SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934
(Amendment No. )
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Crompton & Knowles Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other
than the Registrant)
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C&K Logo CROMPTON & KNOWLES
CORPORATION
Dear Stockholder:
You are cordially invited to attend the annual meeting of
stockholders of Crompton & Knowles Corporation to be held at 11:15
a.m. on Tuesday, April 27, 1999, at the Sheraton Stamford Hotel,
2701 Summer Street, Stamford, Connecticut.
Information about the business of the meeting and the nominees for
election as members of the Board of Directors is set forth in the
formal meeting notice and Proxy Statement on the following pages.
This year you are asked to elect three directors, to approve the
Crompton & Knowles Corporation 1998 Long Term Incentive Plan, to
approve an additional 3,000,000 shares of the Corporation's Common
Stock for issuance under the 1998 Long Term Incentive Plan and to
ratify the Board of Directors' selection of an independent auditor
for the fiscal year ending December 25, 1999.
It is important that your shares be represented at the meeting.
Whether or not you plan to attend the session in person, we hope
that you will vote on the matters to be considered and sign, date
and return your proxy in the enclosed envelope as promptly as
possible.
The Company's fiscal year 1998 Annual Report is being mailed to
stockholders herewith, but it is not part of the proxy solicitation
material.
Respectfully yours,
/s/Vincent A. Calarco
Vincent A. Calarco
Chairman, President &
Chief Executive Officer
March 30, 1999
_______________________________________________________________
Notice of 1999 Annual Meeting of the Stockholders
_______________________________________________________________
To the Stockholders:
The 1999 annual meeting of the stockholders of Crompton &
Knowles Corporation will be held at the Sheraton Stamford Hotel,
2701 Summer Street, Stamford, Connecticut, on Tuesday, April 27,
1999, at 11:15 a.m. in the morning, local time, to consider and act
upon the following matters:
1. The election of three directors to serve for a term
expiring in 2002, described beginning at page 1 of
the Proxy Statement which follows;
2. A proposal to approve the Crompton & Knowles
Corporation 1998 Long Term Incentive Plan,
described beginning at page 13;
3. A proposal to increase the number of shares
of the Corporation's Common Stock reserved
for issuance under the Crompton & Knowles
Corporation Long Term Incentive Plan by
3,000,000 shares, described beginning at page 17;
4. A proposal to ratify the selection by the
Board of Directors of an independent auditor
for 1999, described beginning at page 17; and
5. Such other business as may properly come before
the meeting.
Your attention is directed to the accompanying Proxy Statement
for additional information with respect to the matters to be
considered at the meeting.
Stockholders of record at the close of business on February
26, 1999, are entitled to notice of the annual meeting and may vote
at the meeting and any adjournment thereof. We urge you to date,
sign and return the enclosed proxy promptly whether or not you plan
to attend the annual meeting. If you attend the meeting, you may
still vote your shares in person, if you wish.
By Order of the Board of Directors,
/s/John T. Ferguson II
JOHN T. FERGUSON II
Secretary
March 30, 1999
Crompton & Knowles Corporation, One Station Place, Metro Center,
Stamford, CT 06902
PROXY STATEMENT
This statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Crompton &
Knowles Corporation (the "Corporation") for use at the annual
meeting of the stockholders of the Corporation to be held on April
27, 1999, at the Sheraton Stamford Hotel, 2701 Summer Street,
Stamford, Connecticut, and at any adjournment thereof.
Holders of Common Stock of the Corporation of record at the
close of business on February 26, 1999, the record date, are
entitled to notice of and to vote at the meeting and any
adjournment thereof. On the record date, there were outstanding
and entitled to vote 67,743,203 shares of Common Stock, each of
which is entitled to one vote. The Corporation has no other voting
securities issued and outstanding.
If a stockholder is participating in the Corporation's
Dividend Reinvestment Plan, the shares held in a person's account
under the Plan will be voted automatically in the same way that
such person's shares held of record are voted.
Any stockholder giving a proxy may revoke it by executing
another proxy bearing a later date or by notifying the Secretary in
writing at any time prior to the voting of the proxy. Mere
attendance at the annual meeting does not revoke a proxy.
The Corporation's annual report for the fiscal year ended
December 26, 1998, accompanies this Proxy Statement. It is not
proxy soliciting material, nor is it incorporated herein by
reference.
This Proxy Statement and the enclosed form of proxy are first
being sent to stockholders on or about March 30, 1999.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following persons were known to the Board of Directors to
be the beneficial owner of more than 5% of the Corporation's
outstanding voting securities as of December 31, 1998:
Common Loomis, Sayles & Company, L.P. 5,329,630 7.9%
One Financial Center
Boston, MA 02111
FMR Corp. 4,005,609 5.9%
82 Devonshire Street
Boston, MA 02109
ELECTION OF THREE DIRECTORS
The By-Laws of the Corporation provide for a Board of
Directors of not less than six nor more than fifteen members, as
determined from time to time by resolution of the Board, divided
into three classes. Directors of one class are elected each year
for a term of three years. There are presently eight directors in
office, three of whom are standing for election at this year's
meeting as Class II directors whose term will expire at the 2002
annual meeting, three of whom are Class III directors whose term
expires at the 2000 annual meeting and two of whom are Class I
directors whose term expires at the 2001 annual meeting. The Board
has nominated the three persons named below to serve as Class II
directors for a three-year term expiring at the 2002 annual meeting
and until their respective successors are elected and have
qualified. The affirmative vote of the holders of a plurality of
the shares which are present in person or represented by proxy at
the meeting is required to elect directors. Shares represented by
the accompanying proxy are intended to be voted, unless authority
so to vote is withheld, for such nominees. The Class II nominees
are members of the present Board who have served as directors since
the dates set forth after their names. The three nominees and all
of the incumbent directors have previously been elected by the
stockholders. If any of the nominees are not available, an event
not anticipated, the proxies will be voted for the other nominees
and for a substitute if any is designated by the Board of
Directors.
Nominees For Director
CLASS II (to serve until the annual meeting of stockholders
in 2002):
Vincent A. Calarco, 56, Chairman of the Board, President and
Chief Executive Officer of the Corporation. Mr. Calarco has been
a director since 1985 and is a member of the Finance Committee. He
also serves as a director of Asarco Incorporated and Rhodia, S.A.
Charles J. Marsden, 58, Senior Vice President and Chief
Financial Officer of the Corporation. Mr. Marsden has been a
director of the Corporation since 1985. He serves as a member of
the Partnership Review Boards of Castle Harlan Partners II, L.P.
and Castle Harlan Partners III, L.P.
C.A. (Lance) Piccolo, 58, is President and Chief Executive
Officer of HealthPic Consultants, Inc., a strategic health-care
consulting firm, Lincolnshire, IL. Prior to the merger of Caremark
International Inc. and MedPartners/Mullikin, Inc., he was the
Chairman and Chief Executive Officer of Caremark International
Inc., a provider of alternate-site health-care services, North
Brook, IL. He is former Executive Vice President of Baxter
International Inc., a supplier of health-care products, Deerfield,
IL. He has been a director of the Corporation since 1988 and is
a member of the Audit Committee and the Nominating Committee. Mr.
Piccolo also serves as a director and Vice Chairman of the Board of
MedPartners, Inc.
