower
pricing. Consolidated operating profit of $73.0 million declined
12%; however, excluding the impact of deconsolidated joint
ventures and the sale of the specialty ingredients business,
operating profit was down 4% versus the second quarter of 1998.
Specialty Chemicals
Performance chemicals sales of $112.6 million decreased 3% from
the second quarter of 1998. Rubber chemical sales were lower by
5% primarily due to lower pricing, while specialty additive sales
were about equal to the prior year. Operating profit of $13.8
million was 14% below the $16.1 million in the prior year
primarily as a result of lower pricing in rubber chemicals.
Crop protection sales of $81.3 million decreased 19% from the
prior year primarily as a result of the deconsolidation of the
seed treatment joint venture. Excluding the $22.2 million impact
of the joint venture deconsolidation, crop protection sales
increased 4% from the second quarter of 1998. The increase in
sales was achieved despite the poor condition of the U.S. farm
economy and poor April and May weather conditions in California.
Benefitting the quarter were increased exports to China and the
Middle East, new product registrations in Eastern Europe and
improved California weather in June. Operating profit of $30.1
million was essentially unchanged from the prior year. However,
excluding the $3.4 million impact of the seed treatment joint
venture deconsolidation, operating profit increased 13% from
1998, primarily as a result of increased sales volume, lower
manufacturing costs and improved product mix.
Colors sales of $53.8 million decreased 17% from $64.6 million in
the second quarter of 1998 primarily as a result of continuing
weakness in the U.S. and European textile dye markets. Lower
selling prices in the quarter accounted for 6% of the sales
decline. Operating profit of $5.9 million decreased 27% from
$8.1 million in 1998 primarily as a result of lower sales volume
and pricing.
Other sales and operating profit decreased $23.3 million and $2.5
million, respectively, as a result of the sale of the specialty
ingredients business effective the first day of fiscal 1999.
Polymers & Polymer Processing Equipment
Polymers sales of $79.4 million decreased 10% from 1998 primarily
as a result of the deconsolidation of the nitrile rubber joint
venture. Excluding the $11.2 million impact from the joint
venture deconsolidation, polymer sales were 3% higher than the
second quarter of 1998. EPDM sales were up 4% primarily as a
result of higher pricing, while urethane sales increased 1% over
the prior year. Operating profit of $22.7 million increased 7%
over the prior year. Excluding the joint venture
deconsolidation, operating profit increased 9% from the second
quarter of 1998 primarily as a result of improved pricing and
lower raw material costs offset in part by lower equity income
from the nitrile rubber joint venture.
Polymer processing equipment sales of $82.1 million increased 1%
from $81.2 million in the prior year despite lower selling prices
of approximately 5%. New orders during the quarter were
significantly below shipments and the equipment order backlog
declined to $103 million from $118 million at the end of the
first quarter. Operating profit of $5.5 million was down 44%
from $9.8 million in 1998 primarily as a result of lower pricing
and a shift in sales to lower margin systems.
Other
Selling, general and administrative expenses of $60.1 million
decreased 9% versus the second quarter of 1998 primarily due to
the impact of the deconsolidation of the joint ventures and the
sale of the specialty ingredients business. Depreciation and
amortization (down 8%) and research and development costs (down
15%) also declined as a result of the deconsolidation of the
joint ventures and the sale of the specialty ingredients
business. Equity income of $2.4 million in the second quarter of
1999 was primarily attributable to the seed treatment joint
venture. Interest expense of $13.0 million decreased 37%
primarily due to lower levels of indebtedness and lower interest
cost on borrowings used to redeem high cost debt in 1998. Other
expense of $.5 million compares to other income of $1.3 million
in 1998. The effective tax rate of 36.2% compares favorably with
37.2% in the comparable 1998 quarter.
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales of $805.5 million for the first six months
of 1999 decreased 15% from the comparable period in 1998. After
adjusting to exclude $131.7 million from deconsolidated joint
ventures and the sale of the specialty ingredients business, net
sales decreased 2%, primarily as a result of lower Colors sales.
International sales, including U.S. exports, were 43% of total
sales, up from 40% in the six months of 1998.
Net earnings increased 72% to $96.1 million, or $1.44 per share
basic and $1.41 per share diluted, compared to $55.9 million, or
$.75 per share basic and $.73 per share diluted, in the first six
months of 1998. Before after-tax special items (a $26.8 million
gain from the sale of the specialty ingredients business in 1999
and extraordinary losses on early extinguishment of debt of $1.1
million in 1999 and $15.8 million in 1998), net earnings were
$70.4 million, or $1.07 per share basic and $1.04 per share
diluted, compared with $71.7 million, or $.96 per share basic and
$.94 per share diluted, in the prior year.
Gross margin as a percentage of sales increased to 38.4% from
37.5% in the first six months of 1998. The increase was
attributable primarily to improved product mix and lower raw
material and manufacturing costs partially offset by lower
pricing. Consolidated operating profit of $138.3 million
declined 12%; however, excluding the impact of deconsolidated
joint ventures and the sale of the specialty ingredients
business, operating profit was down 2% from last year.
Specialty Chemicals
Performance chemicals sales of $226.1 million decreased 1% from
the first six months of 1998. Rubber chemical sales were lower
by 3% primarily due to lower pricing, while specialty additive
sales were higher by 1 percent. Performance chemicals operating
profit of $26.8 million decreased 12% versus the second quarter
of 1998 primarily as a result of lower pricing in rubber
chemicals.
Crop protection sales of $147.1 million decreased 29% from the
prior year primarily as a result of the deconsolidation of the
seed treatment joint venture. Excluding the $61.9 million impact
of the joint venture deconsolidation, crop protection sales were
essentially unchanged from the prior year. Operating profit of
$52.2 million decreased 10% from the prior year primarily due to
the seed treatment joint venture. Excluding the $10.0 million
impact of the joint venture deconsolidation, operating profit was
8% higher than 1998 primarily as a result of improved product mix
and lower manufacturing costs.
Colors sales of $103.9 million decreased 17% from the first six
months of 1998 primarily as a result of weakness in the U.S. and
European textile dye markets. Lower selling prices for the year
account for 5 percent of the sales decline. Operating profit of
$10.6 million was 29% lower than the first six months of 1998
primarily as a result of lower sales volume and pricing.
Other sales and operating profit decreased $48.2 million and $5.0
million, respectively, as a result of the sale of the specialty
ingredients business effective the first day of fiscal 1999.
Polymers & Polymer Processing Equipment
Polymers sales of $158.1 million decreased 10% from 1998
primarily as a result of the deconsolidation of the nitrile
rubber joint venture. Excluding the $21.7 million impact from
the joint venture deconsolidation, polymer sales were 3% higher
than the first six months of 1998. EPDM sales increased 5%
resulting primarily from higher selling prices. Urethane sales
were essentially unchanged from the prior year. Operating profit
of $44.1 million increased 12% over the prior year primarily as a
result of improved pricing and lower raw material costs.
Polymer processing equipment sales of $170.2 million were 3%
higher than the first six months of 1998 despite lower pricing of
3%. Operating profit of $16.3 million was 19% lower than 1998
primarily as a result of lower pricing and a shift in sales to
lower margin systems.
Other
Selling, general and administrative expenses of $120.7 million
decreased 10% versus the six months of 1998 primarily due to the
impact of the deconsolidation of the joint ventures and the sale
of the specialty ingredients business. Depreciation and
amortization (down 7%) and research and development costs (down
14%) also declined as a result of the deconsolidation of the
joint ventures and the sale of the specialty ingredients
business. Equity income of $9.4 million in the first six months
of 1999 was primarily attributable to the seed treatment joint
venture. Interest expense of $26.1 million decreased 41%
primarily due to lower levels of indebtedness and lower interest
cost on borrowings used to redeem high cost debt in 1998. Other
income of $40.3 million includes a gain in the amount of $42.1
million from the sale of the specialty ingredients business
offset partially by $2.2 million in fees related to the accounts
receivable securitization program. The effective tax rate of
36.2% compares favorably with 37.2% in the comparable 1998
period.
LIQUIDITY AND CAPITAL RESOURCES
The June 26, 1999 working capital balance of $265.6 million
increased $62.2 million from the year-end 1998 balance of $203.4
million, while the current ratio increased to 1.8 from 1.5. The
increase was primarily due to a seasonal increase in accounts
receivable of the crop protection business and to a $48.2 million
income tax payment related to the 1998 Gustafson gain. Days
sales in receivables averaged 43 days in the six month period in
1999, versus 54 days in the same period in 1998, principally due
to the impact of the accounts receivable securitization program.
Inventory turnover averaged 3.0, compared to 3.2 in 1998,
primarily as a result of the joint venture deconsolidations.
Net cash used by operations of $1.9 million changed $116.3 million from
the net cash provided by operations of $114.4 million in the first
half of 1998, primarily due to the 1999 tax payment on the 1998
Gustafson gain, 1998 cash flow provided by Gustafson of $14
million and accounts receivable discounting of $20 million in the
first half of the prior year. Cash provided from the sale of the
specialty ingredients business and additional borrowings under
the Company's revolving credit agreement were used primarily to
fund the net cash used by operations, repurchase common shares,
finance capital expenditures and pay the dividend. The Company's
debt to total capital decreased to 90% from 91% at year-end 1998.
