SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the quarterly period
ended March 27, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period
from to
Commission File No. 1-4663
Crompton & Knowles Corporation
(exact name of registrant as specified in its charter)
Massachusetts 04-1218720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Station Place, Metro Center
Stamford, Connecticut 06902
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)353-5400
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at April 14, 1999
Common Stock, $.10 par value 65,448,571 shares
CROMPTON & KNOWLES CORPORATION
FORM 10-Q
FOR QUARTER ENDED MARCH 27, 1999
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements and
Accompanying Notes
. Consolidated Statements of Earnings
(unaudited) - First quarter ended 1999 and 1998
. Consolidated Balance Sheets - March 27, 1999
(unaudited) and December 26, 1998
. Consolidated Statements of Cash Flows
(unaudited) - First Quarter ended 1999 and 1998
. Notes to Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 4. Submission of Matter to a vote of Security Holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
Signatures
*Exhibit 10.1 Supplemental Retirement Agreement dated as of
March 22, 1999, by and between Vincent A.
Calarco and the Registrant.
*Exhibit 10.2 Form of Supplemental Retirement Agreement dated
as of March 22, 1999, by and between the
Registrant and six (6) of its executive
officers.
*Exhibit 27 Financial Data Schedules
* A copy of this Exhibit is annexed to this report on Form 10-Q
provided to the Securities and Exchange Commission.
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
First quarter ended 1999 and 1998
(In thousands, except per share data)
1999 1998
Net sales $ 396,292 $ 477,219
Cost of products sold 247,295 302,465
Selling, general and administrative 60,590 67,273
Depreciation and amortization 18,837 20,093
Research and development 11,308 13,163
Equity income (7,055) -
Operating profit 65,317 74,225
Interest expense 13,154 23,613
Other income (a) (40,706) (289)
Earnings before income taxes
and extraordinary loss 92,869 50,901
Income taxes 33,666 18,958
Earnings before
extraordinary loss 59,203 31,943
Extraordinary loss on early
extinguishment of debt - (1,951)
Net earnings $ 59,203 $ 29,992
Basic earnings per common share:
Earnings before
extraordinary loss $ .87 $ .43
Extraordinary loss - (.03)
Net earnings $ .87 $ .40
Diluted earnings per common share:
Earnings before
extraordinary loss $ .86 $ .42
Extraordinary loss - (.03)
Net earnings $ .86 $ .39
(a) 1999 includes a gain of $42,060 ($26,813 after-tax) from
the sale of the specialty ingredients business.
See accompanying notes to consolidated financial statements.
- 2 -
March 27, 1999 UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 27, 1999 and December 26, 1998
(In thousands of dollars)
March 27, December 26,
1999 1998
ASSETS
CURRENT ASSETS
Cash $ 18,238 $ 12,104
Accounts receivable 207,942 173,668
Inventories 323,779 334,562
Other current assets 82,309 77,422
Total current assets 632,268 597,756
NON-CURRENT ASSETS
Property, plant and equipment 445,171 473,403
Cost in excess of acquired net assets 147,892 166,184
Other assets 171,472 171,550
$ 1,396,803 $ 1,408,893
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 11,569 $ 17,305
Accounts payable 118,173 117,338
Accrued expenses 135,493 139,401
Income taxes payable 84,791 103,179
Other current liabilities 18,551 17,149
Total current liabilities 368,577 394,372
NON-CURRENT LIABILITIES
Long-term debt 686,700 646,857
Postretirement health care liability 141,300 142,727
Other liabilities 149,646 158,234
STOCKHOLDERS' EQUITY
Common stock 7,733 7,733
Additional paid-in capital 240,885 238,615
Retained earnings (deficit) 43,218 (15,985)
Accumulated other comprehensive income (49,475) (37,571)
Treasury stock at cost (190,973) (125,246)
Deferred compensation (808) (843)
Total stockholders' equity 50,580 66,703
$ 1,396,803 $ 1,408,893
See accompanying notes to consolidated financial statements.
- 3 -
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
First Quarter ended 1999 and 1998
(In thousands of dollars)
Increase (decrease) to cash 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 59,203 $ 29,992
Adjustments to reconcile net earnings
to net cash provided by operations:
Gain on sale of specialty ingredients (42,060) -
Extraordinary loss on early debt extinguishment - 1,951
Depreciation and amortization 18,837 20,093
Equity income (7,055) -
Changes in assets and liabilities, net (a) (82,102) (27,964)
Net cash provided (used) by operations (a) (53,177) 24,072
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of specialty ingredients 103,000 -
Capital expenditures (12,471) (8,662)
Other investing activities 1,862 298
Net cash provided (used) by investing activities 92,391 (8,364)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on long-term borrowings 39,843 (24,016)
Proceeds (payments) on short-term borrowings (5,736) 1,639
Premium paid on early extinguishment of debt - (2,662)
Treasury stock acquired (67,516) -
Other financing activities 169 8,928
Net cash used by financing activities (33,240) (16,111)
CASH
Effect of exchange rates on cash 160 (219)
Change in cash 6,134 (622)
Cash at beginning of period 12,104 10,607
Cash at end of period $ 18,238 $ 9,985
(a) 1999 includes tax payment of $48,190 relating to fourth
quarter 1998 Gustafson gain.
See accompanying notes to consolidated financial statements.
-4-
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The information included in the foregoing consolidated financial
statements is unaudited but reflects all adjustments which, in
the opinion of management, are necessary for a fair statement of
the results for the interim periods presented.
Included in accounts receivable are allowances for doubtful
accounts of $10.1 million in 1999 and $9.8 million at December
26, 1998.
Accumulated depreciation amounted to $424.5 million in 1999 and
$434.7 million at December 26, 1998.
Accumulated amortization of cost in excess of acquired net assets
amounted to $40.3 million in 1999 and $44.6 million at December
26, 1998.
Accumulated amortization of patents, unpatented technology,
trademarks and other intangibles included in other assets
amounted to $123.7 million in 1999 and $120.9 million at December
26, 1998.
Cash payments during the quarters ended March 27, 1999 and March
28, 1998 included interest of $12.2 million and $13.8 million,
respectively, and income taxes of $50.8 million and $6.5 million,
respectively.
It is suggested that the interim consolidated financial
statements be read in conjunction with the consolidated financial
statements and notes included in the Company's 1998 Annual Report
on Form 10-K.
CAPITAL STOCK
As of March 27, 1999, there were 77,332,751 common shares issued
at $.10 par value, of which 11,439,210 shares were held in the
treasury.
INVENTORIES
Components of inventories are as follows:
March 27, Dec. 26,
(In thousands) 1999 1998
Finished goods $227,998 $226,663
Work in process 40,315 45,237
Raw materials and supplies 55,466 62,662
$323,779 $334,562
EARNINGS PER COMMON SHARE
The computation of basic earnings per common share is based on
the weighted average number of common shares outstanding. The
computation of diluted earnings per common share is based on the
weighted average number of common and common equivalent shares
outstanding. The following is a reconciliation of the shares used
in both computations:
(In thousands) 1999 1998
Weighted average common shares outstanding 67,717 74,103
Stock options and other equivalents 1,502 2,311
Weighted average common and
common equivalent shares outstanding 69,219 76,414
BUSINESS SEGMENT DATA
The Company evaluates a segment's performance based on several
factors, of which a primary financial measure is operating
profit. In computing operating profit, the following items have
not been deducted: interest expense, other income and income
taxes. Intersegment sales are not significant.