Incumbent Directors
CLASS III (to serve until the annual meeting of stockholders
in 2000):
Robert A. Fox, 61, is President and Chief Executive Officer of
Foster Farms, a privately held, integrated poultry company,
Livingston, CA. He is former Executive Vice President of Revlon,
Inc., a cosmetics, fragrances and toiletries manufacturer, New
York, NY; and former Chairman and Chief Executive Officer of Clarke
Hooper America, an international marketing services firm, Irvine,
CA. Mr. Fox has been a director of the Corporation since 1990 and
is the Chairman of the Nominating Committee and a member of the
Executive Compensation Committee. He is also a director of the
American Balanced Fund, Fundamental Investors, the Growth Fund of
America, Inc., the Income Fund of America, Inc. and the New
Perspective Fund. He serves as a trustee of the Euro-Pacific
Growth Fund.
Roger L. Headrick, 62, is the Managing General Partner of HMCH
Ventures, an investment company, Wayzata, MN, and the President and
Chief Executive Officer of ProtaTek International, Inc., a
biotechnology animal vaccine company, St. Paul, MN. Mr. Headrick
is the former President and Chief Executive Officer of the
Minnesota Vikings Football Club, Inc., Eden Prairie, MN, and he is
the former Executive Vice President and Chief Financial Officer of
The Pillsbury Company, a food processing and restaurant company,
Minneapolis, MN. He has been a director of the Corporation since
1988 and is the Chairman of the Finance Committee and a member of
the Executive Compensation Committee. He also serves as a member
of the Boards of Directors of MedPartners Inc. and Rahr Malting
Company.
Leo I. Higdon, Jr., 52, is the President of Babson College,
Babson Park, MA, and a former Dean of the Darden Graduate
School of Business Administration at the University of Virginia,
Charlottesville, VA. Mr. Higdon is also a former Managing Director
and member of the Executive Committee of Salomon Brothers, an
investment banking firm, New York, NY. Mr. Higdon has been a
director of the Corporation since 1993 and is Chairman of the Audit
Committee and a member of the Finance Committee. He is a director
of Bestfoods and Newmont Mining Corp.
CLASS I (to serve until the annual meeting of stockholders in
2001):
James A. Bitonti, 68, is Chairman and Chief Executive Officer
of BITCO International, Inc., a privately held multinational
company involved with global purchasing, direct investment, and
systems integration services and development, McLean, VA. Mr.
Bitonti is a former President and Chief Executive Officer of TCOM,
L.P., an aerostat systems manufacturer, integrator and operator,
Columbia, MD. He is a retired Vice President of International
Business Machines Corporation, where he held the positions of
Assistant Group Executive of the Asia/Pacific Group and President
of the Communication Products Division, Armonk, NY. Mr. Bitonti
has been a director of the Corporation since 1983 and is Chairman
of the Executive Compensation Committee and a member of the
Nominating Committee. He also serves as a member of the Boards of
Directors of Raytheon E-Systems, Inc., TCOM, L.P. and Management
Consulting and Research, Inc.
Patricia K. Woolf Ph.D., 64, is a private investor, and
lecturer in the Department of Molecular Biology, Princeton
University. She has been a director of the Corporation since 1994
and is a member of the Audit Committee and the Nominating
Committee. Dr. Woolf serves as a director of the American Balanced
Fund, Fundamental Investors, the Growth Fund of America, Inc., the
Income Fund of America, Inc., Smallcap World Fund, Inc., General
Public Utilities Corporation and the National Life Holding Co. She
serves as a trustee of the New Economy Fund.
Board Meetings and Committees
The Board of Directors held four regular and two special
meetings during 1998. All of the directors attended at least 75% of
the aggregate of the meetings of the Board and of the committees on
which they served in 1998.
The Board has established four committees to assist it in the
discharge of its responsibilities. The Audit Committee, no member
of which is an employee of the Corporation, meets periodically with
the Corporation's independent auditor to review the scope of the
annual audit and the policies relating to internal auditing
procedures and controls, provides general oversight with respect to
the accounting principles employed in the Corporation's financial
reporting, reviews environmental matters, oversees millennium
compliance by the Corporation's information systems, and reviews
the Corporation's annual report on Form 10-K prior to its filing
each year. The Audit Committee also recommends to the Board each
year the selection of the auditor, has responsibility for approving
professional non-audit services provided by the independent
auditor, considers the possible effect of providing such non-audit
services on the auditor's independence, and reviews the range of
fees of the auditor for both audit and non-audit services. The
Audit Committee held 2 meetings during 1998.
The Committee on Executive Compensation is composed of
directors who are not employees of the Corporation. Its functions
include approval of the level of compensation for executive
officers serving on the Board, adoption of bonus and deferred
compensation plans and arrangements for executive officers, and
administration of the Crompton & Knowles Corporation 1993 Stock
Option Plan for Non-Employee Directors, the Crompton & Knowles
Corporation Restricted Stock Plan for Directors and the
Corporation's 1988 Long Term Incentive Plan (the "1988 Plan"), the
latter of which expired in 1998. The Executive Compensation
Committee held 2 meetings during 1998.
The Finance Committee is composed of directors, a majority of
whom are not employees of the Corporation. The Committee has the
authority, which it may exercise when the Board is not in session,
to approve certain debt financings and reviews and makes
recommendations to the Board regarding the issuance or
reacquisition of securities, major debt financings, capital
expenditures, acquisitions, divestitures and other expenditures,
dividend policy, management of pension assets, and risk management
policy and strategy. The Finance Committee held 3 meetings during
1998.
The Nominating Committee is composed of directors who are not
employees of the Corporation. The Committee makes recommendations
with respect to the organization, size, and composition of the
Board, identifies suitable candidates for Board membership and
reviews their qualifications, proposes a slate of directors for
election by the stockholders at each annual meeting, and assists
the Board in providing for orderly succession in the top management
of the Corporation. The Nominating Committee held 1 meeting during
1998.
Compensation of Directors
Directors who are employees of the Corporation receive no
additional compensation for services on the Board of Directors.
Members of the Board who are not employees receive an annual
retainer of $30,000 (committee chairmen receive an additional
retainer of $5,000) and a fee of $10,000 for Board and committee
meeting service, and are reimbursed for expenses incurred in
attending meetings. The Corporation provides accidental death and
travel insurance coverage for each non-employee director.
Under the Crompton & Knowles Corporation Restricted Stock Plan
for Directors, one quarter of each director's retainer and fees is
paid in shares of the Corporation's Common Stock. A director may
elect to receive any portion or all of the remainder of the
retainer and fees in Common Stock under the plan. All shares
issued under the plan are held by the Corporation until the
recipient of the shares leaves the Board, however the directors
receive all dividends on the shares and may vote the shares.
The Crompton & Knowles Corporation 1993 Stock Option Plan for
Non-Employee Directors provides for the issuance to non-employee
directors on the date of the first meeting of the Board in the
fourth quarter of each year of an option to purchase shares of the
Corporation's Common Stock. The exercise price of the options is
to be equal to the fair market value of the Corporation's Common
Stock on the date of grant. The options are to vest over a two-
year period and are to be exercisable over a ten-year period from
the date of grant. Options to be granted under the plan are non-
qualified options not intended to qualify as incentive stock
options under the Internal Revenue Code of 1986.
