-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PAGMGDRATrakxBAEWFkDBKB4Y/NqYNVEBChAcS9dsEm9p3jmuqE8Qj0ps/OUMyGV M2s5fJ1fNabeXZlmNlGqCg== 0000025757-99-000022.txt : 19990512 0000025757-99-000022.hdr.sgml : 19990512 ACCESSION NUMBER: 0000025757-99-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990327 FILED AS OF DATE: 19990511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROMPTON & KNOWLES CORP CENTRAL INDEX KEY: 0000025757 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 041218720 STATE OF INCORPORATION: MA FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04663 FILM NUMBER: 99617011 BUSINESS ADDRESS: STREET 1: ONE STATION PL STREET 2: METRO CTR CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033535400 MAIL ADDRESS: STREET 1: ONE STATION PLACE STREET 2: METRO CENTER CITY: STAMFORD STATE: CT ZIP: 06902 10-Q 1 CROMPTON & KNOWLES CORPORATION 1ST QTR. 1999 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 EX-10.1 2 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: EX-10.2 3 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: EX-27 4
5 0000025757 CROMPTON & KNOWLES CORPORATION 1,000 3-MOS DEC-25-1999 MAR-27-1999 18238 0 207942 10111 323779 632268 445171 424524 1396803 368577 686700 0 0 7733 42847 1396803 396292 396292 247295 330975 (40706) 1218 13154 92869 33666 59203 0 0 0 59203 .87 .86
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