Quarter Ended
March 27, March 28,
(In thousands) 1999 1998
SALES
Specialty Chemicals
Performance Chemicals $ 113,514 $ 113,272
Crop Protection 65,718 107,843
Colors 50,178 61,100
Other - 24,805
229,410 307,020
Polymers & Polymer Processing
Equipment
Polymers 78,735 86,590
Polymer Processing Equipment 88,147 83,609
166,882 170,199
Total net sales $ 396,292 $ 477,219
OPERATING PROFIT
Specialty Chemicals
Performance Chemicals $ 13,002 $ 14,227
Crop Protection 22,114 28,279
Colors 4,702 6,874
Other - 2,488
39,818 51,868
Polymers & Polymer Processing
Equipment
Polymers 21,407 18,350
Polymer Processing Equipment 10,812 10,366
32,219 28,716
General corporate expense ( 6,720) ( 6,359)
Total operating profit $ 65,317 $ 74,225
Segment assets in the Specialty Chemicals-Other segment declined
$64.5 million due to the disposition of the specialty ingredients
business. There are no other material changes in total assets for
any other segments from the amounts disclosed as of year-end
1998.
COMPREHENSIVE INCOME
An analysis of the Company's comprehensive income follows:
Quarter Ended
March 27, March 28,
(In thousands) 1999 1998
Net earnings $ 59,203 $ 29,992
Other comprehensive expense:
Foreign currency translation
adjustments ( 11,904) ( 3,196)
Comprehensive income $ 47,299 $ 26,796
The balance of accumulated other comprehensive income includes
accumulated translation adjustments and minimum pension liability
in the amounts of $48.5 million and $1.0 million at March 27,
1999, and $36.6 million and $1.0 million at December 26,
1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER RESULTS
Overview
Consolidated net sales of $396.3 million for the first quarter
of 1999 decreased 17% from the comparable period in 1998. After
adjusting to exclude $75 million from deconsolidated joint
ventures and the sale of the specialty ingredients business, net
sales decreased 1%, primarily as a result of lower Colors sales.
International sales, including U.S. exports, were 44% of total
sales, up from 39% in the first quarter of 1998.
Net earnings increased 97% to $59.2 million, or $.87 per share
basic and $.86 per share diluted, compared to $30.0 million, or
$.40 per share basic and $.39 per share diluted, in the first
quarter of 1998. Before after-tax special items (a $26.8
million gain from the sale of the specialty ingredients business
in 1999 and a $1.9 million extraordinary loss on early
extinguishment of debt in 1998), net earnings were $32.4
million, or $.48 per share basic and $.47 per share diluted,
compared with $31.9 million, or $.43 per share basic and $.42
per share diluted, in the prior year.
Gross margin as a percentage of sales increased to 37.6% from
36.6% in the first quarter of 1998. The increase was
attributable primarily to improved product mix and lower raw
material costs partially offset by lower pricing. Consolidated
operating profit of $65.3 million declined 12%; however,
excluding the impact of deconsolidated joint ventures and the
sale of the specialty ingredients business, operating profit was
slightly ahead of last year.
Specialty Chemicals
Performance chemicals sales of $113.5 million increased slightly
from the first quarter of 1998. Rubber chemical sales were
lower by 2% primarily due to lower pricing, while specialty
additive sales were higher by 3%. Performance chemicals
operating profit of $13.0 million decreased 9% versus the first
quarter of 1998, primarily as a result of lower pricing in
rubber chemicals.
Crop protection sales of $65.7 million decreased 39% from the
prior year primarily as a result of the deconsolidation of the
seed treatment joint venture. Excluding the $39.7 million
impact of the joint venture deconsolidation, crop protection
sales decreased 4% from the prior year as certain export sales
were delayed into the second quarter because of letter of credit
issues. Operating profit of $22.1 million decreased 22% from
the prior year primarily due to the seed treatment joint
venture. Excluding the $6.6 million impact of the joint venture
deconsolidation, operating profit was 2% higher than 1998
primarily as a result of slightly higher pricing and improved
product mix.
Colors sales of $50.2 million decreased 18% from the first
quarter of 1998 primarily as a result of weakness in the U.S.
and European textile dye markets caused by low-cost Asian
imports of dyes and apparel and particularly aggressive selling
tactics by European competitors. Lower selling prices in the
quarter account for five percent of the sales decline.
Operating profit of $4.7 million was 32% lower than the first
quarter of 1998 primarily as a result of lower sales volume and
pricing.
Other sales and operating profit decreased $24.8 million and
$2.5 million, respectively, as a result of the sale of the
specialty ingredients business effective the first day of fiscal
1999.
Polymers & Polymer Processing Equipment
Polymers sales of $78.7 million decreased 9% from 1998 primarily
as a result of the deconsolidation of the nitrile rubber joint
venture announced in November 1998. Excluding the $10.5 million
impact from the joint venture deconsolidation, polymer sales
were 4% higher than the first quarter of 1998. EPDM sales
increased 7% with 5% resulting from higher selling prices.
Urethane sales were essentially unchanged from the prior year,
but reflect a significant improvement from the 6% decline in the
fourth quarter of 1998. Operating profit of $21.4 million
increased 17% over the prior year primarily as a result of
higher sales volume, improved pricing and lower raw material
costs.
Polymer processing equipment sales of $88.2 million were 5%
higher than the first quarter of 1998 despite lower pricing of
2%. Operating profit of $10.8 million was 4% higher than 1998
as lower selling prices and an unfavorable product mix
restrained operating margin growth during the quarter. The
equipment order backlog at the end of the first quarter was $118
million, unchanged from year-end 1998.
Other
Selling, general and administrative expenses of $60.6 million
decreased 10% versus the first quarter of 1998 primarily due to
the impact of the deconsolidation of the joint ventures and the
sale of the specialty ingredients business. Depreciation and
amortization (down 6%) and research and development costs (down
14%) also declined as a result of the joint venture
deconsolidations and the sale of the specialty ingredients
business. Equity income of $7.1 million in the first quarter of
1999 was primarily attributable to the seed treatment joint
venture. Interest expense of $13.2 million decreased 44%
primarily due to lower levels of indebtedness and lower interest
cost on borrowings used to redeem high cost debt in 1998. Other
income of $40.7 million includes a gain in the amount of $42.1
million from the sale of the specialty ingredients business
offset partially by $1.2 million in fees related to the accounts
receivable securitization program. The effective tax rate of
36.3% compares favorably with 37.2% in the comparable 1998
quarter.
LIQUIDITY AND CAPITAL RESOURCES
The March 27, 1999 working capital balance of $263.7 million
increased $60.3 million from the year-end 1998 balance of $203.4
million, while the current ratio increased to 1.7 from 1.5. The
increase was primarily due to a seasonal increase in accounts
receivable of the crop protection business and to a $48.2
million income tax payment relating to the 1998 Gustafson gain.
Days sales in receivables averaged 44 days in the first quarter
of 1999, versus 54 days in the same quarter of 1998, principally
due to the impact of the accounts receivable securitization
program initiated in December 1998. Inventory turnover averaged
2.9, versus 3.3 in the same quarter of 1998, primarily as a
result of the joint venture deconsolidations.
Net cash flow used by operations in the first quarter of 1999
was $53.2 million compared to cash flow provided by operations
of $24.1 million in 1998, primarily due to the tax payment on
the 1998 Gustafson gain and other working capital requirements.