Stockholder Nominations
The Nominating Committee will consider qualified candidates
proposed by stockholders for Board membership in accordance with
the procedure set forth in the By-Laws. Any stockholder entitled
to vote in the election of directors may nominate one or more
persons for election as a director at a meeting if written notice
of such stockholder's intent to make such nomination or nominations
has been given, either by personal delivery or by mail, postage
prepaid, to the Secretary of the Corporation not later than (a)
with respect to an election to be held at an annual meeting of
stockholders, 90 days prior to the anniversary date of the
immediately preceding annual meeting, and (b) with respect to an
election to be held at a special meeting of stockholders for the
election of directors, the close of business on the tenth day
following the date on which notice of such meeting is first given
to stockholders. Each such notice shall set forth (i) the name and
address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (ii) a representation
that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (iii) a description of all
arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (iv) such other information regarding each
nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission; and (v) the consent of each
nominee to serve as a director of the Corporation, if so elected.
The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing
procedure.
SECURITY OWNERSHIP OF MANAGEMENT
The nominees and incumbent directors and the executive
officers of the Corporation have advised that they were directly or
indirectly the beneficial owners of outstanding Common Stock of the
Corporation at the close of business on February 26, 1999, as set
forth below, in each case representing less than one percent of
such shares outstanding except as otherwise indicated.
Amount and
Nature of
Title Name of Beneficial Beneficial Percent of
of Class Owner Ownership(1) Class
Common Vincent A. Calarco...... 2,156,886(2) 3.1 %
Common James A. Bitonti........ 45,344(3)
Common Robert A. Fox........... 69,927(4)
Common Roger L. Headrick....... 72,981(5)
Common Leo I. Higdon, Jr....... 16,379(6)
Common Charles J. Marsden...... 452,555(7)
Common C.A. (Lance) Piccolo.... 29,739(8)
Common Patricia K. Woolf....... 17,082(9)
Common Robert W. Ackley........ 433,045(10)
Common Alfred F. Ingulli....... 440,129(11)
Common Joseph B. Eisenberg..... 250,737(12)
Common Directors and Executive
Officers as a Group
(16 persons)............ 4,782,320(13) 6.8 %
___________
(1) Except as noted below, the executive officers and
directors have both sole voting and sole investment power
over the shares reflected in this table.
(2) Includes 957,262 shares which Mr. Calarco had the right
to acquire through stock options exercisable within 60
days of February 26, 1999; 470,108 shares held under the
1988 Plan and the Crompton & Knowles Corporation Employee
Stock Ownership Plan (the "ESOP"), as to which he has
voting but, except with respect to 43,862 shares in the
ESOP, no investment power; 58,872 shares owned by his
wife and 28,295 shares held in trust for their children,
as to which he disclaims beneficial ownership.
(3) Includes 12,467 shares which Mr. Bitonti had the right to
acquire through stock options exercisable within 60 days
of February 26, 1999; 11,200 shares owned jointly by Mr.
Bitonti with his wife; 15,998 shares held under the
Restricted Stock Plan for Directors; and 4,800 shares
owned by his wife as to which he disclaims beneficial
ownership.
(4) Includes 12,467 shares which Mr. Fox had the right to
acquire through stock options exercisable within 60 days
of February 26, 1999; and 13,952 shares held under the
Restricted Stock Plan for Directors.
(5) Includes 12,467 shares which Mr. Headrick had the right
to acquire through stock options exercisable within 60
days of February 26 1999; and 15,677 shares held under
the Restricted Stock Plan for Directors.
(6) Includes 11,625 shares which Mr. Higdon had the right to
acquire through stock options exercisable within 60 days
of February 26 1999; and 2,727 shares held under the
Restricted Stock Plan for Directors.
(7) Includes 146,738 shares which Mr. Marsden had the right
to acquire through stock options exercisable within 60
days of February 26, 1999; 37,937 shares held under the
1988 Plan and the ESOP, as to which he has voting but,
except with respect to 11,137 shares in the ESOP, no
investment power; and 45,500 shares owned by his wife as
to which he disclaims beneficial ownership.
(8) Includes 12,467 shares which Mr. Piccolo had the right to
acquire through stock options exercisable within 60 days
of February 26, 1999; and 14,139 shares held under the
Restricted Stock Plan for Directors.
(9) Includes 10,692 shares which Dr. Woolf had the right to
acquire through stock options exercisable within 60 days
of February 26, 1999; and 6,288 shares held under the
Restricted Stock Plan for Directors.
(10) Includes 168,500 shares which Mr. Ackley had the right to
acquire through stock options exercisable within 60 days
of February 26, 1999; 57,719 shares held under the 1988
Plan and the ESOP as to which he has voting but, except
with respect to 34,916 shares in the ESOP, no investment
power; and 2,601 shares owned by his wife as to which he
disclaims beneficial ownership.
(11) Includes 306,230 shares which Mr. Ingulli had the right
to acquire through stock options exercisable within 60
days of February 26, 1999.
(12) Includes 192,485 shares which Dr. Eisenberg had the right
to acquire through stock options exercisable within 60
days of February 26, 1999.
(13) Includes 2,330,766 shares which the executive officers
and directors in the group had the right to acquire
through stock options exercisable within 60 days of
February 26, 1999.
REPORT OF THE COMMITTEE ON EXECUTIVE COMPENSATION
Executive Compensation Philosophy
The compensation program for the Corporation's executive
officers is administered in accordance with a pay for performance
philosophy to link executive compensation with the values,
objectives, business strategy, management initiatives and financial
performance of the Corporation. In addition, a significant portion
of each executive officer's compensation is contingent upon the
creation of shareholder value.
The Committee on Executive Compensation of the Board (the
"Committee") believes that stock ownership by management and
restricted stock-based performance compensation plans serve to
align the interests of management and other stockholders in the
enhancement of shareholder value. The Committee further maintains
that long-term strategic leadership commitment is promoted through
vesting a significant portion of restricted stock performance
awards at retirement.
The compensation of the Corporation's executive officers is
comprised of cash and equity components and is designed to be
competitive and highly leveraged based upon corporate financial
performance and shareholder returns. The compensation program
provides an opportunity to earn compensation in the third quartile
within the chemical industry as well as within a broader group of
companies of comparable size and complexity. Actual compensation
levels may be greater or less than average competitive levels in
surveyed companies
based upon annual and long-term performance of the Corporation as
well as individual performance. The measures of performance
utilized under the Corporation's compensation plans are as follows:
. Annual actual earnings performance versus targeted
performance.
. Annual actual sales performance versus targeted
performance.
. Annual actual working capital performance versus
targeted performance.
. Annual actual cash flow performance versus targeted
performance.
. Annual actual return on capital versus targeted
performance.
. Three-year average annual return on capital.
. Three-year growth of after-tax earnings per share.
Base Salaries
Base salaries and salary ranges for the executive officers are
based upon competitive norms gathered from several national and
highly recognized compensation services. The Committee on
Executive Compensation reviews and approves the salary ranges for
the executive officers.
Management Incentive Plan
The Corporation's Management Incentive Plan is an annual
incentive program for executive officers and other key managers.
The purpose of the plan is to provide a direct financial incentive
in the form of an annual cash award to executives who achieve the
annual goals for their business unit and the Corporation.
Stock Options and Restricted Stock
The 1988 Plan, which expired in 1998, and the 1998 Long Term
Incentive Plan the approval of which is being sought at the 1999
annual meeting of stockholders, serve as the basis for a stock
option and restricted stock program that is a long-term incentive
plan for the Corporation's executive officers and other key
managers. The objectives of the program are to align executive and
shareholder long-term interests by creating a strong and direct
link between executive pay and shareholder return, and to enable
executives to develop and maintain a significant, long-term stock
ownership position in the Corporation's Common Stock.