The Company's liquidity needs, including debt servicing, are
expected to be financed from operations. The Company has
available a revolving credit agreement providing for borrowings
of $545 million through September 2003. Borrowings under the
agreement amounted to $327.1 million at June 26, 1999 and carried
a weighted average interest rate of 5.7%. In addition, the
Company has available an accounts receivable securitization
program to sell up to $82 million of domestic accounts receivable
to an agent bank. As of June 26, 1999, $80 million of domestic
accounts receivable had been sold under this agreement.
In September 1998, the Company announced a share repurchase
program to buy back 7.5 million shares or approximately 10% of
the common shares then outstanding. In January 1999, the Company
announced another share repurchase program for 6.8 million
shares, or approximately 10% of the common shares then
outstanding. During the first half of 1999, the Company
repurchased 4.1 million common shares and from September 1998 to
date, has repurchased 9.5 million shares at an average price of
$17.85 per share.
Capital expenditures are expected to approximate $70 million in
1999, primarily for replacement needs and improvement of domestic
and foreign facilities.
MARKET RISK
During the second quarter of 1999, the Company settled an
outstanding $230 million interest rate lock contract ("Interest
Hedge") with a major financial institution. The Interest Hedge
would have expired on September 1, 2000.
The fair market value of long-term debt is subject to interest
rate risk. The Company's long-term debt amounted to $669.0
million at June 26, 1999. The fair market value of such debt was
$685.9 million, and with respect to notes, has been determined
based on quoted market prices.
YEAR 2000 ISSUES
The Company has assessed and continues to assess its Information
Technology ("IT") infrastructures including those systems that
are typically viewed as non-IT systems to determine and address
any potential problems that may result from Year 2000 compliance
issues. As generally known, Year 2000 compliance issues pertain
to the ability of computerized systems to recognize and process
date sensitive information beginning January 1, 2000. The Company
has performed this assessment over the last three years and has
been implementing appropriate steps to be Year 2000 compliant in
both its IT and non-IT systems.
Under the Company's current environment, IT systems include
mission critical applications that directly support the Company's
operations. These IT systems also include networked personal
computers running desktop applications. Typical non-IT systems
within the Company's environment include process controls and
other microcontrollers containing imbedded computer chips. The
Company has completed its assessment of its non-IT systems and is
aggressively undertaking measures to remedy such systems. The
Company expects to complete this remediation by October 1999.
The Company employs a number of major mission critical IT systems
in its Specialty Chemicals and Polymers businesses. These systems
have been fully upgraded and tested to address Year 2000
compliance issues.
The Company's Polymer Processing Equipment business is supported
by a legacy system that runs on a mid-range computer system.
This system has been reworked and tested, and the Company
believes that it is now Year 2000 compliant. The Company has
assessed all other IT systems including non-IT systems in this
business segment and has undertaken necessary steps to address
any Year 2000 compliance issues. This business currently sells
equipment controls containing programs and microchips. The
Company believes that these products which are used in the
operation of extrusion machinery are Year 2000 compliant.
The Company has operations in Europe, Asia Pacific, and Latin
America supported by IT systems operating on mid-range computers.
The Company has completed upgrading these IT systems to address
Year 2000 compliance.
The Company is actively looking into the overall Year 2000
readiness of its major business partners including vendors,
suppliers, and service providers in order to determine that the
Company's operations will not be disrupted in the event that any
such third party failed to have Year 2000 compliant systems. The
Company has received assurances from nearly all of the major
business entities that it conducts business with that these
entities will be able to conduct business beyond January 1, 2000,
without any disruption. The Company continues to provide status
information of its Year 2000 compliance effort to its customers
and assures its customers that the Company's IT infrastructure
will continue to function properly beyond January 1, 2000.
The Company has spent approximately $5.6 million to assess and
correct Year 2000 compliance issues in its IT infrastructure
through June 26, 1999. The Company estimates that it will spend
an additional $.7 million to complete the remediation of Year
2000 compliance issues in its IT infrastructure. The Company is
committed to allocate funds to remediate any other Year 2000
compliance issues in the course of its ongoing assessment of its
IT infrastructure. Year 2000 compliance costs are not expected to
have a material effect on the Company's results of operations.
The Company does not expect to have any material risk exposure
emanating from its internal IT infrastructure. While it is not
expected to occur, failure of the Company's suppliers and key
customers to address Year 2000 compliance could have a material
adverse impact on the Company's operations. In particular,
failure of the Company's energy and telecommunication suppliers
to address Year 2000 compliance could have a material adverse
impact on the Company's operations. The Company is continuing to
assess its efforts to mitigate any potential risk associated with
Year 2000 compliance and is actively pursuing the development of
appropriate contingency plans when needed.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities." In June 1999, the Financial Accounting
Standards Board issued Statement No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" which delays the
effective date of Statement No. 133 to fiscal years beginning
after June 15, 2000. The Company plans to adopt this statement
in the first quarter of 2001.
ENVIRONMENTAL MATTERS
The Company is 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. The Company and some of its subsidiaries
have been identified by federal, state or local governmental
agencies, and by other potentially responsible parties (each a
"PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or comparable
state statues, as a PRP with respect to costs associated with
waste disposal sites at various locations in the United States.
In addition, the Company is involved with environmental
remediation and compliance activities at some of its current and
former sites in the United States and abroad.
Each quarter, the Company evaluates and reviews estimates for
future remediation and other costs to determine appropriate
environmental reserve amounts. For each site, a determination is
made of the specific measures that are believed to be required to
remediate the site, the estimated total cost to carry out the
remediation plan, the portion of the total remediation costs to
be borne by the Company and the anticipated time frame over which
payments toward the remediation plan will occur. As of June 26,
1999, the Company's reserves for environmental remediation
activities totaled $92 million. It is reasonably possible that
the Company's estimates for environmental remediation liabilities
may change in the future should additional sites be identified,
further remediation measures be required or undertaken, the
interpretation of current laws and regulations be modified or
additional environmental laws and regulations be enacted.
The Company intends to assert all meritorious legal defenses and
all other equitable factors which are available to it with
respect to the above matters. The Company believes that the
resolution of these environmental matters will not have a
material adverse effect on the consolidated financial position of
the Company. While the Company believes it is unlikely, the
resolution of these environmental matters could have a material
adverse effect on the Company's consolidated results of
operations in any given year if a significant number of these
matters are resolved unfavorably.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-Q are forward looking
statements that involve risks and uncertainties. These
statements are based on currently available information and the
Company's actual results may differ significantly from the
results discussed. Investors are cautioned that there can be no
assurances that the actual results will not differ materially
from those suggested in such forward-looking statements.
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to page 16 of the Registrant's 1998 Annual
Report on Form 10-K for information pertaining to an action
instituted by the Connecticut Department of Environmental
Protection against Uniroyal involving wastewater discharges at
Uniroyal's Naugatuck, Connecticut plant. On July 30, 1999, the
parties entered into a Consent Judgment whereby Uniroyal agreed
to pay the sum of $1,200,000 and to comply with certain
injunctive provisions relating mainly to its discharges to the
publicly owned treatment works.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Number Description
10.1* Amended and Restated Employment Agreement
10.2* Amended Crompton & Knowles Corporation
1998 Long Term Incentive Plan
27* Financial Data Schedules
(b) A report on Form 8-K was filed by Crompton & Knowles
Corporation on June 2, 1999.
A report on Form 8-K/A was filed by Crompton & Knowles
Corporation on June 8, 1999.
* Copies of these Exhibits are annexed to this report on
Form 10-Q provided to the Securities and Exchange
Commission and the New York Stock Exchange.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
CROMPTON & KNOWLES CORPORATION
(Registrant)
August 10, 1999 By:/s/ Peter Barna
Peter Barna
Vice President, Finance &
Chief Financial Officer
August 10, 1999 By:/s/ John T. Ferguson II
John T. Ferguson II
Vice President, General
Counsel and Secretary
EXHIBIT 10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AGREEMENT between Crompton & Knowles Corporation, a
Massachusetts corporation (the "Corporation"), and Vincent A.
Calarco (the "Executive"), dated this 31st day of May, 1999.
WHEREAS, the Corporation and the Executive are parties to an
employment agreement dated March 5, 1985, as amended on April 7,
1986, and further amended on February 22, 1988, and the
Corporation and the Executive wish to amend and restate such
employment agreement, and
WHEREAS, the Corporation, on behalf of itself and its
shareholders, wishes to employ the Executive, and the Executive
is willing to serve in the employ of the Corporation, on the
terms and conditions provided below;
IT IS, THEREFORE, AGREED:
1. Employment Period. The Corporation hereby agrees to
continue the Executive in its employ, and the Executive hereby
agrees to remain in the employ of the Corporation, for the
Employment Period. Unless sooner terminated pursuant to Section
4, the Employment Period shall be the period beginning on the
date hereof (the "Effective Date") and ending on the third
anniversary of the Effective Date; provided, however, that
beginning on the date two years after the date hereof, and on
each annual anniversary of such date (each such date being
referred to as a "Renewal Date"), the Employment Period shall be
automatically extended so as to terminate on the earlier of (x)
three years from such Renewal Date or (y) the first day of the
month coinciding with or next following the Executive's normal
retirement date under the Individual Account Retirement Plan or
any successor retirement plan ("Normal Retirement Date"), unless
at least 60 days prior to the Renewal Date the Corporation shall
give notice that the Employment Period shall not be so extended.