Cash provided from the sale of the specialty ingredients
business and additional borrowings under the company's revolving
credit agreement were used primarily to fund common share
repurchases, capital expenditures, the income tax payment
related to the 1998 Gustafson gain and other working capital
requirements. The Company's debt to total capital increased to
93% from 91% at year-end 1998. The Company's liquidity needs,
including debt servicing, are expected to be financed from
operations. The Company has available a revolving credit
agreement providing for borrowings of $545 million through
September 2003. Borrowings under the agreement amounted to
$328.7 million at March 27, 1999 and carried a weighted average
interest rate of 5.7%. In addition, the Company has available
an accounts receivable securitization program to sell up to $82
million of domestic accounts receivable to an agent bank. As of
March 27, 1999, $80 million of domestic accounts receivable had
been sold under this agreement.
In September 1998, the Company announced a share repurchase
program to buy back 7.5 million shares or approximately 10% of
the common shares then outstanding. The program was completed
in early 1999 and in January 1999, the Company announced another
share repurchase program for 6.8 million shares, or
approximately 10% of the common shares then outstanding. During
the first quarter of 1999, the Company repurchased 3.7 million
common shares and from September 1998 to date, has repurchased
9.5 million shares at an average cost of $17.85 per share.
Capital expenditures are expected to approximate $70 million in
1999, primarily for replacement needs and improvement of
domestic and foreign facilities.
MARKET RISK
At March 27, 1999, the Company had an interest rate lock
contract ("Interest Hedge") outstanding with a major financial
institution for $230 million at a rate of 6.04%. The Interest
Hedge expires on September 1, 2000. The settlement amount will
be based on the difference between the rate of 6.04% and the 10
year Treasury rate at the expiration date. A settlement of the
fair market value of the Interest Hedge as of March 27, 1999
would require a payment of approximately $11 million, compared
to a required estimated payment of $17 million at year-end 1998.
The fair market value of long-term debt is subject to interest
rate risk. The Company's long-term debt amounted to $686.7
million at March 27, 1999. The fair market value of such debt
was $710.2 million, and with respect to notes, has been
determined based on quoted market prices.
YEAR 2000 ISSUES
The Company has assessed and continues to assess its Information
Technology ("IT") infrastructures including those systems that
are typically viewed as non-IT systems to determine and address
any potential problems that may result from Year 2000 compliance
issues. As generally known, Year 2000 compliance issues pertain
to the ability of computerized systems to recognize and process
date sensitive information beginning January 1, 2000. The
Company has performed this assessment over the last two years
and has been implementing appropriate steps to be Year 2000
compliant in both its IT and non-IT systems.
Under the Company's current environment, IT systems include
mission critical applications that directly support the
Company's operations. These IT systems also include networked
personal computers running desktop applications. Typical non-IT
systems within the Company's environment include process
controls and other microcontrollers containing imbedded computer
chips. The Company has completed its assessment of its non-IT
systems and is aggressively undertaking measures to remedy such
systems. The Company expects to complete this remediation and
testing by October 1999.
The Company employs a number of major mission critical IT
systems in its Specialty Chemicals and Polymers businesses.
These systems are currently being upgraded and tested to
address Year 2000 compliance issues and the Company expects
this to be completed by mid-1999.
The Company's Polymer Processing Equipment business is supported
by a legacy system that runs on a mid-range computer system.
This system has been reworked and tested, and the Company
believes that it is now Year 2000 compliant. The Company has
assessed all other IT systems including non-IT systems in this
business segment and has undertaken necessary steps to address
any Year 2000 compliance issues. This business currently sells
equipment controls containing programs and microchips. The
Company believes that these products which are used in the
operation of extrusion machinery are Year 2000 compliant.
The Company has operations in Europe, Asia Pacific, and Latin
America supported by IT systems operating on mid-range
computers. The Company is presently upgrading these IT systems
to address Year 2000 compliance and expects to complete this
upgrade by mid-1999.
The Company is actively looking into the overall Year 2000
readiness of its major business partners including vendors,
suppliers, and service providers in order to determine that the
Company's operations will not be disrupted in the event that any
such third party failed to have Year 2000 compliant systems.
The Company has received assurances from nearly all of the major
business entities that it conducts business with that these
entities will be able to conduct business beyond January 1,
2000, without any disruption. The Company continues to provide
status information of its Year 2000 compliance effort to its
customers and assures its customers that the Company's IT
infrastructure will continue to function properly beyond
January 1, 2000.
The Company has spent approximately $5.0 million to assess and
correct Year 2000 compliance issues in its IT infrastructure
through March 27, 1999. The Company estimates that it will spend
an additional $1.4 million to complete the remediation of Year
2000 compliance issues in its IT infrastructure. The Company is
committed to allocate funds to remediate any other Year 2000
compliance issues in the course of its ongoing assessment of its
IT infrastructure. Year 2000 compliance costs are not expected
to have a material effect on the Company's results of
operations.
The Company does not expect to have any material risk exposure
emanating from its internal IT infrastructure. While it is not
expected to occur, failure of the Company's suppliers and key
customers to address Year 2000 compliance could have a material
adverse impact on the Company's operations. In particular,
failure of the Company's energy and telecommunication suppliers
to address Year 2000 compliance could have a material adverse
impact on the Company's operations. The Company is continuing to
assess its efforts to mitigate any potential risk associated
with Year 2000 compliance and is actively pursuing the
development of appropriate contingency plans when needed.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities." The Company plans to adopt this statement
in the first quarter of 2000.
ENVIRONMENTAL MATTERS
The Company is involved in claims, litigation, administrative
proceedings and investigations of various types in a number of
jurisdictions. A number of such matters involve claims for a
material amount of damages and relate to or allege environmental
liabilities, including clean-up costs associated with hazardous
waste disposal sites, natural resource damages, property damage
and personal injury. The Company and some of its subsidiaries
have been identified by federal, state or local governmental
agencies, and by other potentially responsible parties (each a
"PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or
comparable state statutes, as a PRP with respect to costs
associated with waste disposal sites at various locations in the
United States. In addition, the Company is involved with
environmental remediation and compliance activities at some of
its current and former sites in the United States and abroad.
Each quarter, the Company evaluates and reviews estimates for
future remediation and other costs to determine appropriate
environmental reserve amounts. For each site, a determination
is made of the specific measures that are believed to be
required to remediate the site, the estimated total cost to
carry out the remediation plan, the portion of the total
remediation costs to be borne by the Company and the anticipated
time frame over which payments toward the remediation plan will
occur. As of March 27, 1999, the Company's accrual for
environmental remediation activities totaled $93 million. It is
reasonably possible that the Company's estimates for
environmental remediation liabilities may change in the future
should additional sites be identified, further remediation
measures be required or undertaken, the interpretation of
current laws and regulations be modified or additional
environmental laws and regulations be enacted.
The Company intends to assert all meritorious legal defenses and
all other equitable factors which are available to it with
respect to the above matters. The Company believes that the
resolution of these environmental matters will not have a
material adverse effect on the consolidated financial position
of the Company. While the Company believes it is unlikely, the
resolution of these environmental matters could have a material
adverse effect on the Company's consolidated results of
operations in any given year if a significant number of these
matters are resolved unfavorably.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Form 10-Q report are forward
looking statements that involve risks and uncertainties. These
statements are based on currently available information and the
Company's actual results may differ significantly from the
results discussed. Investors are cautioned that there can be no
assurances that the actual results will not differ materially
from those suggested in such forward-looking statements.
PART II. OTHER INFORMATION:
Item 4. Submission of Matter to a Vote of Security Holders
(a) The Annual Meeting of the Stockholders was held
on April 27, 1999
(b) Proxies for the Annual Meeting were solicited
pursuant to Regulation 14A under the Securities
Exchange Act of 1934, there was no solicitation
in opposition to the nominees for the Board of
Directors as listed in the Proxy Statement, and
all of such nominees were elected.