The executive officers listed in the compensation table below
receive a major portion of their compensation in the form of shares
of the Corporation's Common Stock. They receive annual grants of
stock options, priced at fair market value on the date of grant.
The number of options granted in 1998 was in the third quartile of
all companies included in industrial company survey data available
to the Committee. The factors used to award options include
overall corporate performance, industrial company percentile
rankings, base salary, and total compensation.
Compensation of Chief Executive Officer
The Committee increased Mr. Calarco's base salary to $750,000
during fiscal year 1998. The Committee believes Mr. Calarco has
continued to manage the Corporation extremely well in a
particularly challenging business climate and has achieved above
average long-term results in comparison to others in the chemical
industry. The annual stock option granted to Mr. Calarco during
1998 is consistent with the design of the Corporation's executive
compensation program as described above. In recognition of Mr.
Calarco's continued outstanding performance, the Committee in its
discretion awarded Mr. Calarco a cash bonus for 1998 of $750,000.
Tax Deductibility of Executive Compensation
The Committee's policy on the tax deductibility of
compensation paid to the Corporation's CEO and other executive
officers is to maximize deductibility to the extent possible
without abdicating all of its discretionary power. To this end,
the Committee has reviewed all of the Corporation's plans and has
taken several actions as follows. First, the Committee has assured
that the gains on non-qualified stock option grants will be
deductible by amending the 1988 Plan to place a limit on the number
of option shares that one individual may receive. The limit is 25%
of the total share authorization. Secondly, the Committee resolved
to continue the practice of not repricing options. The
Corporation's Management Incentive Plan is "performance-based"
under section 162(m) of the Internal Revenue Code. Amounts paid
under the plan will be fully deductible.
Committee on Executive Compensation
Decisions on compensation of the Corporation's executive
officers are made by the three member Committee on Executive
Compensation, a committee of the Board of Directors composed of the
persons listed below, all of whom are non-employee directors. The
Committee has retained an independent executive compensation
consultant which has access to independent compensation data to
evaluate the Corporation's executive compensation program.
The Committee on Executive Compensation:
James A. Bitonti, Chairman
Robert A. Fox
Roger L. Headrick
Notwithstanding anything to the contrary set forth in any of
the Corporation's previous filings under the Securities Act of 1933
or the Securities Exchange Act of 1934 (the "Exchange Act") that
might incorporate future filings, including this Proxy Statement,
in whole or in part, the foregoing Report of the Committee on
Executive Compensation and the following Performance Graphs shall
not be deemed incorporated by reference into any such filings.
PERFORMANCE GRAPHS
The following graph compares the cumulative total return on
the Common Stock of the Corporation for the last five fiscal years
with the returns on the Standard & Poor's 500 Stock Index and the
Standard & Poor's Specialty Chemicals Index, assuming the
investment of $100 in the Corporation's Common Stock, the S&P 500
Index and the S&P Specialty Chemicals Index on December 31, 1993,
and the reinvestment of all dividends.
12/31/93 12/31/94 12/31/95
C&K $100.00 $75.90 $64.00
S&P 500 $100.00 $101.30 $139.40
S&P Specialty Chemicals $100.00 $87.30 $114.70
12/31/96 12/31/97 12/31/98
C&K $94.60 $130.50 $103.00
S&P 500 $171.40 $228.50 $293.80
S&P Specialty Chemicals $117.70 $145.80 $124.20
The graph below shows the cumulative total return to the
Corporation's stockholders since December 31, 1984, shortly before
Mr. Calarco became President and CEO, compared with the same
indices shown on the previous graph, thus illustrating the relative
performance of the Corporation's Common Stock during Mr. Calarco's
entire tenure with the Corporation.
12/31/84 12/31/85 12/31/86
C&K $100.00 $131.50 $188.00
S&P 500 $100.00 $131.70 $156.30
S&P Specialty Chemicals $100.00 $137.00 $156.10
12/31/87 12/31/88 12/31/89
C&K $216.20 $337.00 $695.30
S&P 500 $164.50 $191.70 $252.40
S&P Specialty Chemicals $161.80 $177.10 $215.80
12/31/90 12/31/91 12/31/92
C&K $791.50 $2,031.90 $2,121.90
S&P 500 $244.50 $318.90 $343.20
S&P Specialty Chemicals $207.40 $292.20 $309.50
12/31/93 12/31/94 12/31/95
C&K $2,135.00 $1,619.90 $1,366.20
S&P 500 $377.70 $382.70 $526.40
S&P Specialty Chemicals $353.30 $308.40 $405.40
12/31/96 12/31/97 12/31/98
C&K $2,020.00 $2,786.80 $2,199.30
S&P 500 $647.20 $863.00 $1,109.60
S&P Specialty Chemicals $415.90 $515.10 $438.60
The S&P Specialty Chemicals Index companies are as follows:
Ecolab Inc., W.R. Grace & Co., Great Lakes Chemical Corporation,
Hercules, Inc., International Flavors & Fragrances Inc., Morton
International Inc., Nalco Chemical Company and Sigma-Aldrich
Corporation.
EXECUTIVE COMPENSATION
The following tables set forth information concerning
compensation paid or to be paid to the chief executive officer of
the Corporation and each of the four most highly compensated
executive officers of the Corporation other than the chief
executive officer, for services to the Corporation in all
capacities during 1996, 1997 and 1998, except as noted, and options
granted to and exercised by the same individuals during the period
indicated.
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards
Restricted Securities All Other
Name and Stock Underlying Compen-
Principal Salary Bonus Awards Options sation
Position Year ($) ($) ($)(1) (#) ($)(2)
Vincent A. Calarco....
Chairman of the Board,
President and CEO
1998 748,333 750,000 -- 250,000 170,750
1997 727,500 800,000 -- 120,000 137,271
1996 607,916 650,000 2,752,000 620,000 134,213
Charles J. Marsden....
Senior Vice President
and Chief Financial
Officer
1998 315,000 180,000 -- 75,000 60,154
1997 300,000 180,000 -- 30,000 52,649
1996 268,331 160,000 608,250 130,000 56,656
Robert W. Ackley....
Vice President,
Polymer Processing
Equipment
1998 258,750 165,000 -- 50,000 48,155
1997 244,083 165,000 -- 20,000 34,061
1996 232,583 75,000 424,000 120,000 32,190
Alfred F. Ingulli....
Vice President,
Crop Protection
1998 287,500 100,000 -- 50,000 30,588
1997 271,667 180,000(3) -- 20,000 27,853
1996 253,333 120,000 354,000 120,000 29,114
Joseph B. Eisenberg....
Vice President,
Rubber Chemicals,
EPDM, and Nitrile
Rubber
1998 261,250 130,000 -- 50,000 20,881
1997 246,000 145,000(3) -- 20,000 21,395
1996 233,500 119,000 354,000 120,000 22,881
(1) The restricted stock grants in 1996 for each of the
persons shown in the table were earned during the 1996-
1998 performance cycle by achievement of targeted returns
on capital and after-tax earnings growth during the
period. The awards earned will be distributed in common
stock of the Corporation in four equal installments, one
during each of the three years 1999-2001 and a final one
upon retirement. Should the employment of an individual
terminate after an award is earned for any reason other
than death, disability, retirement or a change in control
of the Corporation, any unvested shares will be forfeited.