The period from the Effective Date until the earlier of (i) the
Date of Termination (as defined in Section 4(e)) or (ii) the end
of the period described in the preceding sentence is hereinafter
referred to as the "Employment Period."
2. Position and Duties. (a) During the Employment
Period, the Executive shall serve as the Corporation's President
and Chief Executive Officer. In that capacity the Executive
shall be a member of the Corporation's Board of Directors (the
"Board"), the Board's Executive Committee, and such other
committees of the Board as the Board may from time to time
designate. The Executive agrees to accept such employment and to
perform the responsibilities of the offices to which he is
appointed in accordance with the Bylaws of the Corporation.
(b) Excluding periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the
business and affairs of the Corporation and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use reasonable best efforts to perform
faithfully and efficiently such responsibilities. The Executive
may (i) serve on corporate, civic or charitable boards or
committees, (ii) deliver lectures, fulfill speaking engagements
or teach at educational institutions and (iii) manage personal
investments, so, long as such activities do not significantly
interfere with the performance of the Executive's
responsibilities. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the
Executive prior to the Effective Date, such prior conduct of
activities, and any subsequent conduct of activities similar in
nature and scope shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to the
Corporation.
3. Compensation. (a) Base Salary. During the
Employment Period, the Executive shall receive a base salary
("Base Salary") at an annual rate of no less than $750,000.
During the Employment Period, the Base Salary shall be reviewed
at least annually and shall be increased at any time and from
time to time to reflect increases in the cost of living and such
other increases as shall be consistent with increases in base
salary awarded in the ordinary course of business to other key
executives. Any increase in the Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this
Agreement. The Base Salary shall not be reduced after any such
increase.
(b) Annual Bonus. During the Employment Period, the
Executive shall be eligible to receive an annual cash bonus, with
a target bonus equal to 100% of his Base Salary.
(c) Incentive, Savings and Retirement Plans. The
Executive shall be entitled to participate during the Employment
Period in all savings and retirement plans and programs through
the qualified plans of the Corporation or through nonqualified
substitutes in which the Executive has agreed to participate in
lieu of the qualified plans, and all short and long-term
incentive plans and programs applicable to other key executives
or similar plans approved by the Board of Directors for the
Executive, but in no event shall such plans and programs, in the
aggregate, provide the Executive with compensation, benefits and
reward opportunities less favorable than those provided by the
Corporation and its affiliated companies for the Executive
under such plans and programs as in effect at any time during the
90-day period immediately preceding the Effective Date.
(d) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive
all benefits under each welfare benefit plan of the Corporation,
including, without limitation, all medical, dental, disability,
life, group life, accidental death and travel accident insurance
plans and programs of the Corporation and its affiliated
companies, as in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect at any time thereafter with respect
to other key executives. Without limiting the generality of the
foregoing, the Corporation agrees to provide life insurance
coverage on the Executive, payable to a beneficiary or
beneficiaries of his designation, in an amount not less than
$500,000, $100,000 of which will be group term life insurance
paid for by the Corporation and the balance to be whole life
insurance for which the Corporation will loan the annual premium
payment to the Executive under the terms of the program provided
to other key executives of the Corporation.
(e) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the policies and procedures of the Corporation as in effect
at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in
effect at any time thereafter with respect to other key
executives.
(f) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including without
limitation the use of an automobile, driver and payment of
related expenses, and club memberships, in accordance with the
policies of the Corporation as in effect at any time during the
90-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect at any time
thereafter with respect to other key executives.
(g) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and to
secretarial and other assistance, at least equal to those
provided to the Executive at any time during the 90-day period
immediately preceding the Effective Date or, it more favorable to
the Executive, as provided at any time thereafter with respect to
other key executives.
(h) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with
the policies of the Corporation as in effect at any time during
the 90-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect at any time
thereafter with respect to other key executives.
4. Termination. (a) Death or Disability. This
Agreement shall terminate automatically upon the Executive's
death. The Corporation may terminate this Agreement, after
having established the Executive's Disability (pursuant to the
definition of "Disability" set forth below), by giving to the
Executive written notice of its intention to terminate the
Executive's employment. In such a case, the Executive's
employment with the Corporation shall terminate effective on the
90th day after receipt of such notice (the "Disability Effective
Date"), unless the Executive has previously returned to full-time
performance of the Executive's duties. For purposes of this
Agreement, "Disability" means physical or mental disability
which, after the expiration of more than 26 weeks after its
commencement, is determined to be total and permanent by a
physician selected by the Corporation or its insurers and
acceptable to the Executive or the Executive's legal
representative (such agreement to acceptability not to be
unreasonably withheld).
(b) Cause. The Corporation may terminate the
Executive's employment for "Cause." For purposes of this
Agreement, "Cause" means (i) the Executive's willful and
continued failure to substantially perform assigned duties with
the Corporation (other than any such failure resulting from
incapacity due to physical or mental illness or any such actual
or anticipated failure resulting from termination for Good
Reason), after a demand for substantial performance is delivered
to the Executive by the Board, specifically identifying the
manner in which the Board believes that the duties have not been
substantially performed; or (ii) the Executive's willful conduct
which is demonstratably and materially injurious to the Company.
For purposes of this paragraph (b), no act, or failure to act,
shall be considered "willful" unless done, or omitted to be done,
not in good faith and without reasonable belief that such action
or omission was in the best interest of the Corporation.
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" means
(i) (A) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section
2 of this Agreement or (B) any other action by the Corporation
which results in a diminishment in such position, authority,
duties or responsibilities, other than an insubstantial and
inadvertent action which is remedied by the Corporation promptly
after receipt of notice thereof given by the Executive;
(ii) any failure by the Corporation to comply with
any of the provisions of Section 3 of this Agreement, other than
an insubstantial and inadvertent failure which is remedied by the
Corporation promptly after receipt of notice thereof given by the
Executive;
(iii) the Corporation's requiring the Executive to
be based at any office or location other than that at which the
Executive is based at the Effective Date, except for travel
reasonably required in the performance of the Executive's
responsibilities and substantially consistent with business
travel obligations of the Executive as of the Effective Date and
except for the relocation of the Executive at the Company's
headquarters in Middlebury, Connecticut;
(iv) any purported termination by the Corporation
of the Executive's employment otherwise than as permitted by this
Agreement, it being understood that any such purported
termination shall not be effective for any purpose of this
Agreement other than establishing the Date of Termination
pursuant to paragraph (e) below; or
(v) any failure by the Corporation to comply with
and satisfy Section 10(b) of this Agreement.
(d) Notice of Termination. Any termination by the
Corporation for Cause or by the Executive for Good Reason shall
be effected by Notice of Termination to the other party hereto
given in accordance with Section 11(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the termination date is other
than the date of receipt of such notice, specifies the
termination date (which date shall be not more than 15 days after
the giving of such notice). In the case of termination for
Cause, the Notice of Termination shall not be effective unless it
takes the form of a copy of a resolution duly adopted in good
faith by the affirmative vote of the entire membership of the
Board at a meeting of the Board called and held for the purpose,
after reasonable notice and an opportunity for the Executive,
together with counsel, to be heard before the Board, which
resolution shall state that the Executive has given "Cause"
within the meaning set forth above in clause (i) or (ii) of the
second sentence of paragraph (b) above, and specifying the
particulars thereof in detail.
(e) Date of Termination. "Date of Termination" means
the date of the Executive's Death, the Disability Effective Date,
or the date of receipt of an effective Notice of Termination or
any later date specified therein, as the case may be. If the
Executive's employment is terminated by the Corporation in breach
of this Agreement, the Date of Termination shall be the date on
which the Corporation notifies the Executive of such termination.
5. Obligations of the Corporation upon Termination. (a)
Death. If the Executive's employment is terminated by reason of
the Executive's death, this Agreement shall terminate without
further obligations to the Executive's legal representatives
under this Agreement other than those obligations accrued
hereunder at the date of the Executive's death. Anything in this
Agreement to the contrary notwithstanding, the Executive's family
shall be entitled to receive benefits at least equal to those
provided by the Corporation to surviving families of executives
of the Corporation under such plans, programs and policies
relating to family death benefits, if any, as in effect at any
time during the 90-day period immediately preceding the Effective
Date or, if more favorable to the Executive and/or the
Executive's family, as in effect at any time thereafter with
respect to other key executives and their families, including,
without limitation, the Medical Benefits (as defined below).