(c) A brief description of each matter voted upon at
the Annual Meeting, and the results of voting,
are as follows:
1. Election of three (3) Directors to serve for a term
expiring in 2002:
FOR WITHHELD
Vincent A. Calarco 56,520,603 shares 903,348 shares
Charles J. Marsden 56,560,663 shares 863,288 shares
C.A. Lance Piccolo 56,554,781 shares 869,170 shares
Other Directors whose terms of office as directors continue
after the Annual Meeting of Stockholders include James A.
Bitonti, Robert A. Fox, Roger L. Headrick, Leo I. Higdon,
Jr., and Patricia K. Woolf Ph.D.
2. The approval of the Crompton & Knowles Corporation 1998 Long
Term Incentive Plan.
FOR AGAINST ABSTAINED
39,421,567 shares 9,212,282 shares 198,844 shares
BROKER NONVOTES
8,591,258 shares
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 ABSTAINED
38,133,830 shares 10,460,170 shares 238,693 shares
BROKER NONVOTES
8,591,258 shares
4. Approval of the selection by the Board of Directors of
an independent auditor for 1999.
FOR AGAINST ABSTAINED
57,111,842 shares 245,901 shares 66,208 shares
Item 5. Other information
The Company announced certain changes in executive officer
positions which became effective May 1, 1999. Charles J. Marsden,
former Senior Vice President and Chief Financial Officer of the
Company, became its Senior Vice President, Strategy &
Development. Peter Barna, former Vice President, Finance of the
Company, became its Vice President, Finance and Chief Financial
Officer.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
10.1*+ Supplemental Retirement Agreement
dated as of March 22, 1999, by and
between Vincent A. Calarco and the
Registrant.
10.2*+ Form of Supplemental Retirement
Agreement dated as of March 22,
1999, by and between the Registrant
and six (6) of its executive
officers.
27* Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
For which this report is filed.
* A copy of this Exhibit is annexed to this report on
Form 10-Q provided to the Securities and Exchange
Commission.
+ This exhibit is a compensatory plan, contract or
arrangement in which one or more directors or
executive officers of the Registrant participate.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
CROMPTON & KNOWLES CORPORATION
(Registrant)
May 11, 1999 By:/s/ Peter Barna
Peter Barna
Vice President, Finance and
Chief Financial Officer
May 11, 1999 By:/s/ John T. Ferguson II
John T. Ferguson II
Vice President, General
Counsel and Secretary
EXHIBIT 10.1
SUPPLEMENTAL RETIREMENT AGREEMENT
THIS AGREEMENT dated as of March 22, 1999 ("Agreement"), by and between
______________ of ________, __ ("Employee") and Crompton & Knowles
Corporation, a Massachusetts corporation ("Corporation").
WITNESSETH:
WHEREAS, the Corporation and the Employee are parties to a Supplemental
Retirement Agreement dated as of October 18, 1995; and
WHEREAS, the Corporation and the Employee wish to amend and restate in
its entirety the aforementioned Supplemental Retirement Agreement;
NOW, THEREFORE, the Employee and the Corporation hereby agree that the
Supplemental Retirement Agreement between the Employee and the Corporation
dated as of October 18, 1995 shall be amended and restated in its entirety to
read as follows:
1. The Corporation has entered into this Agreement to induce the
Employee to continue in its employ, recognizing that in the case of a limited
number of key executive employees, including the Employee, the ordinary
retirement benefits provided under the Corporation's retirement system do not
afford sufficient incentive in terms of economic security, when compared with
retirement arrangements available from other prospective employers who have
been, are, or may be competing for their services. Nothing herein shall be
deemed a contract of employment for any minimum fixed term, or shall restrict
the freedom of the Corporation or the Employee to terminate the employment
relationship between them at any time.
2. All references herein to the Corporation shall be deemed to
include any subsidiary corporation as to which the Corporation owns, directly
or indirectly, one hundred percent of the voting stock.
3. For the purposes of this Agreement, the following terms shall have
the following meanings:
(a) "Normal Retirement Date" shall mean the first day of the
first full month commencing on or after the Employee's sixty-second (62nd)
birthday.
(b) "Compensation" shall mean all of the Employee's cash
compensation for a calendar year, including salary, any amount contributed by
the Employee to a cash or deferred plan under Section 401(k) of the Internal
Revenue Code of 1986, as amended from time to time, and any incentive
compensation award or bonus with respect to such year (even if paid in a
subsequent year), but excluding any incentive compensation award or bonus paid
during such year with respect to a prior year and extraordinary earnings such
as insurance costs or gains on exercise of stock options.
(c) "Actuarial Equivalent" shall mean an amount of equivalent
value computed on the basis of the actuarial assumptions used from time to
time by the actuarial consultants employed by the Corporation in connection
with its employee benefit plans, but using an interest assumption which is not
less than the Pension Benefit Guaranty Corporation interest assumption in
effect at the beginning of the month as of which the computation is made.
(d) "Company Plan Benefit" shall mean the amount of benefit
payable to or for the account of the Employee from the Corporation's
Individual Account Retirement Plan or any other retirement plan sponsored by
the Corporation which may hereafter be adopted in lieu of or in addition to
said Individual Account Retirement Plan.
(e) "Cause" shall mean (i) the Employee's willful and continued
failure to substantially perform assigned duties with the Corporation (other
than any such failure resulting from incapacity due to physical or mental
illness or any such actual or anticipated failure resulting from termination
for Good Reason), after a demand for substantial performance is delivered to
the Employee by the Board of Directors of the Corporation, specifically
identifying the manner in which the Board believes that the duties have not
been substantially performed, or (ii) the Employee's willful conduct which is
demonstrably and materially injurious to the Corporation. For purposes of
this sub-paragraph (e), no act, or failure to act, shall be considered
"willful" unless done, or omitted to be done, not in good faith and without
reasonable belief that such action or omission was in the best interest of the
Corporation.
(f) "Good Reason" shall mean (i) the assignment to the Employee
of any duties inconsistent in any respect with the Employee's position
(including status, offices, titles, and reporting requirements), authority,
duties, or responsibilities as contemplated by any Employment Agreement
between the Employee and the Corporation, or any other action by the
Corporation which results in a diminishment in such position, authority,
duties, or responsibilities, other than an insubstantial and inadvertent
action which is remedied by the Corporation promptly after receipt of notice
thereof given by the Employee; (ii) any failure by the Corporation to comply
with any of the provisions of any Employment Agreement between the Employee
and the Corporation, other than an insubstantial and inadvertent failure which
is remedied by the Corporation promptly after receipt of notice thereof given
by the Employee; (iii) any change not concurred in by the Employee in the
location of the office at which the Employee is principally based, except for
travel reasonably required in the performance of the Employee's
responsibilities and substantially consistent with prior business travel
obligations of the Employee; or (iv) any purported termination by the
Corporation of the Employee's employment otherwise than as permitted by any
Employment Agreement between the Employee and the Corporation.
(g) "Change in Control" shall mean a change in control of the
Corporation 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 date of this
Agreement, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (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 any employee benefit plan of the Corporation, becomes the
beneficial owner, directly or indirectly, of 20% or more of the combined
voting power of the Corporation's outstanding voting securities ordinarily
having the right to vote for the election of directors of the Corporation;
(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 Corporation (the "Board" generally and, as of the date of
this Agreement, 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 date hereof whose election, or nomination for
election by the Corporation'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 Corporation, 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 Corporation shall cease to be a publicly
owned corporation having its outstanding Common Stock listed on the New York
Stock Exchange, the NASDAQ Stock Market or the American Stock Exchange.