Total restricted stock outstanding for the persons shown
in the table at the end of fiscal year 1998: Vincent A.
Calarco, 573,745 shares valued at $11,510,759, of which
429,745 shares valued at $8,621,759 are forfeitable;
Charles J. Marsden, 148,587 shares valued at $2,981,027,
of which 104,587 shares valued at $2,098,277 are
forfeitable; Robert W. Ackley, 97,870 shares valued at
$1,963,517, of which 70,870 shares valued at $1,421,829
are forfeitable; Alfred F. Ingulli, 42,000 shares valued
at $842,625, all of which shares are forfeitable; and
Joseph B. Eisenberg, 42,000 shares valued at $842,625, all
of which shares are forfeitable. Dividends are paid on
restricted shares from the date of grant but do not vest
and are not distributed until the underlying shares are
distributed.
(2) Includes the following amounts paid during 1998 under the
Corporation's Supplemental Medical and Dental
Reimbursement Plans (the "SMD"), the Uniroyal Chemical
Retirement Reserve Fund Plan (the "RRP"), the Uniroyal
Chemical split dollar life insurance plan (the "SDP"), the
Uniroyal Excess Cap Program (the "ECAP") or as employer
contributions under the ESOP and Crompton & Knowles
Corporation Individual Account Retirement Plan (the
("IARP") (with that portion of the ESOP and IARP
contributions in excess of the Section 401(k) and Section
415 limitations having been paid into the Corporation's
Benefit Equalization Plan): Mr. Calarco, $1,039 (SMD),
$61,936 (ESOP), $107,775 (IARP); Mr. Marsden, $5,704
(SMD), $25,200 (ESOP), $29,250 (IARP); Mr. Ackley, $1,593
(SMD), $17,600 (ESOP), $28,962 (IARP); Mr. Ingulli,
$11,950 (SDP), $6,400 (RRP), $12,238 (ECAP); and Dr.
Eisenberg, $6,684 (SDP), $6,400 (RRP), $10,154 (ECAP).
(3) Bonus applies to five quarters including fourth quarter
1996.
Option Grants In Last Fiscal Year(1)
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
Percent
Number of Total
of Options
Securities Granted to
Underlying Employees Exercise Expir-
Options in Fiscal Price ation
Name Granted(#) Year ($/Sh) Date 5% ($) 10%($)
V.A. Calarco
250,000 (2) 24.0% 14.34375 11/13/08 2,278,647.60 5,788,208.34
C.J. Marsden
75,000 (2) 7.2% 14.34375 11/13/08 683,594.28 1,736,462.50
R.W. Ackley
50,000 (2) 4.8% 14.34375 11/13/08 455,729.52 1,157,641.67
A.F. Ingulli
50,000 (2) 4.8% 14.34375 11/13/08 455,729.52 1,157,641.67
J.B. Eisenberg
40,000 (2) 3.8% 14.34375 11/13/08 364,583.62 926,113.33
__________________________
(1) An option entitles the holder to purchase one share of the
Common Stock of the Corporation at a purchase price equal to
the fair market value of the Corporation's Common Stock on the
date of grant of all of the options shown in the table. All
options are subject to expiration prior to the dates shown in
the table in case of death or termination of employment. The
purchase price for stock on the exercise of options may be
paid in cash or in shares of the Corporation's Common Stock
already owned by the option holder, or by a combination
thereof. In the event of a change in control of the
Corporation, all of the options shown in the table will
immediately become exercisable.
(2) Non-qualified options. Fifty percent of the options shown in
the table are exercisable beginning on the first anniversary
of the date of grant, and fifty percent are exercisable
beginning on the second anniversary of the date of grant.
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexer- In-the-Money Options
cised Options at at FY-End($)
FY-End(#) 12/26/98 - FMV $ .
Shares Value
Acquired on Realized Exercis- Unexer- Exercis- Unexer-
Name Exercise (#) ($)(2) able cisable able cisable
V.A. Calarco (1)
176,000 2,985,180.00 957,262 610,000 5,225,277.07 3,081,250.00
C.J. Marsden (1)
108,500 1,121,890.50 146,738 150,000 715,961.58 758,437.50
R.W. Ackley (1)
- - 168,500 120,000 640,828.13 616,250.00
A.F. Ingulli
- - 306,230 120,000 2,509,318.57 616,250.00
J.B. Eisenberg
- - 192,485 110,000 1,387,053.73 559,375.00
(1) All numbers reflect the 2-for-1 stock split on May 22, 1992.
(2) Fair market value at date of exercise less exercise price.
Compensation Committee Interlocks and Insider Participation
Messrs. Fox and Headrick served as members and Mr. Bitonti served
as Chairman of the Executive Compensation Committee of the Board during
the last completed fiscal year. No member of the Executive Compensation
Committee is a current or former officer or employee of the Corporation
or any of its subsidiaries.
Retirement Plans
Each of the persons shown in the Summary Compensation Table on page
10 is covered by a supplemental retirement agreement with the
Corporation. In the case of Messrs. Calarco and Marsden, the total
annual benefit payable under the supplemental retirement agreement to
the executive for life will be 60% and 50%, respectively, of the average
total compensation (including salary and bonus) paid to the executive
during the highest five years of the last ten years prior to the
executive's normal retirement age. In the case of Mr. Ackley, the
supplemental retirement agreement provides that the Corporation will
supplement the amount paid to Mr. Ackley under a retirement plan that
was terminated in 1982 so that the aggregate benefit paid to him
annually will equal 50% of the average total compensation (including
salary and bonus) paid to him during the highest five years of the last
ten years prior to his normal retirement age. In the case of Messrs.
Ingulli and Eisenberg, the executive's retirement benefits under each
supplemental retirement agreement supplement the benefit paid to the
executive under a Uniroyal Chemical Company, Inc. ("Uniroyal") defined
benefit pension plan so that the total annual benefit payable to the
executive will be 55% of the average total compensation (including
salary and bonus) paid to the executive during the highest five years of
the last ten years prior to the executive's retirement or, at their
election, Messrs. Ingulli and Eisenberg may receive a lump sum payment
earned under a previous supplemental retirement agreement with Uniroyal.
A supplemental benefit in a reduced amount may be payable in the
event of termination of employment prior to normal retirement age. At
any time after the date on which benefit payments commence, the
executive may elect to receive a single lump sum equal to 90% of the
actuarial equivalent of the benefit otherwise payable to the executive.
An executive may elect to have the executive's supplemental benefit
under the agreement paid in a form which will provide for the
continuation of benefits, to a beneficiary selected by the executive,
upon the executive's death after retirement. Each agreement also
provides for the payment of a reduced benefit to the executive's
beneficiary in the event of the executive's death prior to normal
retirement age and for the payment of disability benefits in addition to
those available under the Corporation's regular disability insurance
program. Benefits under each agreement are not payable if the
executive voluntarily terminates the executive's employment, unless such
termination is the result of the executive's retirement (in the case of
Messrs. Calarco, Marsden and Ackley, on or after reaching age 62) or is
with approval of the Board, and meets certain other conditions set forth
in the agreement.