(b) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability, the Executive
shall be entitled after the Disability Effective Date to receive
disability and other benefits at least equal to those provided by
the Corporation to disabled employees and/or their families in
accordance with such plans, programs and policies relating to
disability, if any, as in effect during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any
time thereafter with respect to other key executives and their
families, including, without limitation, the Medical Benefits (as
defined below).
(c) Cause. If the Executive's employment shall be
terminated for Cause, the Corporation shall pay the Executive his
full Base Salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given and shall have
no further obligations to the Executive under this Agreement.
(d) Good Reason; Other Than for Cause or Disability.
If, during the Employment Period, the Corporation shall terminate
the Executive's employment other than for Cause, Disability, or
death, or the employment of the Executive shall be terminated by
the Executive for Good Reason:
(i) The Corporation shall pay to the Executive in a
lump sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
(A) if not theretofore paid, the Executive's Base
Salary through the Date of Termination at the rate in effect on
the Date of Termination or, if higher, at the highest rate in
effect at any time within the 90-day period preceding the
Effective Date; and
(B) the greater of (i) a lump sum equal to the
amount of any incentive compensation which has been allocated for
the calendar year in which the Date of Termination occurs or (ii)
the product of (x) the total incentive compensation paid to the
Executive for the last full fiscal year ending during the
Employment Period and (y) the fraction obtained by dividing (i)
the number of days between the last day of the last full fiscal
year ending during the Employment Period and the Date of
Termination into (ii) 365;
(C) three times the sum of (x) the Executive's
annual Base Salary at the rate in effect at the time Notice of
Termination was given or, if higher, at the highest rate in
effect at any time within the 90-day period preceding the
Effective Date and (y) the highest of the total incentive
compensation paid to the Executive for each of the last three
full fiscal years of the Corporation during the Employment
Period;
(D) in the case of compensation previously
deferred by the Executive, all amounts of such compensation
previously deferred and not yet paid by the Corporation; and
(E) an amount equal to the present value
(determined as provided in Section 280G(d)(4) of the Internal
Revenue Code of 1986, as amended (the "Code")) amount of employer
contributions that would have been made to the Executive's
account pursuant to the Individual Account Retirement Plan and
the Employee Stock Purchase and Savings Plan if the Executive had
continued in the employ of the Corporation through the third
anniversary of the Date of Termination, with compensation equal
to the amounts set forth above in clause (C) and had the
Executive continued to contribute to the Employee Stock Purchase
and Savings Plan at the rate in effect on the Date of
Termination.
(ii) The Corporation shall, promptly upon
submission by the Executive of supporting documentation, pay or
reimburse to the Executive any costs and expenses (including
moving and relocation expenses) paid or incurred by the Executive
which would have been payable under Section 3(e) if the
Executive's employment had not terminated.
(iii) For the remainder of the Executive's life and
that of his spouse, the Corporation shall continue benefits to
the Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance with
the plans, programs and policies described in Section 3(d) of
this Agreement if the Executive's employment had not been
terminated, as in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect at any time thereafter with respect
to other key executives and their families (the "Medical
Benefits").
(iv) Until the earliest of (A) the day upon which
the Executive begins new employment and is eligible for benefits,
(B) the third anniversary of the Effective Date, or (C) the
Executive's Normal Retirement Date, the Corporation shall
continue benefits to the Executive at least equal to those which
would have been provided to him in accordance with the plans,
programs and policies described in Section 3(f) of this
Agreement, other than the Company's providing the Executive with
a driver and club memberships, if the Executive's employment had
not been terminated, as in effect at any time during the 90-day
period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other key executives.
6. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any of its affiliated
companies and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the
Executive may have under any stock option or other agreements
with the Corporation or any of its affiliated companies. Amounts
which are vested benefits or which the Executive is otherwise
entitled to receive under any plan or program of the Corporation
or any of its affiliated companies at or subsequent to the Date
of Termination shall be payable in accordance with such plan or
program.
7. Full Settlement. The Corporation's obligation to
make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the
Corporation may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment
by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement. The Corporation
agrees to pay, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Corporation or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee
of performance thereof or as a result of any contest by the
Executive concerning the amount payable pursuant to Section 8 of
this Agreement, plus in each case interest, compounded quarterly,
on the total unpaid amount determined to be payable under this
Agreement, such interest to be calculated at a rate equal to 2%
in excess of the prime commercial lending rate announced by Chase
Manhattan Bank in effect from time to time during the period of
such nonpayment.
8. Certain Further Payments by the Company. In the
event that any amount paid or distributed to the Executive
pursuant to this Agreement (taken together with any amounts
otherwise paid or distributed to the Executive in connection with
a change of control referred to in Section 280G(b)(i)) are
subject to an excise tax under Section 4999 of the Code or any
successor or similar provision thereto (the "Excise Tax"), the
Corporation shall pay to the Executive an additional amount such
that, after taking into account all taxes (including federal,
state, local and foreign income, excise and other taxes) incurred
by the Executive on the receipt of such additional amount, the
Executive is left with the same after-tax amount the Executive
would have been left with had no Excise Tax been imposed.
9. Noncompetition and Confidential Information. (a)
During the Employment Period, and during a one-year period
following any termination of his employment other than a
termination by the Executive for Good Reason, the Executive shall
not directly or indirectly compete with the Corporation (which
shall be deemed as including any subsidiary or affiliate of the
Corporation), whether as an individual proprietor or entrepreneur
or as an officer, employee, partner, stockholder, or in any
capacity connected with any enterprise, in any business in which
the Corporation is engaged at the time of the termination of the
Executive's employment, within any state or possession of the
United States of America or any foreign country within which such
business is then being conducted, or within which business is
then specifically planned by the Corporation to be conducted.
For the purpose of the preceding sentence, conducting business,
doing business, or engaging in business shall be deemed to
embrace sales to customers or performance of services for
customers who are within a relevant geographical area, without
any necessity of any presence of the Corporation therein.
Nothing herein, however, shall prohibit the Executive from
acquiring or holding any issue of stock or securities of any
corporation which has any securities listed on a national
securities exchange or quoted in the daily listing of over-the-
counter market securities; provided that at any one time he and
members of his immediate family do not own more than five (5%)
percent of the voting securities of any such corporation.
(b) The Executive shall hold in a fiduciary capacity
for the benefit of the Corporation all secret or confidential
information, knowledge or data relating to the Corporation or any
of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the
Executive's employment by the Corporation or any of its
affiliated companies and which shall not be public knowledge
(other than by acts by the Executive or his representatives in
violation of this Agreement). After termination of the
Executive's employment with the Corporation, the Executive shall
not, without the prior written consent of the Corporation,
communicate or divulge any such information, knowledge or data to
anyone other than the Corporation and those designated by it. In
no event shall an asserted violation of the provisions of this
Section 9 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
10. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the
Corporation shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors. Any successor
to the Corporation shall, by an agreement in form and substance
satisfactory to the Executive, expressly assume and agree to
perform this Agreement in the same manner and to the same extent
as the Corporation would have been required to perform.
11. Miscellaneous. (a) This Agreement shall be
governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, without reference to principles of
conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Vincent A. Calarco
27 Forest Glen Drive
Woodbridge, CT 06525
If to the Corporation:
Crompton & Knowles Corporation
Benson Road
Middlebury, CT 06749
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(d) The Corporation may withhold from any amounts
payable under this Agreement such Federal, state or local taxes
as shall be required to be withheld pursuant to any applicable
law or regulation.
(e) This Agreement contains the entire understanding of
the Corporation and the Executive with respect to the subject
matter hereof and supersedes all prior agreements between them
with respect thereto, including without limitation, the
employment agreement between the Company and the Executive dated
March 5, 1985, as amended, but shall not supersede the
Supplemental Retirement Agreement between the parties dated as of
March 22, 1999.
(f) As used in this Agreement, the term "affiliated
companies" includes any company controlling, controlled by or
under common control with the Corporation.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors,
the Corporation has caused these presents to be executed in its
name on its behalf, all as of the day and year first above
written.
/s/Vincent A. Calarco
VINCENT A. CALARCO
CROMPTON & KNOWLES CORPORATION
By:/s/Marvin H. Happel
Title: Vice President - Organization
and Administration
EXHIBIT 10.2
CROMPTON & KNOWLES CORPORATION
1998 LONG TERM INCENTIVE PLAN
Section 1. Purpose
The purpose of the Plan is to attract and retain key
employees of the Company and its Subsidiaries and to motivate
such employees to put forth maximum efforts for the success of
the business by offering them long term performance-based
incentives and an opportunity to acquire ownership of the
Company's Stock.
Section 2. Definitions
For purposes of the Plan, the following terms shall have the
meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Change in Control", "Potential Change in Control", and
"Change in Control Price" have the meanings set forth in Sections
10(b), (c), and (d), respectively.
(c) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(d) "Commission" means the Securities and Exchange
Commission or any successor agency.
(e) "Committee" means the Committee referred to in Section
3.