4. If, prior to his Normal Retirement Date, the Employee shall
voluntarily terminate his employment with the Corporation without Good Reason
or his employment shall be terminated by the Corporation for Cause, he shall
thereby forfeit all rights and benefits under this Agreement. If the
employment of the Employee shall be terminated on or after his Normal
Retirement Date, the Employee shall voluntarily terminate his employment for
Good Reason or the employment of the Employee shall be terminated by the
Corporation without Cause, this Agreement shall continue in full force and
effect, and the Employee shall become entitled to the rights and benefits
hereinafter set forth upon the occurrence of the events respectively giving
rise thereto.
5. If the Employee shall remain in the employ of the Corporation
until and shall reach his Normal Retirement Date, he shall be entitled to
receive a supplemental retirement benefit under this Agreement which shall be
at an annual rate equal to sixty percent (60%) of the Employee's average
annual Compensation during those five (5) calendar years in which such
Compensation was highest during the ten (10) calendar years immediately
preceding his actual retirement date. Such supplemental retirement benefit
shall commence on the Employee's actual retirement date and shall be payable
in one of the benefit payment forms described in paragraph 9, as the Employee
shall elect.
6. If the Employee's employment by the Corporation shall be
terminated (other than by reason of his death or disability or following a
Change in Control as described in paragraph 7 of this Agreement) prior to his
Normal Retirement Date under circumstances not resulting in his forfeiture of
benefits and rights under paragraph 4 of this Agreement, he shall be entitled
to receive a reduced supplemental retirement benefit under this Agreement
which shall be at an annual rate computed as follows:
(a) There shall first be determined the amount which is equal to
sixty percent (60%) of the Employee's average annual Compensation during those
five (5) calendar years in which such Compensation was highest during the ten
(10) calendar years immediately preceding the year in which the termination of
his employment occurs.
(b) The amount thus determined shall be multiplied by a fraction
in which the numerator shall be the number of full years of continuous service
the Employee shall have completed with the Corporation prior to the
termination of his employment and the denominator shall be the number of full
years of continuous service he would have completed had he remained in the
continuous service of the Corporation until his Normal Retirement Date.
Such reduced supplemental retirement benefit shall commence on the first day
of the month following the Employee's termination of employment and shall be
payable in one of the benefit payment forms described in paragraph 9, as the
Employee shall elect.
7. Anything in paragraphs 4 or 6 of this Agreement to the contrary
notwithstanding, if, prior to his Normal Retirement Date but after a Change in
Control of the Corporation shall have occurred, the Corporation shall
terminate the Employee's employment other than for Cause, disability, or death
or the employment of the Employee shall be terminated voluntarily by the
Employee for Good Reason, he shall be entitled to elect to receive one of the
following supplemental retirement benefits:
(a) A supplemental retirement benefit which shall be at an
annual rate equal to sixty percent (60%) of the Employee's average annual
Compensation during those five (5) calendar years in which such Compensation
was highest during the ten (10) calendar years immediately preceding the year
in which the termination of his employment occurs. Such supplemental
retirement benefit shall commence on the first day of the month following the
month in which the Employee attains age 62 and shall be payable in one of the
benefit payment forms described in paragraph 9, as the Employee shall elect;
or
(b) A lump sum payment in an amount which shall be the single
sum Actuarial Equivalent value as of the date of termination of the Employee's
employment by the Corporation of the benefit to which the Employee would have
been entitled if the Employee had elected to be paid a supplemental retirement
benefit under paragraph 7(a) of this Agreement. Such supplemental retirement
benefit shall be paid to the Employee not later than fifteen (15) days
following the date of termination of the Employee's employment by the
Corporation.
8. If in the opinion of the Corporation the Employee becomes totally
and permanently disabled at any time while in the employment of the
Corporation, he shall become entitled to a disability benefit which shall be
at an annual rate equal to the amount by which
(a) seventy-five percent (75%) of the Employee's average annual
Compensation during those five (5) calendar years in which such Compensation
was highest during the ten (10) calendar years preceding the year in which his
disability occurs
exceeds
(b) the annual benefit which the Employee would be entitled to
receive under the Corporation's long term disability insurance program if he
was then eligible for benefits thereunder (regardless of whether he
participates in said program);
provided, however, that if the Employee is not entitled to receive any benefit
under said program, the disability benefit to which he is entitled hereunder
shall be in an amount equal to forty percent (40%) of the Employee's average
annual Compensation determined as provided in sub-paragraph (a) above, and
provided further that the disability benefit to which the Employee is entitled
hereunder shall in no event be less than five percent (5%) of his average
annual Compensation determined as provided in sub-paragraph (a) above. Such
disability benefit shall be payable in equal monthly installments, the first
payment to be made on the first day of the month following that in which the
Employee's salary is terminated because of such disability, and payments shall
be made on the first day of each month thereafter so long as such total
disability subsists and the Employee lives; provided, however, if the Employee
lives until his Normal Retirement Date, he may thereupon elect to receive, in
lieu of the disability benefit he had been receiving under this paragraph, the
supplemental retirement benefit to which he would then be entitled under
paragraph 6 if his employment by the Corporation had terminated other than by
reason of disability on the date his disability occurred.
9. The normal form in which the benefit payable under paragraphs 5, 6
or 7(a) of this Agreement shall be paid shall be a monthly benefit payable for
life and without refund. In lieu of such normal benefit payment form, the
Employee may elect to receive his benefit hereunder in the form of a monthly
benefit payable for life with a period certain of up to 180 months, in the
form of a monthly benefit payable for a period certain, or in the form of a
monthly benefit payable for life with continuation of such payments (or a
specified percentage thereof) to such beneficiary as the Employee may
designate for the life of such beneficiary ("Joint and Survivor Annuity").
The amount of benefit payable under each such alternative benefit payment form
shall be the Actuarial Equivalent of the benefit payable in the normal form to
which the Employee would otherwise be entitled hereunder. Any election of an
alternative benefit payment form shall be made in writing and may be changed
or rescinded by the Employee at any time prior to the date on which benefit
payments are to commence. The Employee shall have the right to designate in
writing the beneficiary or beneficiaries to receive the benefit, if any, which
is payable under any benefit payment form after the Employee's death and may
change his designation of beneficiary from time to time, at any time prior to
the date on which benefit payments are to commence. If there shall be no
beneficiary designated and surviving at the Employee's death, the estate of
the Employee shall be the beneficiary. Whenever any benefits hereunder become
payable to the beneficiary of the Employee, the Corporation may, in its
discretion, authorize payment of such benefits to the beneficiary in a single
lump sum which is the Actuarial Equivalent of such benefits.
Anything in this paragraph 9 to the contrary notwithstanding, at any
time after the date on which benefit payments commence, the Employee may elect
to receive his benefits hereunder in a single lump sum in an amount which is
equal to 90% of the Actuarial Equivalent of the benefit payable in the normal
form to which the Employee is otherwise entitled hereunder on the date as of
which such election is made.
10. If the Employee shall die while currently receiving a benefit
under the provisions of paragraphs 5, 6 or 7(a) of this Agreement and the
Employee shall have elected a benefit payment form other than a monthly
benefit payable for life with no period certain, any benefits payable after
his death shall be paid to his beneficiary in accordance with the provisions
of the benefit payment form elected by the Employee. If the Employee shall
die after having reached his Normal Retirement Date but prior to his actual
retirement date and the Employee shall have elected a benefit payment form
other than a monthly benefit payable for life with no period certain, benefits
shall be paid to his beneficiary as if the Employee had commenced to receive
benefits hereunder on the first day of the month in which his death occurred.