The following table sets forth the estimated aggregate annual
benefit payable to each of the executives named in the table under the
executive's supplemental retirement agreement, from Uniroyal's defined
benefit pension plan and, in the case of Mr. Ackley, from a retirement
plan that was terminated in 1982, upon retirement at or after normal
retirement age based on each executive's compensation history to date
and assuming payment of such benefit in the form of a life annuity:
Estimated Annual
Name of Individual Retirement Benefit
Vincent A. Calarco.............. $721,649
Charles J. Marsden.............. 200,433
Robert W. Ackley................ 173,609
Alfred F. Ingulli............... 208,459
Joseph B. Eisenberg............. 179,685
Employment Agreements
Mr. Calarco is employed pursuant to an employment agreement which
was amended and restated in February 1988. The amended agreement
provides for Mr. Calarco's employment as Chairman of the Board,
President and Chief Executive Officer for a term of three years, with
automatic annual one-year extensions of the term unless the Corporation
gives notice at least 60 days prior to the anniversary of the date of
the agreement that the term will not be extended. The amended agreement
calls for a base salary of not less than $310,000 and for Mr. Calarco's
continued participation in employee benefit plans and other fringe
benefit arrangements substantially as in the past. In the event Mr.
Calarco's employment is terminated by the Corporation other than for
cause, disability, or death or by Mr. Calarco for good reason (as
defined in the agreement), the Corporation is obligated to pay Mr.
Calarco his salary to the date of termination, incentive compensation in
an amount no less than the bonus paid to him for the prior year
pro-rated to that date, and a lump sum termination payment equal to
three times the sum of his then current salary and the highest bonus
paid to him during the three years preceding his termination, to
continue other employee benefits provided under the agreement for a
period of three years or until he obtains other employment, and to make
certain additional payments to cover any excise tax imposed under the
Internal Revenue Code on the amounts payable as a result of his
termination and any legal fees incurred by Mr. Calarco in enforcing the
Corporation's obligations under the agreement.
The Corporation has entered into employment agreements with certain
other key management employees, including Messrs. Marsden, Ackley,
Ingulli, and Eisenberg. Each agreement is operative upon the occurrence
of a change in control (as defined in the agreement) and is intended to
encourage the executive to remain in the employ of the Corporation by
providing the executive with greater security. Absent a change in
control, the agreement does not require the Corporation to retain the
executive or to pay the executive any specified level of compensation or
benefits except that Messrs. Ingulli and Eisenberg have agreements
which require that they be paid severance payments in the event that
they are terminated without cause or they resign for good reason (as
defined in the agreements) during an annually renewable two-year period.
In the event of a change in control, the agreement provides that there
will be no change, without the executive's consent, in the salary, bonus
opportunity, benefits, duties, and location of employment of the
executive for a period of two or three years after the change in
control. If, during such period, the executive's employment is
terminated by the Corporation other than for cause, disability, or death
or the executive resigns for good reason (as defined in the agreement),
the Corporation will pay the executive his salary to the date of
termination, incentive compensation in an amount no less than the bonus
paid to the executive for the prior year pro-rated to that date, and a
lump sum severance payment equal to two or three times (depending on the
executive) the sum of the executive's base salary and the highest bonus
paid to the executive during the three years preceding the executive's
termination and will continue other employee benefits similar to those
provided to the executive prior to the executive's termination for a
period of two or three years or until the executive's earlier employment
with another employer.
APPROVAL OF THE CROMPTON & KNOWLES CORPORATION
1998 LONG TERM INCENTIVE PLAN
The 1988 Long Term Incentive Plan expired in October 1998. The
Board adopted a new plan, the 1998 Long Term Incentive Plan (the "1998
Plan") subject to approval of the stockholders. A copy of the 1998
Plan is attached as Exhibit A to this proxy statement.
The 1998 Plan authorizes the Committee on Executive Compensation
(the "Committee") to grant to eligible employees of the Corporation and
its subsidiaries, during a period of ten years from the date the Plan is
approved, stock options, stock appreciation rights ("SARs"),
restricted stock, and long term performance awards and, during the same
period, to non-employee directors of the Corporation, stock options for
up to 2,406,058 shares of Common Stock of the Corporation which were
previously authorized for issuance under the 1988 Plan and the
Corporation's 1993 Stock Option Plan for Non-Employee Directors (the
latter of which will be terminated upon approval of the 1998 Plan),
subject to adjustment for stock splits, stock dividends, and similar
events. Under the Plan, not more than thirty-five percent of the shares
reserved for the Plan may be used for any purpose other than the
granting of options. The Committee may add back into the pool of shares
reserved for the Plan shares which have been tendered to pay the
exercise price of options, tendered to satisfy tax withholding, and
those which have expired or been forfeited. The closing price of the
Common Stock of the Corporation on the New York Stock Exchange on March
25, 1999, was $15.625.
Brief Summary of the Plan
The following general description of certain features of the Plan
is qualified in its entirety by reference to Exhibit A.
Eligibility. Officers and other key employees of the Corporation
and its subsidiaries who, in the opinion of the Committee, are
responsible for the management, growth, and profitability of the
business of the Corporation and its subsidiaries, and, in the case of
stock options, non-employee directors, are eligible to be granted stock
options, SARs, restricted stock awards, and long term performance awards
under the Plan.
Administration. The Plan is administered by the Committee. The
Committee has full power to select, from among the officers and other
key employees eligible for awards, the individuals to whom awards are
granted, to make any combination of awards to any participant, and to
determine the specific terms of each grant, subject to the provisions of
the Plan.
Stock Options. The Plan permits the granting of transferable stock
options (subject to the provisions of the Plan) that either qualify as
incentive stock options under Section 422 of the Internal Revenue Code
("ISOs") or do not so qualify ("Non-Qualified Options"). The option
exercise price for each share covered by the option will, unless a
higher price is determined by the Committee, be the fair market value
of such share on date of grant. The term of each option will be fixed
by the Committee but may not exceed ten years from date of grant in the
case of an ISO or ten years and one month in the case of a Non-Qualified
Option. The Committee will determine at what time or times each option
may be exercised. An optionee may elect to defer to a future date
receipt of the shares to be acquired upon exercise of a stock option
(subject to the notice provisions in the Plan). The Committee cannot
grant options to any one individual with respect to more than twenty-
five percent (25%) of the shares of Common Stock reserved for
distribution pursuant to options or other awards under the Plan. Any
grant to a non-employee director, which must be a Non-Qualified Option,
cannot cover more than 7,500 shares in any year.
Stock Appreciation Rights. The Committee may grant SARs, either
standing alone or in conjunction with options, entitling the holder upon
exercise to receive an amount in any combination of cash or Common Stock
(as determined by the Committee) equal in value to the increase since
date of grant in the fair market value of shares covered by such right.
An SAR shall be transferable only when and to the extent that a related
Stock Option would be transferable under the Plan.
Restricted Stock. The Committee may award shares of Common Stock
which are subject to certain conditions set forth in the Plan and such
other conditions and restrictions as the Committee may determine, which
may include the attainment of performance goals, but which are
deliverable to a participant without the payment of any consideration.
Long Term Performance Awards. The Committee may grant long term
performance awards under the Plan. Such awards will be based on
corporate, business unit, or individual performance over designated
periods ("Performance Periods") of at least two years. The Committee is
authorized to grant up to 200,000 shares per year/per individual for
Long Term Performance Awards.
"Unfunded" Status. 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 facilitate or ensure payment of the Corporation's obligations,
provided that such trusts and arrangements are consistent with the
"unfunded" status of the Plan (unless the Committee otherwise
determines).