(f) "Company" means Crompton & Knowles Corporation, a
corporation organized under the laws of the Commonwealth of
Massachusetts, or any successor corporation.
(g) "Disability" means permanent and total disability as
determined under procedures established by the Committee for
purposes of the Plan.
(h) "Early Retirement" means retirement, with the consent
for purposes of the Plan of the Committee or such officer of the
Company as may be designated from time to time by the Committee,
from active employment with the Company or a Subsidiary prior to
Normal Retirement.
(i) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time.
(j) "Fair Market Value" means, except as provided in
Section 7(b), the mean, as of any given date, between the highest
and lowest reported sales prices of the Stock on the New York
Stock Exchange Composite Index on such date (or, if there is no
reported sale on such date, on the last preceding date on which
any reported sale occurred), or if no such reported sales prices
are available, the fair market value of the Stock as determined
by the Committee in good faith.
(k) "Holder" means an Optionee or a Transferee, as defined
in Sections 2(p) and (y), respectively.
(l) "Incentive Stock Option" means any Stock Option
intended to be and designated as an "incentive stock option"
within the meaning of Section 422 of the Code.
(m) "Long Term Performance Award" or "Long Term Award"
means an award under Section 9.
(n) "Non-Qualified Stock Option" means any Stock Option
that is not an Incentive Stock Option.
(o) "Normal Retirement" means retirement from active
employment with the Company or a Subsidiary at or after age 65.
(p) "Optionee" means a person who is granted a Stock Option
under Section 6.
(q) "Plan" means the Crompton & Knowles Corporation 1998
Long Term Incentive Plan, as set forth herein and as hereafter
amended from time to time.
(r) "Restricted Stock" means an award under Section 8.
(s) "Retirement" means Normal or Early Retirement.
(t) "Rule 16b-3" means Rule 16b-3 as promulgated by the
Commission under Section 16(b) of the Exchange Act, as amended
from time to time.
(u) "Stock" means the Common Stock, $.10 par value, of the
Company.
(v) "Stock Appreciation Right" means a right granted under
Section 7.
(w) "Stock Option" or "Option" means an option granted
under Section 6.
(x) "Subsidiary" means any business entity in which the
Company, directly or indirectly, owns 50 percent or more of the
total combined voting power of all classes of stock or other
equity interest.
(y) "Transferee" means a member of an Optionee's Immediate
Family, a partnership or a trust to whom or which any Option is
transferred as provided in Section 6.
Section 3. Administration
The Plan shall be administered by the Committee on Executive
Compensation of the Board, or such other committee of the Board,
composed of not less than three non-employee members of the
Board, as shall be designated by the Board from time to time. If
at any time no Committee designated to administer the Plan shall
be in office, the functions of the Committee specified in the
Plan shall be exercised by the Board.
Except as limited by the express provisions of the Plan, the
Committee shall have the sole and complete authority:
(a) to select the officers and other key employees to whom
Stock Options, Stock Appreciation Rights, Restricted Stock, and
Long Term Performance Awards may from time to time be granted;
(b) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock, Long Term Performance Awards, or any
combination thereof are to be granted, hereunder;
(c) to determine the number of shares to be covered by each
award granted hereunder;
(d) to determine the terms and conditions of any award
granted hereunder (including, but not limited to, the share
price, any restriction or limitation, any vesting acceleration or
any forfeiture waiver regarding any Stock Option or other award
and the shares of Stock relating thereto), based on such factors
as the Committee shall determine;
(e) to adjust the performance goals and measurements
applicable to performance-based awards pursuant to the terms of
the Plan; and
(f) to determine to what extent and under what
circumstances Stock and other amounts payable with respect to an
award shall be deferred.
The Committee shall have the authority to adopt, alter, and
repeal such administrative rules, guidelines and practices
governing the Plan as it shall from time to time deem advisable,
to interpret the terms and provisions of the Plan and any award
issued under the Plan (and any agreement relating thereto), and
otherwise to supervise the administration of the Plan. The
Committee may act only by a majority of its members then in
office, except that the members thereof may authorize any one or
more of their number or any officer of the Company to execute and
deliver documents on behalf of the Committee. Any determination
made by the Committee pursuant to the provisions of the Plan with
respect to any award shall be made in its sole discretion at the
time of the grant of the award or, unless in contravention of any
express term of the Plan, at any time thereafter. All decisions
made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company
Plan participants.
Section 4. Stock Subject to Plan
The total number of shares of Stock reserved for
distribution pursuant to Stock Options or other awards under the
Plan shall be equal to the sum of (i) such shares, if any, as are
available for awards under the Company's 1988 Long Term Incentive
Plan and 1993 Stock Option Plan for Non-Employee Directors on
October 18, 1998, and (ii) such shares, if any, which are the
subject of awards granted under any prior plan of the Company and
which are forfeited for any reason, which expire, which are not
earned as a result of the failure to meet the requirements of an
award, which are tendered as full or partial payment of the
option exercise price for other shares, or which are tendered or
withheld for the payment of taxes in connection with any award
under any such plan. Such shares may consist, in whole or in
part, of authorized and unissued shares or issued shares
heretofore or hereafter reacquired and held as treasury shares.
If an outstanding Stock Option or Stock Appreciation Right
shall expire or terminate without having been exercised in full,
or if any Restricted Stock award or Long Term Performance Award
is not earned or is forfeited in whole or in part, the shares
subject to the unexercised or forfeited portion of such award
shall again be available for distribution in connection with
awards under the Plan. In the event that a Stock Option is
exercised by tendering shares to the Company as full or partial
payment of the option exercise price, only the number of shares
issued net of the shares tendered shall be deemed delivered under
the Plan. Further, shares tendered or withheld for the payment
of taxes in connection with any award shall again be available
for distribution in connection with awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, or other change in
corporate structure affecting the Stock, such substitution or
adjustments shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option
price of shares subject to outstanding Stock Options, in the
determination of the amount payable upon exercise of outstanding
Stock Appreciation Rights, and in the number of shares subject to
other outstanding awards granted under the Plan as may be
determined by the Committee, in its sole discretion, to be
equitable to prevent substantial dilution or enlargement of the
rights granted to participants hereunder, provided, however, that
the number of shares subject to any award will always be a whole
number. The Committee shall give notice to each participant of
any adjustment made pursuant to this paragraph, and upon such
notice, such adjustment shall be effective and binding for all
purposes of the Plan.
Shares issued under the Plan as the result of the settlement
or assumption of, or substitution of awards under the Plan for,
any awards or obligations to grant future awards of any entity
acquired by or merging with the Company shall not reduce the
number of shares available for delivery under the Plan.
The maximum number of shares available for delivery under
the Plan through Incentive Stock Options shall be 2,500,000
shares. The maximum number of shares available for awards under
Sections 8 and 9 hereof shall be equal to thirty-five percent of
the total shares available for distribution under the Plan.
Section 5. Eligibility
All employees of the Company and its Subsidiaries (but
excluding, except as otherwise provided in Section 6, members of
the Committee and any person who serves only as a director) who
in the opinion of the Committee are responsible for or contribute
to the management, growth, and profitability of the business of
the Company or its Subsidiaries are eligible to be granted awards
under the Plan.
Section 6. Stock Options
Stock Options may be granted alone or in addition to other
awards granted under the Plan and may be of two types: Incentive
Stock Options and Non-Qualified Stock Options. Any Stock Option
granted under the Plan shall be in such form as the Committee may
from time to time approve. The Committee shall have the
authority to grant any Optionee Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided,
however, that the Committee shall not have the authority to grant
Incentive Stock Option to any non-employee director. To the
extent that any Stock Option does not qualify as an Incentive
Stock Option, it shall constitute a separate Non-Qualified Stock
Option. The Committee shall not grant Stock Options to any one
individual with respect to more than twenty-five percent (25%) of
the shares of Stock reserved for distribution pursuant to Stock
Options or other awards under the Plan.
Stock Options shall be evidenced by option agreements, the
terms and provisions of which may differ. An option agreement
shall indicate on its face whether it is an agreement for
Incentive Stock Options or Non-Qualified Stock Options. The
grant of a Stock Option shall occur on the date the Committee by
resolution selects an employee as a participant in any grant of
Stock Options, determines the number of Stock Options to be
granted to such employee, and specifies the terms and provisions
of the option agreement; provided, however, that the Committee
may designate in such resolution a later date as the date of
grant of any or all of the Stock Options covered thereby. The
Company shall notify a participant of any grant of Stock Options,
and a written option agreement or agreements shall be duly
executed between the Company and the participant.
Anything in the Plan to the contrary notwithstanding, no
term of the Plan relating to Incentive Stock Options shall be
interpreted, amended, or altered nor shall any discretion or
authority granted under the Plan be exercised so as to disqualify
the Plan under Section 422 of the Code or, without the consent of
the Optionee affected, to disqualify any Incentive Stock Option
under such Section 422.
On the date of the first meeting of the Board in the fourth
quarter of each year, the Committee may grant to each non-
employee director a Non-Qualified Stock Option to purchase up to
7,500 shares of Stock.
Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional
terms and conditions as the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be equal to the Fair
Market Value of the Stock on the date of grant or such higher
price as shall be determined by the Committee at grant.
(b) Option Term. The term of each Stock Option shall be
fixed by the Committee, but no incentive Stock Option shall be
exercisable more than 10 years after the date of grant of the
Option, and no Non-Qualified Stock Option shall be exercisable
more than 10 years and one month after the date of grant of the
Option.
(c) Transferability of Options.
(i) No Stock Option shall be transferable by the
Optionee other than by will, by the laws of descent and
distribution or in accordance with the provisions of Section
6(c)(ii).
(ii) Subject to applicable securities laws, the
Committee may determine that a Non-Qualified Stock Option may be
transferred by the Optionee to one or more members of the
Optionee's Immediate Family, as defined in Section 6(c)(iii), to
a partnership of which the only partners are members of the
Optionee's Immediate Family, or to a trust established by the
Optionee for the benefit of one or more members of the Optionee's
Immediate Family. No Transferee to whom or which a Non-Qualified
Stock Option is transferred may further transfer such Stock
Option. A Non-Qualified Stock Option transferred pursuant to
this Section shall remain subject to the provisions of the Plan,
including, but not limited to, the provisions of this Section 6
relating to the exercise of the Stock Option upon the death,
Disability, Retirement or other termination of employment of the
Optionee, and shall be subject to such other rules as the
Committee shall determine.
(iii) For purposes of this Section 6, "Immediate
Family" of the Optionee means the Optionee's spouse, parents,
children and grandchildren.
(d) Exercisability. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as
shall be determined by the Committee; provided, however, that,
except as provided in Sections 6(e), (f), (g), and 10, no Stock
Option shall be exercisable prior to the first anniversary date
of the granting of the Stock Option. If the Committee provides
that any Stock Option is exercisable only in installments, the
Committee may at any time waive such installment exercise
provisions, in whole or in part, based on such factors as the
Committee may determine.
(e) Termination by Death. Subject to Section 6(j), if an
Optionee's employment or service on the Board terminates by
reason of death, any Stock Option held by such Optionee or any
Transferee of such Optionee may thereafter be exercised, to the
extent then exercisable or on such accelerated basis as the
Committee may determine, for a period of two years from the date
of such death or until the expiration of the stated term of such
Stock Option, whichever period is the shorter; provided, however,
that if the expiration of the stated term of any such Stock
Option is less than one year following the death of the Optionee,
the Stock Option shall be exercisable for a period of one year
from the date of such death.
(f) Termination by Reason of Disability. Subject to
Section 6(j), if an Optionee's employment or service on the Board
terminates by reason of Disability, any Stock Option held by such
Optionee or any Transferee of such Optionee may thereafter be
exercised by the Holder, to the extent it was exercisable at the
time of termination or on such accelerated basis as the
Committee may determine, for a period of two years from the date
of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the
shorter; provided, however, that, if the Holder dies while any
such Stock Option remains exercisable , any unexercised Stock
Option held by such Holder at death shall continue to be
exercisable to the extent to which it was exercisable at the time
of the Holder's death for a period of 12 months from the date of
such death. In the event of termination of employment by reason
of Disability, if an Incentive Stock Option is exercised after
the expiration of the exercise periods that apply for purposes of
Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(g) Termination by Reason of Retirement. Subject to
Section 6(j), if an Optionee's employment or service on the Board
terminates by reason of Retirement, any Stock Option held by such
Optionee or any Transferee of such Optionee may thereafter be
exercised by the Holder, to the extent it was exercisable at the
time of Retirement or on such accelerated basis as the Committee
may determine, for a period of three years from the date of such
termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter;
provided, however, that, if the Holder dies within such
three-year period, any unexercised Stock Option held by such
Holder shall, notwithstanding the expiration of such three-year
period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from
the date of such death. In the event of termination of
employment by reason of Retirement, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(h) Other Termination. Subject to Section 6(j), if an
Optionee's employment terminates for any reason other than
death, Disability, Retirement, or cause, any Stock Option held by
such Optionee or any Transferee of such Optionee may thereafter
be exercised by the Holder, to the extent it was exercisable at
the time of termination, for a period of three months from the
date of such termination of employment or until the expiration of
the stated term of such Stock Option, whichever period is the
shorter; provided, however, that if the Holder dies within such
three-month period, any unexercised Stock Option held by such
Holder shall, notwithstanding the expiration of such three-month
period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of 12 months from
the date of such death. If an Optionee's employment is
terminated for cause, all rights under any Stock Option held by
such Optionee or any Transferee of such Optionee shall expire
immediately upon the giving to the Optionee of notice of such
termination, unless otherwise determined by the Committee.
(i) Method of Exercise. Stock Options shall be exercisable
(i) during the Holder's lifetime, only by the Holder or by the
guardian or legal representative of the Holder, and (ii)
following the death of the Holder, only by the person to whom
they are transferred by will or the laws of descent and
distribution. For purposes of this Section 6(i) only, the term
"Holder" shall include any person to whom a Stock Option is
transferred by will or the laws of descent and distribution.
Subject to the provisions of this Section 6, Stock Options may be
exercised, in whole or in part, at any time during the option
term by giving written notice of exercise to the Company
specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price in
cash (including check, bank draft, money order, or such other
instrument as the Company may accept). Unless otherwise
determined by the Committee at any time or from time to time,
payment in full or in part may also be made (i) by delivering a
duly executed notice of exercise together with irrevocable
instructions from the Holder to a broker to deliver promptly to
the Company sufficient proceeds from a sale or loan of the shares
subject to the Stock Option to pay the purchase price, or (ii) in
the form of unrestricted Stock already owned by the Holder or, in
the case of the exercise of a Non-Qualified Stock Option,
Restricted Stock subject to an award hereunder (based, in each
case, on the Fair Market Value of the Stock on the date the
Stock Option is exercised). If payment of the option exercise
price of a Non-Qualified Stock Option is made in whole or in part
in the form of Restricted Stock, such Restricted Stock (and any
replacement shares relating thereto) shall remain restricted in
accordance with the original terms of the Restricted Stock award
in question, and any additional Stock received upon the exercise
shall be subject to the same forfeiture restrictions, unless
otherwise determined by the Committee.
No shares of Stock shall be issued until full payment
therefor has been made. Subject to any forfeiture restrictions
that may apply if a Stock Option is exercised using Restricted
Stock, a Holder shall have all of the rights of a stockholder of
the Company, including the right to vote the shares and the right
to receive dividends, with respect to shares subject to the Stock
Option when the Holder has given written notice of exercise, has
paid in full for such shares, and, if requested, has given the
representation described in Section 13(a).
Shares issued upon exercise of a Stock Option shall be
issued in the name of the Holder or, at the request of the
Holder, in the names of such Holder and the Holder's spouse with
right of survivorship.
(j) Cashing Out of Options. In any case when a Stock
Option is exercised after the death of a Holder, the Committee
may elect to cash out all or any part of the Stock Option by
paying the person to whom the Stock Option has been transferred
by reason of the death of the Holder an amount, in cash or shares
of Stock, equal in value to the excess of the Fair Market Value
of the Stock over the option price on the effective date of such
cash out.
(k) Substitute Options. Stock Options or Stock
Appreciation Rights may be granted under the Plan from time to
time in substitution for stock options or stock appreciation
rights held by employees of any corporation who, as the result of
a merger, consolidation, or combination of such other corporation
with, or the acquisition of all or substantially all of the
assets or stock of such other corporation by, the Company or a
Subsidiary, become employees of the Company or a Subsidiary.
The terms and conditions of any substitute Stock Options or Stock
Appreciation Rights so granted may vary from the terms and
conditions set forth in the Plan to such extent as the Committee
at the time of grant may deem appropriate to conform, in whole or
in part, to the provisions of the stock options or stock
appreciation rights in substitution for which they are granted;
provided, however, that in the event a stock option for which a
substitute Stock Option is being granted is an incentive stock
option, no such variation shall be permitted the effect of which
would be to adversely affect the status of any such substitute
Stock Options as an Incentive Stock Option. No Stock Option or
Stock Appreciation Right shall be granted under the Plan in
substitution for any Stock Option or Stock Appreciation Right
previously issued under the Plan if the exercise price of the
substitute Stock Option or Stock Appreciation Right is less than
the exercise price of the previously issued Stock Option or Stock
Appreciation Right.
(l) Deferral of Option Gains. An Optionee may elect to
defer to a future date receipt of the shares of Stock to be
acquired upon exercise of a Stock Option. Such election shall be
made by delivering to the Company not later than six months prior
to the exercise of the Stock Option a written notice of the
election specifying the future date (the "Deferral Date") for
receipt of the shares. At any time, and from time to time, prior
to the delivery to the Optionee of shares the receipt of which
has been deferred as provided in this section, the Optionee may
designate by written notice to the Company a new date, which date
shall be later than the Deferral Date, and such new date shall
thereafter be the Deferral Date with respect to such shares.