If the Employee shall die while in the active employ of the Corporation but
prior to his Normal Retirement Date, or if the Employee shall die after having
become entitled to receive a disability benefit under paragraph 8 but prior to
his Normal Retirement Date, a death benefit shall be paid to the Employee's
beneficiary, in lieu of any other benefit under this Agreement, which shall be
at an annual rate equal to fifty percent (50%) of the Employee's average
annual Compensation during those five (5) calendar years in which such
Compensation was highest during the ten (10) calendar years immediately
preceding the year in which his death occurs or the year in which his
disability occurred, as the case may be. Such death benefit, which shall be
in addition to any Company Plan Benefit or benefits under any group life
insurance plan sponsored by the Corporation which is payable on account of the
Employee's death, shall be payable in equal monthly installments beginning on
the first day of the month following that in which the death of the Employee
occurs and continuing thereafter for a period certain of 120 months; provided
that the Beneficiary entitled thereto may elect to have such benefit paid in
any of the forms described in paragraph 9, except a Joint and Survivor
Annuity, in an amount which is the Actuarial Equivalent of the form of benefit
otherwise payable under this paragraph.
If the Employee shall die after having become entitled to a benefit
under paragraph 7(a) hereof but prior to attaining age 62, a death benefit
shall be paid to the Employee's beneficiary, in lieu of any other benefit
under this Agreement, which shall be the single sum Actuarial Equivalent value
as of the Employee's death of the benefit to which he would have been entitled
had he survived to age 62. Such death benefit shall be payable in a lump sum
as soon as practicable after the Employee's death; provided that the
beneficiary entitled thereto may elect to have such death benefit paid in any
of the forms described in paragraph 9 except a Joint and Survivor Annuity.
11. Anything in this Agreement to the contrary notwithstanding, if at
any time following termination of his employment with the Corporation the
Employee shall directly or indirectly compete with the Corporation (which
shall be deemed to include any subsidiary or affiliate of the Corporation),
whether as an individual proprietor or entrepreneur or as an officer,
employee, partner, stockholder, or in any capacity connected with any
enterprise, in any business in which the Corporation is engaged at the time of
the termination of the Employee's employment within any state or possession of
the United States of America or any foreign country within which business is
then specifically planned by the Corporation to be conducted, the Corporation
may suspend the payment of any benefits hereunder to the Employee until such
competition shall have ceased, and in the event such competition by the
Employee shall not have ceased to the satisfaction of the Corporation within
90 days after the Corporation shall have given written notice to the Employee
to cease the conduct thereof, the Corporation may at any time thereafter
terminate its obligations under this Agreement. For the purpose of the
preceding sentence, conducting business, doing business, or engaging in
business shall be deemed to embrace sales to customers or performance of
services for customers who are within a relevant geographical area, without
any necessity of any presence of the Corporation therein. Nothing herein,
however, shall prohibit the Employee from acquiring or holding any issue of
stock or securities of any company which has any securities listed on a
national exchange or quoted in the daily listing of over-the-counter market
securities, provided that at any one time he and members of his immediate
family do not own more than five percent (5%) of the voting securities of any
such company.
12. This Agreement is an unfunded plan maintained for the purpose of
providing deferred compensation for one of a select group of management or
highly compensated employees for purposes of Title I of the Employee
Retirement Income Security Act of 1974. The Corporation will make all benefit
payments hereunder solely on a current disbursement basis out of the general
assets of the Corporation, including without limitation from assets held in
any grantor trust established by the Corporation for the purpose of making
some or all of such payments.
13. This Agreement shall bind and run to the benefit of the
successors and assigns of the Corporation, including any corporation or other
form of business organization with which it may merge or consolidate or to
which it may transfer substantially all of its assets.
14. The rights of the Employee under this Agreement shall not be
assigned, hypothecated, or otherwise transferred in any manner.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the Employee has hereunto signed his name and
Crompton & Knowles Corporation has caused this instrument to be executed in
its name and on its behalf by its duly authorized officer, as of the 22 day of
March, 1999.
________________________________
Employee
CROMPTON & KNOWLES CORPORATION
By:______________________________
Its:
EXHIBIT 10.2
FORM OF SUPPLEMENTAL RETIREMENT AGREEMENT
THIS AGREEMENT dated as of March 22, 1999 ("Agreement"), by and between
____________ of _________, __ ("Employee") and Crompton & Knowles Corporation,
a Massachusetts corporation ("Corporation").
WITNESSETH:
WHEREAS, the Corporation and the Employee are parties to a Supplemental
Retirement Agreement dated as of October 18, 1995; and
WHEREAS, the Corporation and the Employee wish to amend and restate in
its entirety the aforementioned Supplemental Retirement Agreement;
NOW, THEREFORE, the Employee and the Corporation hereby agree that the
Supplemental Retirement Agreement between the Employee and the Corporation
dated as of October 18, 1995 shall be amended and restated in its entirety to
read as follows:
1. The Corporation has entered into this Agreement to induce the
Employee to continue in its employ, recognizing that in the case of a limited
number of key executive employees, including the Employee, the ordinary
retirement benefits provided under the Corporation's retirement system do not
afford sufficient incentive in terms of economic security, when compared with
retirement arrangements available from other prospective employers who have
been, are, or may be competing for their services. Nothing herein shall be
deemed a contract of employment for any minimum fixed term, or shall restrict
the freedom of the Corporation or the Employee to terminate the employment
relationship between them at any time.
2. All references herein to the Corporation shall be deemed to
include any subsidiary corporation as to which the Corporation owns, directly
or indirectly, one hundred percent of the voting stock.
3. For the purposes of this Agreement, the following terms shall have
the following meanings:
(a) "Normal Retirement Date" shall mean the first day of the
first full month commencing on or after the Employee's sixty-second (62nd)
birthday.
(b) "Compensation" shall mean all of the Employee's cash
compensation for a calendar year, including salary, any amount contributed by
the Employee to a cash or deferred plan under Section 401(k) of the Internal
Revenue Code of 1986, as amended from time to time, and any incentive
compensation award or bonus with respect to such year (even if paid in a
subsequent year), but excluding any incentive compensation award or bonus paid
during such year with respect to a prior year and extraordinary earnings such
as insurance costs or gains on exercise of stock options.
(c) "Actuarial Equivalent" shall mean an amount of equivalent
value computed on the basis of the actuarial assumptions used from time to
time by the actuarial consultants employed by the Corporation in connection
with its employee benefit plans, but using an interest assumption which is not
less than the Pension Benefit Guaranty Corporation interest assumption in
effect at the beginning of the month as of which the computation is made.
(d) "Company Plan Benefit" shall mean the amount of benefit
payable to or for the account of the Employee from the Corporation's
Individual Account Retirement Plan or any other retirement plan sponsored by
the Corporation which may hereafter be adopted in lieu of or in addition to
said Individual Account Retirement Plan.
(e) "Cause" shall mean (i) the Employee's willful and continued
failure to substantially perform assigned duties with the Corporation (other
than any such failure resulting from incapacity due to physical or mental
illness or any such actual or anticipated failure resulting from termination
for Good Reason), after a demand for substantial performance is delivered to
the Employee by the Board of Directors of the Corporation, specifically
identifying the manner in which the Board believes that the duties have not
been substantially performed, or (ii) the Employee's willful conduct which is
demonstrably and materially injurious to the Corporation. For purposes of
this sub-paragraph (e), no act, or failure to act, shall be considered
"willful" unless done, or omitted to be done, not in good faith and without
reasonable belief that such action or omission was in the best interest of the
Corporation.