Amendment and Termination. The Board of Directors may terminate or
suspend the Plan at any time, but such termination or suspension shall
not adversely affect any stock options, SARs, restricted stock awards,
or long term performance awards then outstanding without the
participant's consent. The Board may amend the Plan but may not,
without the prior approval of the stockholders, make any amendment which
would, except as otherwise provided in the Plan, increase the number of
shares reserved for grants, decrease the minimum purchase price for
stock options, change the class of employees eligible to receive awards,
or extend the maximum term for options. The Committee may amend the
term of any award or option theretofore granted, retroactively or
prospectively, but no such amendment shall impair the rights of any
holder without the holder's consent.
Change in Control Provisions. The Plan provides that in the event
of a "Change in Control" (as defined in the Plan), unless otherwise
determined by the Committee or the Board prior to such Change in
Control, or to the extent expressly provided by the Committee or the
Board in the event of a "Potential Change in Control" (as so defined),
all stock options and related SARs (to the extent outstanding for at
least six months in the case of persons subject to Section 16(b) of the
Exchange Act) will become immediately exercisable, the restrictions and
deferral limitations applicable to outstanding restricted stock awards
will lapse and the shares in question will fully vest, the value of all
outstanding options, SARs, and restricted stock awards (except as
otherwise determined by the Committee) will be cashed out on the basis
of the highest price paid (or offered) during the preceding 60-day
period, and outstanding long term performance awards will be vested and
paid out on a prorated basis, based on the target values of such awards
and the number of months elapsed compared to the total number of months
in the Performance Period.
Federal Income Tax Aspects
The following is a brief summary of the principal Federal income
tax consequences of transactions under the 1998 Plan, based on Federal
income tax laws as presently in effect. This summary is not intended to
be exhaustive and does not describe state, local, or foreign tax
consequences.
Incentive Stock Options. No taxable income will be realized by an
optionee upon the grant or exercise of an ISO. If shares of Common
Stock are issued to an optionee pursuant to the exercise of an ISO and
if no disposition of such shares is made within two years after date of
grant or within one year after the transfer of such shares to such
optionee, then, upon the sale of such shares, any amount realized in
excess of the option price will be taxed to such optionee as a long term
capital gain and any loss sustained will be a long term capital loss and
no deduction will be allowed to the optionee's employer for Federal
income tax purposes. If no disqualifying disposition is made, the
difference between the fair market value of the shares at the time of
exercise and the exercise price will be taken into account in computing
the alternative minimum tax liability of the optionee.
Under the Internal Revenue Code of 1986, long term capital gains
may be subject to different tax rates than those that apply to ordinary
income. Capital losses must be offset against any capital gains, with
only the lesser of the excess of capital losses over capital gains or
$3,000 ($1,500 in the case of a married individual filing a separate
return) being deductible against ordinary income.
If shares of Common Stock acquired upon the exercise of an ISO are
disposed of prior to the expiration of either holding period described
above, the optionee will in most instances realize ordinary income in
the year of such disqualifying disposition in an amount equal to the
excess (if any) of the fair market value of the shares at exercise (or,
if less, the amount realized on the disposition of the shares) over the
exercise price thereof, and the optionee's employer will be entitled to
deduct such amount. Any further gain realized by the participant will
be taxed as short term or long term capital gain, as the case may be,
and will not result in any deduction by the employer.
If an ISO is exercised at a time when it no longer qualifies as an
ISO, the option will be treated as a Non-Qualified Option. Subject to
certain exceptions for disability or death, an ISO generally will not be
eligible for the tax treatment described above if it is exercised more
than three months following the termination of employment.
Non-Qualified Options. No income will be realized by an optionee
at the time a Non-Qualified Option is granted. Except as noted below,
ordinary income will be realized by the optionee upon exercise in an
amount equal to the difference between the exercise price and the fair
market value of the shares on the date of exercise, and the optionee's
employer will be entitled to a tax deduction in the same amount. At
disposition, appreciation (or depreciation) after the date of exercise
will be treated as either short term or long term capital gain (or loss)
depending on how long the shares have been held.
Stock Appreciation Rights. No income will be realized by an
optionee in connection with the grant of an SAR. When an SAR is
exercised, the optionee will in most instances be required to include as
ordinary income in the year of exercise an amount equal to the amount of
cash and the fair market value of any shares received upon exercise.
The optionee's employer will be entitled to a deduction for Federal
income tax purposes at the same time equal to the amount included in
such optionee's income by reason of the exercise. If the optionee
receives shares of Common Stock upon the exercise of an SAR, the tax
treatment after such exercise is the same as that described above with
respect to shares acquired pursuant to the exercise of a Non-Qualified
Option. Reference is also made to the material appearing under the
caption "Special Rules Applicable to Corporate Insiders" below.
Restricted Stock. A recipient of restricted stock will in most
instances be subject to tax at ordinary income rates on the amount, if
any, by which the fair market value of the restricted stock exceeds the
cost, if any, of the stock at the time the stock is no longer subject to
forfeiture. However, a recipient who makes an election under Section
83(b) of the Internal Revenue Code within 30 days of the date of grant
will have ordinary income as of such date equal to the amount, if any,
by which the fair market value of the shares of restricted stock exceeds
the cost, if any, of the stock, determined without regard to the
restrictions. If the shares subject to such election are forfeited, the
recipient will not be entitled to a deduction, refund, or loss for tax
purposes. In the case of a sale of shares after the expiration of the
forfeiture period, the holding period to determine whether the recipient
has long term or short term capital gain or loss begins upon such
expiration, and the tax basis for such shares will be equal to the fair
market value thereof on such date. However, if the recipient elects to
be taxed as of the date of grant, the holding period commences on such
date and the tax basis will be equal to the fair market value of the
shares on the date of grant, determined without regard to the
restrictions. The recipient's employer will in most instances be
entitled to a deduction equal to the amount treated as compensation to
the recipient. Dividends on restricted stock will be taxed as ordinary
income when paid to the recipient and in most instances will be treated
as additional compensation deductible by the participant's employer at
such time.
Long Term Performance Awards. Long term performance awards once
vested will in most instances be taxed as ordinary income unless receipt
of payment is subject to restrictions or deferral limitations, in which
case rules similar to those applicable to restricted stock will apply.
Special Rules Applicable to Corporate Insiders. In most instances,
persons subject to Section 16(b) of the Exchange Act will not be taxed
until six months after exercise of a Non-Qualified Option, with the
excess of the fair market value of the stock at the end of the six-month
period over the exercise price being taxed as ordinary income and the
holding period for such stock beginning at the end of the six-month
period. Similar rules apply with respect to the exercise of SAR's
settled in stock. However, an optionee who makes an election under
Section 83(b) of the Internal Revenue Code, as described above under the
caption "Restricted Stock", will be taxed on the excess of the fair
market value at exercise over the exercise price.
Payments in Respect of a Change in Control. The 1998 Plan provides
for acceleration or payment of awards and related shares in the event of
a Change in Control or Potential Change in Control. Such acceleration
or payment may cause part or all of the consideration involved to be
treated as a "parachute payment" under the Internal Revenue Code which
could subject the recipient to a 20% excise tax and which might not be
deductible by the recipient's employer.
The affirmative vote of the holders of a majority of the Common
Stock represented and entitled to vote at the meeting is required for
approval of the 1998 Plan.
The Board of Directors recommends a vote FOR approval of the 1998
Plan, and proxies will be so voted unless stockholders specify to the
contrary in their proxies or specifically abstain from voting on the
matter.