Section 7. Stock Appreciation Rights
A Stock Appreciation Right may be granted in conjunction
with all or part of any Stock Option granted under the Plan. In
the case of a Non-Qualified Stock Option, such Right may be
granted either at or after the time of grant of such Stock
Option. In the case of an Incentive Stock Option, such Right may
be granted only at the time of grant of such Stock Option. A
Stock Appreciation Right independent of a Stock Option grant may
also be awarded by the Committee, in which event the provisions
of this Section 7 shall be applied for purposes of determining
the operation of such Stock Appreciation Right as if a
Non-Qualified Stock Option had been granted on the date of the
grant of and in conjunction with such independent Stock
Appreciation Right.
A Stock Appreciation Right granted with respect to a given
Stock Option shall terminate and no longer be exercisable to the
extent of the shares with respect to which the related Stock
Option is exercised or terminates. A Stock Appreciation Right
may be exercised by a Holder in accordance with the provisions
of this Section 7 by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by
the Committee. Upon such exercise and surrender, the Holder
shall be entitled to receive an amount determined in the manner
prescribed in Section 7(b). The Stock Option which has been so
surrendered shall no longer be exercisable to the extent the
related Stock Appreciation Right has been exercised.
Stock Appreciation Rights shall be subject to such terms and
conditions as shall be determined by the Committee, including the
following:
(a) Exercisability. A Stock Appreciation Right shall be
exercisable only at such time or times and to the extent that
the Stock Option to which it relates is exercisable in accordance
with the provisions of Section 6 and this Section 7; provided,
however, that a Stock Appreciation Right shall not be exercisable
during the first six months of its term by an Optionee who is
actually or potentially subject to Section 16(b) of the Exchange
Act, unless otherwise determined by the Committee in the event of
death or Disability of the Optionee prior to the expiration of
the six-month period.
(b) Payment Upon Exercise. Upon the exercise of a Stock
Appreciation Right, a Holder shall be entitled to receive an
amount in cash, shares of Stock, or both equal in value to the
excess of the Fair Market Value on the date of exercise of one
share of Stock over the option exercise price per share specified
in the related Stock Option multiplied by the number of shares in
respect of which the Stock Appreciation Right shall have been
exercised. The Committee shall have the right to determine the
form of payment in each case.
In the case of a Stock Appreciation Right held by an
Optionee who is actually or potentially subject to Section 16(b)
of the Exchange Act, the Committee:
(i) may require that such Stock Appreciation Right be
exercised only in accordance with any applicable "window period"
provisions of Rule 16b-3; and
(ii) in the case of a Stock Appreciation Right relating
to a Non-Qualified Stock Option, may provide that the amount to
be paid upon exercise of such Stock Appreciation Right during a
Rule 16b-3 "window period" shall be based on the highest mean
sales price of the Stock as reported on the New York Stock
Exchange Composite Index on any day during such "window period".
(c) Non-transferability. A Stock Appreciation Right shall
be transferable only when and to the extent that the related
Stock Option would be transferable under Section 6(c).
(d) Effect of Change in Control. The Committee may
provide, at the time of grant, that a Stock Appreciation Right
can be exercised only in the event of a Change in Control or a
Potential Change in Control, subject to such terms and
conditions as the Committee may specify at grant. The Committee
may also provide that, in the event of a Change in Control or a
Potential Change in Control, the amount to be paid upon the
exercise of a Stock Appreciation Right shall be based on the
Change in Control Price, subject to such terms and conditions as
the Committee may specify at grant.
Section 8. Restricted Stock
(a) Administration. Shares of Restricted Stock may be
issued either alone or in addition to other awards granted under
the Plan. The Committee shall determine the officers and key
employees to whom and the time or times at which grants of
Restricted Stock will be made, the number of shares to be
awarded, the time or times within which such awards may be
subject to forfeiture, and any other terms and conditions of the
awards, in addition to those contained in Section 8(c). The
Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors
or criteria as the Committee shall determine. The provisions of
Restricted Stock awards need not be the same with respect to each
recipient.
(b) Awards and Certificates. Each participant receiving a
Restricted Stock award shall be issued a certificate in respect
of such shares of Restricted Stock. Such certificate shall be
registered in the name of such participant and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and conditions
(including forfeiture) of the Crompton & Knowles Corporation 1998
Long Term Incentive Plan and a Restricted Stock Agreement.
Copies of such Plan and Agreement are on file at the offices of
Crompton & Knowles Corporation, One Station Place, Metro Center,
Stamford, Connecticut 06902."
The Committee may require that the certificates evidencing
such shares be held in custody by the Company until the
restrictions thereon shall have lapsed and that, as a condition
of any Restricted Stock award, the participant shall have
delivered a stock power, endorsed in blank, relating to the Stock
covered by such award.
(c) Terms and Conditions. Shares of Restricted Stock shall
be subject to the following terms and conditions:
(i) Subject to the provisions of the Plan and the
Restricted Stock Agreement referred to in Section 8(c)(vi),
during such period commencing with the date of such award as
shall be set by the Committee (the "Restriction Period"), the
participant shall not be permitted to sell, assign, transfer,
pledge, or otherwise encumber shares of Restricted Stock. Within
these limits, the Committee may provide for the lapse of such
restrictions in installments and may accelerate or waive such
restrictions, in whole or in part, based on service, performance,
and such other facts or criteria as the Committee may determine.
(ii) Except as provided in Section 8(c)(i), the
participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a stockholder of the Company,
including the right to vote the shares and the right to receive
any cash dividends thereon; provided, however, that the Committee
may provide at the time of an award that cash dividends shall be
automatically deferred and reinvested in additional Restricted
Stock. Dividends on Restricted Stock which are payable in Stock
shall be paid in the form of additional shares of Restricted
Stock.
(iii) Except to the extent otherwise provided in the
applicable Restricted Stock Agreement and Sections 8(c)(i) and
(iv), upon termination of a participant's employment for any
reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant.
(iv) In the event of the death of a participant during
the Restriction Period or in the event of hardship or other
special circumstances of a participant whose employment is
involuntarily terminated (other than for cause) during the
Restriction Period, the Committee may waive in whole or in part
any or all remaining restrictions with respect to such
participant's shares of Restricted Stock.
(v) If and when the Restriction Period expires without
a prior forfeiture of the Restricted Stock subject to such
Restriction Period, unlegended certificates for such shares shall
be delivered to the participant.
(vi) Each award shall be confirmed by, and be subject
to the terms of, a Restricted Stock Agreement.
Section 9. Long Term Performance Awards
(a) Awards and Administration. Long Term Performance
Awards may be awarded either alone or in addition to other awards
granted under the Plan. The Committee shall determine the
nature, length, and starting date of the performance period (the
"Performance Period") for each Long Term Performance Award, which
shall be at least two years (subject to Section 10), and shall
determine the performance objectives to be used in valuing Long
Term Performance Awards and determining the extent to which such
Long Term Performance Awards have been earned. The maximum award
for any individual with respect to any one year of any
Performance Period shall be 200,000 shares of Stock. Performance
objectives may vary from participant to participant and between
groups of participants and shall be based upon one or more of the
following Company, Subsidiary, business unit, or individual
performance factors or criteria (on a pre- or post-tax basis and
on an aggregate or per share basis) as the Committee may deem
appropriate: earnings, sales, Stock price, return on equity,
assets or capital, economic value added, cash flow, total
shareholder return, costs, margins, market share, any combination
of the foregoing. Performance Periods may overlap and
participants may participate simultaneously with respect to Long
Term Performance Awards that are subject to different Performance
Periods and different performance factors and criteria. Long
Term Performance Awards shall be confirmed by, and be subject to
the terms of, a Long Term Performance Award Agreement. The terms
of such awards need not be the same with respect to each
participant.
At the beginning of each performance Period, the Committee
shall determine for each Long Term Performance Award subject to
such Performance Period the range of dollar values or number of
shares of Stock (including Restricted Stock) to be awarded to the
participant at the end of the Performance Period if and to the
extent that the relevant measures of performance for such Long
Term Performance Award are met. Such dollar values or number of
shares of Stock may be fixed or may vary in accordance with such
performance or other criteria as may be determined by the
Committee.
(b) Adjustment of Awards. The Committee may adjust the
performance goals and measurements applicable to Long Term
Performance Awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the
Committee deems necessary or appropriate to reflect the
inclusion or exclusion of the impact of extraordinary or unusual
items, events, or circumstances in order to avoid windfalls or
hardships.
(c) Termination of Employment. Subject to Section 10 and
unless otherwise provided in the applicable Long Term Performance
Award Agreement, if a participant terminates employment during a
Performance Period because of death, Disability, or Retirement,
such participant shall be entitled to a payment with respect to
each outstanding Long Term Performance Award at the end of the
applicable Performance Period:
(i) based, to the extent relevant under the terms of
the award, upon the participant's performance for the portion of
such Performance Period ending on the date of termination and
the performance of the Company or any applicable business unit
for the entire Performance Period, and
(ii) prorated for the portion of the Performance Period
during which the participant was employed by the Company or a
Subsidiary, all as determined by the Committee. The
Committee may provide for an earlier payment in settlement of
such award in such amount and under such terms and conditions as
the Committee deems appropriate. Subject to Section 10
and except as otherwise provided in the applicable Long Term
Performance Award Agreement, if a participant terminates
employment during a Performance Period for any other reason, then
such participant shall not be entitled to any payment with
respect to the Long Term Performance Awards subject to such
Performance Period, unless the Committee shall otherwise
determine.