(f) "Good Reason" shall mean (i) the assignment to the Employee
of any duties inconsistent in any respect with the Employee's position
(including status, offices, titles, and reporting requirements), authority,
duties, or responsibilities as contemplated by any Employment Agreement
between the Employee and the Corporation, or any other action by the
Corporation which results in a diminishment in such position, authority,
duties, or responsibilities, other than an insubstantial and inadvertent
action which is remedied by the Corporation promptly after receipt of notice
thereof given by the Employee; (ii) any failure by the Corporation to comply
with any of the provisions of any Employment Agreement between the Employee
and the Corporation, other than an insubstantial and inadvertent failure which
is remedied by the Corporation promptly after receipt of notice thereof given
by the Employee; (iii) any change not concurred in by the Employee in the
location of the office at which the Employee is principally based, except for
travel reasonably required in the performance of the Employee's
responsibilities and substantially consistent with prior business travel
obligations of the Employee; or (iv) any purported termination by the
Corporation of the Employee's employment otherwise than as permitted by any
Employment Agreement between the Employee and the Corporation.
(g) "Change in Control" shall mean a change in control of the
Corporation 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 date of this
Agreement, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (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 any employee benefit plan of the Corporation, becomes the
beneficial owner, directly or indirectly, of 20% or more of the combined
voting power of the Corporation's outstanding voting securities ordinarily
having the right to vote for the election of directors of the Corporation;
(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 Corporation (the "Board" generally and, as of the date of
this Agreement, 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 date hereof whose election, or nomination for
election by the Corporation'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 Corporation, 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 Corporation shall cease to be a publicly
owned corporation having its outstanding Common Stock listed on the New York
Stock Exchange, the NASDAQ Stock Market or the American Stock Exchange.
(h) "Projected Compensation" shall mean (i) for any calendar
year throughout which the Employee is employed by the Corporation, his
Compensation (as defined in paragraph 3(b) hereof) for such year, and (ii) for
any calendar year during or after which his employment has been terminated,
the compensation the Employee would have received for such year if he had
received (A) salary at a rate determined by projecting his annual rate of
salary at the end of the last full calendar year of his employment forward at
an annual rate of increase equal to 5% in excess of the annual percentage
change in the Consumer Price Index as published by the U.S. Bureau of Labor
Statistics for the last full year of his employment and (B) a bonus each year
equal to fifty percent (50%) of his salary as thus projected.
4. If, prior to his Normal Retirement Date, the Employee shall
voluntarily terminate his employment with the Corporation without Good Reason
or his employment shall be terminated by the Corporation for Cause, he shall
thereby forfeit all rights and benefits under this Agreement. If the
employment of the Employee shall be terminated on or after his Normal
Retirement Date, the Employee shall voluntarily terminate his employment for
Good Reason or the employment of the Employee shall be terminated by the
Corporation without Cause, this Agreement shall continue in full force and
effect, and the Employee shall become entitled to the rights and benefits
hereinafter set forth upon the occurrence of the events respectively giving
rise thereto.
5. If the Employee shall remain in the employ of the Corporation
until and shall reach his Normal Retirement Date, he shall be entitled to
receive a supplemental retirement benefit under this Agreement which shall be
at an annual rate equal to fifty percent (50%) of the Employee's average
annual Compensation during those five (5) calendar years in which such
Compensation was highest during the ten (10) calendar years immediately
preceding his actual retirement date. Such supplemental retirement benefit
shall commence on the Employee's actual retirement date and shall be payable
in one of the benefit payment forms described in paragraph 9, as the Employee
shall elect.
6. If the Employee's employment by the Corporation shall be
terminated (other than by reason of his death or disability or following a
Change in Control as described in paragraph 7 of this Agreement) prior to his
Normal Retirement Date under circumstances not resulting in his forfeiture of
benefits and rights under paragraph 4 of this Agreement, he shall be entitled
to receive a reduced supplemental retirement benefit under this Agreement
which shall be at an annual rate computed as follows:
(a) There shall first be determined the amount which is equal to
fifty percent (50%) of the Employee's average annual Compensation during those
five (5) calendar years in which such Compensation was highest during the ten
(10) calendar years immediately preceding the year in which the termination of
his employment occurs.
(b) The amount thus determined shall be multiplied by a fraction
in which the numerator shall be the number of full years of continuous service
the Employee shall have completed with the Corporation prior to the
termination of his employment and the denominator shall be the number of full
years of continuous service he would have completed had he remained in the
continuous service of the Corporation until his Normal Retirement Date.
Such reduced supplemental retirement benefit shall commence on the first day
of the month following the Employee's termination of employment and shall be
payable in one of the benefit payment forms described in paragraph 9, as the
Employee shall elect.
7. Anything in paragraphs 4 or 6 of this Agreement to the contrary
notwithstanding, if, prior to his Normal Retirement Date but after a Change in
Control of the Corporation shall have occurred, the Corporation shall
terminate the Employee's employment other than for Cause, disability, or death
or the employment of the Employee shall be terminated voluntarily by the
Employee for Good Reason, he shall be entitled to receive one of the following
supplemental retirement benefits:
(a) If the Employee has not attained the age of 55 on the date
his termination of employment occurs, a supplemental retirement benefit which
shall be at an annual rate equal to the amount by which fifty percent (50%)
of the Employee's average annual Projected Compensation during those five (5)
calendar years in which such Projected Compensation is highest during the ten
(10) calendar years immediately preceding the year in which he would have
attained age 55. Such supplemental retirement benefit shall commence on the
first day of the month following the month in which the Employee attains age
62 and shall be payable in one of the benefit payment forms described in
paragraph 9, as the Employee shall elect.
(b) If the employee has attained age 55 on the date his
termination of employment occurs, a supplemental retirement benefit which
shall be at an annual rate equal to fifty percent (50%) of the Employee's
average annual Compensation during those five (5) calendar years in which such
Compensation was highest during the ten (10) calendar years immediately
preceding the year in which the termination of his employment occurs. Such
supplemental retirement benefit shall commence on the first day of the month
following the month in which the Employee attains age 62 and shall be payable
in one of the benefit payment forms described in paragraph 9, as the Employee
shall elect.
(c) At the election of the Employee, a lump sum payment in an
amount which shall be the single sum Actuarial Equivalent value as of the date
of termination of the Employee's employment by the Corporation of the benefit
to which the Employee would have been entitled under paragraph 7(a) or 7(b) of
this Agreement. Such supplemental retirement benefit shall be paid to the
Employee not later than fifteen (15) days following the date of termination of
the Employee's employment by the Corporation.