APPROVAL OF 3,000,000 ADDITIONAL SHARES FOR THE
1998 LONG TERM INCENTIVE PLAN
The Board of Directors seeks the approval of the Stockholders to
increase the number of shares of the Corporation's Common Stock reserved
for issuance under the Corporation's 1998 Long Term Incentive Plan by
3,000,000 shares. The shares would be used during the ten year life of
the 1998 Plan for the grant to eligible employees of stock options,
stock appreciation rights, restricted stock and long term performance
awards, and, in the case of non-employee directors, stock options.
The affirmative vote of the holders of a majority of the Common
Stock represented and entitled to vote at the meeting is required for
approval of 3,000,000 additional shares.
The Board of Directors recommends a vote FOR approval of 3,000,000
additional shares for the 1998 Plan, and proxies will be so voted unless
stockholders specify to the contrary in their proxies or specifically
abstain from voting on the matter.
APPROVAL OF SELECTION OF INDEPENDENT AUDITOR
The Board of Directors has, subject to ratification by the
stockholders, selected the firm of KPMG LLP, which has been the auditor
of the Corporation for many years, to act as auditor for the fiscal year
1999 and to perform other appropriate accounting services. The Board of
Directors recommends a vote for approval, and unless otherwise directed,
proxies will be voted in favor of this selection. The affirmative vote
of the holders of a majority of the shares of the Corporation
represented and entitled to vote at the meeting is required for such
approval.
The Corporation has been advised that representatives of KPMG LLP
will be present at the annual meeting, with the opportunity to make a
statement if they desire to do so and to respond to appropriate
questions raised at the meeting.
STOCKHOLDER PROPOSALS
Under rules of the Securities and Exchange Commission, any proposal
of a stockholder which is intended to be presented for action at the
annual meeting of the stockholders to be held in 2000 must be received
by the Corporation at its principal executive offices by November 27,
1999, in order to be considered for inclusion in the Proxy Statement and
form of proxy relating to the 2000 meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors and persons who own more than ten
percent of a registered class of the Corporation's equity securities to
file reports of ownership and changes in ownership with the Securities
and Exchange Commission and the New York Stock Exchange. Officers,
directors and greater than ten percent stockholders are required by SEC
regulations to furnish the Corporation with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms received by
it, or written representations from certain reporting persons that no
forms 5 were required for those persons, the Corporation believes that
during fiscal year 1998, all filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were
made in compliance with applicable SEC regulations.
OTHER MATTERS
As of the date of this statement, the Board of Directors does not
know of any matter other than those referred to in this Proxy Statement
as to which action is expected to be taken at the annual meeting of
stockholders.
The affirmative vote of the holders of a plurality of the shares
which are present in person or represented by proxy at the meeting is
required to elect directors, and the affirmative vote of the holders of
a majority of the shares which are present in person or represented by
proxy is required to approve all other matters listed in the notice of
meeting. Proxies which are marked "abstain" on the proposals to be
voted upon at the meeting will be counted for the purpose of determining
the number of shares represented in person and by proxy at the meeting.
Such proxies will thus have the same effect as if the shares represented
thereby were voted against the matters to be considered at the meeting.
Shares not voted on any such matter on proxies returned by brokers will
be treated as not represented at the meeting as to such matter.
The shares represented by proxies in the form solicited by the
Board of Directors will be voted at the meeting. Where a choice is
specified on the proxy with respect to a matter to be voted upon, the
shares represented by the proxy will be voted in accordance with the
specification so made. If no choice is specified, such shares will be
voted for (i) the election as directors of the three nominees for Class
II directorships named herein, (ii) in favor of the Crompton & Knowles
Corporation 1998 Long Term Incentive Plan , (iii) in favor of the
increase in the number of shares of the Corporation's Common Stock
reserved for issuance under the 1998 Plan by 3,000,000 shares and (iv)
in favor of the selection of KPMG LLP as auditor for fiscal year 1999.
If any business not referred to in this Proxy Statement shall
properly come before the meeting, it is intended that those persons
named as proxies will vote the proxies in accordance with their judgment
of the best interests of the Corporation and its stockholders.
The cost of solicitation will be borne by the Corporation. In
addition to solicitation by mail, the management of the Corporation may
solicit proxies personally or by telephone and has retained the firm of
D. F. King & Co., Inc. to assist in such solicitation at a fee of
$4,500. The Corporation may also request brokerage firms and other
nominees or fiduciaries to forward copies of its proxy material to
beneficial owners of stock held in their names, and the Corporation may
also reimburse such persons for reasonable out-of-pocket expenses
incurred by them in connection therewith.
By Order of the Board of Directors,
/s/John T. Ferguson II
JOHN T. FERGUSON II
Secretary
Dated: March 30, 1999
Exhibit A
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 62.
(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 Options 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. 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.
(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; or
(d) extend the maximum option periods under Section 6(b).
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 October 14, 1998, 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.
[PROXY CARD]
CROMPTON & KNOWLES CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
For Annual Meeting on April 27, 1999, at Sheraton Stamford Hotel
2701 Summer Street, Stamford, Connecticut, 11:15 A.M.
The undersigned appoints VINCENT A. CALARCO, CHARLES J. MARSDEN, and
JOHN T. FERGUSON II or any of them, with power of substitution, proxy
and attorney for the undersigned to vote all shares of stock of Crompton
& Knowles Corporation which the undersigned is entitled to vote at the
Annual Meeting of the Stockholders of said Corporation to be held on
Tuesday, April 27, 1999, and any adjournments thereof, with all powers
the undersigned would have if present, upon the proposals set forth on
the reverse side and in their discretion on all matters properly coming
before the meeting, including those described in the Notice and Proxy
Statement therefor, receipt of which is acknowledged.
This Proxy will be voted as directed, or where no direction
is given, will be voted "FOR" Proposals Nos. 1, 2, 3 and 4. If any
nominee for the Board of Directors named in the Proxy Statement is
unavailable to serve, this Proxy will be voted for such substitute
nominee as may be recommended by the Board of Directors. The Board of
Directors is not aware of other matters to come before the meeting.
CONTINUED, AND TO BE VOTED, SIGNED AND DATED ON THE REVERSE SIDE
CROMPTON & KNOWLES CORPORATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. Election of Vincent A. Calarco, Charles J. Marsden and C.A. (Lance)
Piccolo to serve for a term expiring in 2002.
FOR ALL NOMINEES WITHHOLD AUTHORITY
with exceptions noted FOR ALL NOMINEES
(To withhold authority to vote for any individual nominee, write that
nominee's name in the space provided below)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
2. Approval of the Crompton & Knowles Corporation 1998 Long Term
Incentive Plan.
FOR AGAINST ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
3. Approval to increase the number of shares of the Corporation's
Common Stock reserved for issuance under the Crompton & Knowles
Corporation 1998 Long Term Incentive Plan by 3,000,000 shares.
FOR AGAINST ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4.
4. Approval of the selection by the Board of KPMG LLP as independent
auditors for 1999.
FOR AGAINST ABSTAIN
PROXY
PLEASE MARK YOUR VOTES or X
Dated: , 1999
SIGNATURE(S) OF STOCKHOLDER(S)
Note: Signature should agree with name stenciled hereon. When signing
as executor, administrator, trustee, or attorney, please give full title
as such. For joint accounts or co-fiduciaries, all joint owners or co-
fiduciaries should sign.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