(d) Form of Payment. The earned portion of a Long Term
Performance Award may be paid currently or on a deferred basis
with such interest or earnings equivalent as may be determined by
the Committee. Payment shall be made in the form of cash or
whole shares of Stock, including Restricted Stock, or a
combination thereof, either in a lump sum payment or in annual
installments, all as the Committee shall determine.
Section 10. Change in Control Provisions
(a) Impact of Event. In the event of:
(i) a "Change in Control" as defined in Section 10(b),
unless otherwise determined by the Committee or the Board prior
to the occurrence of such Change in Control, or
(ii) a "Potential Change in Control" as defined in
Section 10(c), but only if and to the extent so determined by the
Committee or the Board, the following acceleration and valuation
provisions shall apply:
(1) Stock Options and Stock Appreciation Rights
outstanding as of the date such Change in Control or such
Potential Change in Control is determined to have occurred and
not then exercisable and vested shall become fully exercisable
and vested; provided, however, that, in the case of Stock
Appreciation Rights held by an Optionee who is actually subject
to Section 16(b) of the Exchange Act, such Stock Appreciation
Rights shall not become exercisable and vested unless they shall
have been outstanding for at least six months at the date such
Change in Control is determined to have occurred.
(2) The restrictions and forfeiture provisions
applicable to any Restricted Stock shall lapse, and such
Restricted Stock shall become fully vested.
(3) The value of all outstanding Stock Options, Stock
Appreciation Rights, and Restricted Stock shall, unless otherwise
determined by the Committee at or after grant, be cashed out on
the basis of the "Change in Control Price", as defined in Section
10(d), as of the date such Change in Control or such Potential
Change in Control is determined to have occurred or such other
date as the Committee may determine prior to the Change in
Control.
(4) Any outstanding Long Term Performance Awards
shall, unless the Committee otherwise determines, be vested and
paid out based on the prorated target results for the
Performance Periods in question, unless the Committee provides
prior to the Change in Control event for a different payment.
(b) Definition of "Change in Control". For purposes of
Section 10(a), a "Change in Control" means a change in control of
the Company of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in
effect on the effective date of the Plan, pursuant to Section 13
or 15(d) of the Exchange Act; provided that, without limitation,
such a "Change in Control" shall be deemed to have occurred if:
(i) A third person, including a "group" as such term
is used in Section 13(d)(3) of the Exchange Act, other than the
trustee of a Company employee benefit plan, becomes the
beneficial owner, directly or indirectly, of 20 percent or more
of the combined voting power of the Company's outstanding voting
securities ordinarily having the right to vote for the election
of directors of the Company;
(ii) During any period of 24 consecutive months
individuals who, at the beginning of such consecutive 24-month
period, constitute the Board of Directors of the Company (the
"Board" generally and as of the effective date of the Plan the
"Incumbent Board") cease for any reason (other than retirement
upon reaching Normal Retirement age, Disability, or death) to
constitute at least a majority of the Board; provided that any
person becoming a director subsequent to the effective date of
the Plan whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least
three-quarters of the Directors comprising the Incumbent Board
(other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be,
for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board; or
(iii) The Company shall cease to be a publicly owned
corporation having its outstanding Stock listed on the New York
Stock Exchange or quoted in the NASDAQ National Market System.
(c) Definition of "Potential Change in Control". For
purposes of Section 10(a), a "Potential Change in Control" means
the happening of any one of the following:
(i) The entering into an agreement by the Company, the
consummation of which would result in a Change in Control of the
Company as defined in Section 10(b); or
(ii) The acquisition of beneficial ownership, directly
or indirectly, by any entity, person, or group (other than the
trustee of a Company employee benefit plan) of securities of the
Company representing five percent or more of the combined voting
power of the Company's outstanding voting securities and the
adoption by the Board of a resolution to the effect that a
Potential Change in Control of the Company has occurred for
purposes of the Plan.
(d) Change in Control Price. For purposes of this Section
10, "Change in Control Price" means the highest price per share
paid in any transaction reported on the New York Stock Exchange
Composite Index or paid or offered in any bona fide transaction
related to an actual or potential Change in Control of the
Company at any time during the preceding 60-day period as
determined by the Committee, except that, in the case of
Incentive Stock Options and Stock Appreciation Rights relating
to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the Committee decides
to cash out such Stock Options.
Section 11. Amendments and Termination
The Board may amend, suspend, or discontinue the Plan or any
portion thereof at any time, but no amendment, suspension, or
discontinuation shall be made which would impair the rights of a
Holder under a Stock Option or a recipient of a Stock
Appreciation Right, Restricted Stock award, or Long Term
Performance Award theretofore granted without the Holder's or
recipient's consent or which, without the approval of the
Company's stockholders, would:
(a) except as expressly Provided in the Plan, increase the
total number of shares reserved for the purpose of the Plan;
(b) decrease the option price of any Stock Option to less
than the Fair Market Value on the date of grant;
(c) change the class of employees eligible to participate
in the Plan;
(d) extend the maximum option periods under Section 6(b);
or
(e) amend, suspend or discontinue this Section 11.
The Committee may amend the terms of any Stock Option or
other award theretofore granted, prospectively or retroactively,
but no such amendment shall impair the right of any holder
without the holder's consent. Subject to the above provisions,
the Board shall have authority to amend the Plan to take into
account changes in law and tax and accounting rules, as well as
other developments.
Section 12. Unfunded Status of Plan
It is presently intended that the Plan constitute an
"unfunded" plan for incentive and deferred compensation. The
Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to
deliver Stock or make payments; provided, however, that, unless
the Committee otherwise determines, the existence of such trusts
or other arrangements is consistent with the "unfunded" status of
the Plan.
Section 13. General Provisions
(a) All certificates for shares of Stock or other
securities delivered under the Plan shall be subject to such
stock transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which
the Stock is then listed, and any applicable Federal or state
securities law, and the Committee may cause a legend or legends
to be put on any such certificates to make appropriate reference
to such restrictions. The Committee may require any Optionee
purchasing shares pursuant to a Stock Option to represent to and
agree with the Company in writing that the Optionee is acquiring
the shares without a view to the distribution thereof.
(b) Nothing contained in this Plan shall prevent the
Company or a Subsidiary from adopting other or additional
compensation arrangements for its employees.
(c) Neither the adoption of the Plan nor the granting of
any Stock Option, Stock Appreciation Right, Restricted Stock or
Long Term Award shall confer upon any employee any right to
continued employment or constitute an agreement or understanding
that the Company will retain a director for any period of time or
at any particular rate of compensation, nor shall the same
interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any employee or the
service of any director at any time.
(d) No later than the date on which the Company is required
to withhold taxes in respect of an award, the participant shall
pay to the Company, or make arrangements satisfactory to the
Company regarding the payment of, any Federal, state, local, or
other taxes of any kind required by law to be withheld with
respect to such award or any payment or distribution made in
connection therewith. Unless otherwise determined by the
Committee, withholding obligations may be settled with Stock,
including Stock that is part of the award that gives rise to the
withholding requirement; provided, however, that in the case of
any Optionee who is actually subject to Section 16(b) of the
Exchange Act, any such settlement shall comply with the
applicable requirements of Rule 16(b)-3. The obligations of the
Company under the Plan shall be conditional on such payment or
arrangements, and the Company and its Subsidiaries shall, to the
extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the participant.
(e) The reinvestment of dividends in additional Restricted
Stock at the time of any dividend payment shall be permissible
only if sufficient shares of Stock are available under Section 3
for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).
(f) The Committee shall establish such procedures as it
deems appropriate for a participant to designate a beneficiary to
whom any amounts payable with respect to outstanding awards under
the Plan in the event of the participant's death are to be paid.
(g) The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with
the laws of the State of Connecticut.
Section 14. Effective Date of Plan; Shareholder Approval
The Plan shall be effective as of the date it is adopted by
the Board, subject however to the approval of the Plan by the
holders of at least a majority of the outstanding shares of Stock
of the Company present or represented and entitled to vote at a
meeting of shareholders of the Company. Awards may be made under
the Plan on and after its effective date; provided, however, that
any such awards shall be null and void if shareholder approval of
the Plan is not obtained within 12 months of the adoption of the
Plan by the Board.
Section 15. Term of Plan
No Stock Option, Stock Appreciation Right, Restricted Stock
award, or Long Term Performance Award shall be granted on or
after the tenth anniversary of the effective date of the Plan,
but awards granted prior to such tenth anniversary (including,
without limitation, Long Term Performance Awards for Performance
Periods commencing prior to such tenth anniversary) may extend
beyond that date.
Adopted: October 14, 1998
Amended: July 21, 1999
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