8. If in the opinion of the Corporation the Employee becomes totally
and permanently disabled at any time while in the employment of the
Corporation, he shall become entitled to a disability benefit which shall be
at an annual rate equal to the amount by which
(a) seventy-five percent (75%) of the Employee's average annual
Compensation during those five (5) calendar years in which such Compensation
was highest during the ten (10) calendar years preceding the year in which his
disability occurs
exceeds
(b) the annual benefit which the Employee would be entitled to
receive under the Corporation's long term disability insurance program if he
was then eligible for benefits thereunder (regardless of whether he
participates in said program);
provided, however, that if the Employee is not entitled to receive any benefit
under said program, the disability benefit to which he is entitled hereunder
shall be in an amount equal to forty percent (40%) of the Employee's average
annual Compensation determined as provided in sub-paragraph (a) above, and
provided further that the disability benefit to which the Employee is entitled
hereunder shall in no event be less than five percent (5%) of his average
annual Compensation determined as provided in sub-paragraph (a) above. Such
disability benefit shall be payable in equal monthly installments, the first
payment to be made on the first day of the month following that in which the
Employee's salary is terminated because of such disability, and payments shall
be made on the first day of each month thereafter so long as such total
disability subsists and the Employee lives; provided, however, if the Employee
lives until his Normal Retirement Date, he may thereupon elect to receive, in
lieu of the disability benefit he had been receiving under this paragraph, the
supplemental retirement benefit to which he would then be entitled under
paragraph 6 if his employment by the Corporation had terminated other than by
reason of disability on the date his disability occurred.
9. The normal form in which the benefit payable under paragraphs 5,
6, 7(a) or 7(b) of this Agreement shall be paid shall be a monthly benefit
payable for life and without refund. In lieu of such normal benefit payment
form, the Employee may elect to receive his benefit hereunder in the form of a
monthly benefit payable for life with a period certain of up to 180 months, in
the form of a monthly benefit payable for a period certain, or in the form of
a monthly benefit payable for life with continuation of such payments (or a
specified percentage thereof) to such beneficiary as the Employee may
designate for the life of such beneficiary ("Joint and Survivor Annuity").
The amount of benefit payable under each such alternative benefit payment form
shall be the Actuarial Equivalent of the benefit payable in the normal form to
which the Employee would otherwise be entitled hereunder. Any election of an
alternative benefit payment form shall be made in writing and may be changed
or rescinded by the Employee at any time prior to the date on which benefit
payments are to commence. The Employee shall have the right to designate in
writing the beneficiary or beneficiaries to receive the benefit, if any, which
is payable under any benefit payment form after the Employee's death and may
change his designation of beneficiary from time to time, at any time prior to
the date on which benefit payments are to commence. If there shall be no
beneficiary designated and surviving at the Employee's death, the estate of
the Employee shall be the beneficiary. Whenever any benefits hereunder become
payable to the beneficiary of the Employee, the Corporation may, in its
discretion, authorize payment of such benefits to the beneficiary in a single
lump sum which is the Actuarial Equivalent of such benefits.
Anything in this paragraph 9 to the contrary notwithstanding, at any
time after the date on which benefit payments commence, the Employee may elect
to receive his benefits hereunder in a single lump sum in an amount which is
equal to 90% of the Actuarial Equivalent of the benefit payable in the normal
form to which the Employee is otherwise entitled hereunder on the date as of
which such election is made.
10. If the Employee shall die while currently receiving a benefit
under the provisions of paragraphs 5, 6, 7(a) or 7(b) of this Agreement and
the Employee shall have elected a benefit payment form other than a monthly
benefit payable for life with no period certain, any benefits payable after
his death shall be paid to his beneficiary in accordance with the provisions
of the benefit payment form elected by the Employee. If the Employee shall
die after having reached his Normal Retirement Date but prior to his actual
retirement date and the Employee shall have elected a benefit payment form
other than a monthly benefit payable for life with no period certain, benefits
shall be paid to his beneficiary as if the Employee had commenced to receive
benefits hereunder on the first day of the month in which his death occurred.
If the Employee shall die while in the active employ of the Corporation but
prior to his Normal Retirement Date, or if the Employee shall die after having
become entitled to receive a disability benefit under paragraph 8 but prior to
his Normal Retirement Date, a death benefit shall be paid to the Employee's
beneficiary, in lieu of any other benefit under this Agreement, which shall be
at an annual rate equal to fifty percent (50%) of the Employee's average
annual Compensation during those five (5) calendar years in which such
Compensation was highest during the ten (10) calendar years immediately
preceding the year in which his death occurs or the year in which his
disability occurred, as the case may be. Such death benefit, which shall be
in addition to any Company Plan Benefit or benefits under any group life
insurance plan sponsored by the Corporation which is payable on account of the
Employee's death, shall be payable in equal monthly installments beginning on
the first day of the month following that in which the death of the Employee
occurs and continuing thereafter for a period certain of 120 months; provided
that the Beneficiary entitled thereto may elect to have such benefit paid in
any of the forms described in paragraph 9, except a Joint and Survivor
Annuity, in an amount which is the Actuarial Equivalent of the form of benefit
otherwise payable under this paragraph.
If the Employee shall die after having become entitled to a benefit
under paragraph 7(a) or 7(b) hereof but prior to attaining age 62, a death
benefit shall be paid to the Employee's beneficiary, in lieu of any other
benefit under this Agreement, which shall be the single sum Actuarial
Equivalent value as of the Employee's death of the benefit to which he would
have been entitled had he survived to age 62. Such death benefit shall be
payable in a lump sum as soon as practicable after the Employee's death;
provided that the beneficiary entitled thereto may elect to have such death
benefit paid in any of the forms described in paragraph 9 except a Joint and
Survivor Annuity.
11. Anything in this Agreement to the contrary notwithstanding, if at
any time following termination of his employment with the Corporation the
Employee shall directly or indirectly compete with the Corporation (which
shall be deemed to include any subsidiary or affiliate of the Corporation),
whether as an individual proprietor or entrepreneur or as an officer,
employee, partner, stockholder, or in any capacity connected with any
enterprise, in any business in which the Corporation is engaged at the time of
the termination of the Employee's employment within any state or possession of
the United States of America or any foreign country within which business is
then specifically planned by the Corporation to be conducted, the Corporation
may suspend the payment of any benefits hereunder to the Employee until such
competition shall have ceased, and in the event such competition by the
Employee shall not have ceased to the satisfaction of the Corporation within
90 days after the Corporation shall have given written notice to the Employee
to cease the conduct thereof, the Corporation may at any time thereafter
terminate its obligations under this Agreement. For the purpose of the
preceding sentence, conducting business, doing business, or engaging in
business shall be deemed to embrace sales to customers or performance of
services for customers who are within a relevant geographical area, without
any necessity of any presence of the Corporation therein. Nothing herein,
however, shall prohibit the Employee from acquiring or holding any issue of
stock or securities of any company which has any securities listed on a
national exchange or quoted in the daily listing of over-the-counter market
securities, provided that at any one time he and members of his immediate
family do not own more than five percent (5%) of the voting securities of any
such company.
12. This Agreement is an unfunded plan maintained for the purpose of
providing deferred compensation for one of a select group of management or
highly compensated employees for purposes of Title I of the Employee
Retirement Income Security Act of 1974. The Corporation will make all benefit
payments hereunder solely on a current disbursement basis out of the general
assets of the Corporation, including without limitation from assets held in
any grantor trust established by the Corporation for the purpose of making
some or all of such payments.
13. This Agreement shall bind and run to the benefit of the
successors and assigns of the Corporation, including any corporation or other
form of business organization with which it may merge or consolidate or to
which it may transfer substantially all of its assets.
14. The rights of the Employee under this Agreement shall not be
assigned, hypothecated, or otherwise transferred in any manner.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the Employee has hereunto signed his name and
Crompton & Knowles Corporation has caused this instrument to be executed in
its name and on its behalf by its duly authorized officer, as of the 22 day of
March, 1999.
___________________________
Employee
CROMPTON & KNOWLES CORPORATION
By:_________________________
Its:
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<FISCAL-YEAR-END> DEC-25-1999
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